Wage support mechanism, interest subvention for Covid-hit MSMEs should be considered by govt: Assocham

By: |
June 02, 2021 6:47 PM

The industry body said that the surplus funds of Employees State Insurance Corporation (ESIC) should be used for providing wage support measures/stimulus package for MSME employees.

The government’s plan, as outlined in the Union budget for 21-22, is to create an ARC and an AMC to take over and resolve bad loans.The government had announced additional assistance of up to 10 per cent of the outstanding credit as of February 29, 2020, to borrowers covered under ECLGS 1.0 as per the RBI guidelines.

In order to help Covid-hit MSMEs recover, the government should consider wage support mechanism and interest subvention, an Assocham paper said on Wednesday. Suggesting measures to the government for protection of employment among MSMEs, the industry body said that the surplus funds of Employees State Insurance Corporation (ESIC) should be used for providing wage support measures/stimulus package for the employees. The request came days after the government had announced the extension of the Emergency Credit Guarantee Scheme (ECLGS) from March till September 2021 to sanction guarantees worth Rs 3 lakh crore.

“This is time to support and spend without giving too much focus on the fiscal parameters. I am sure, the RBI and the government are constantly working on innovative solutions to keep infusing cash into the system despite an understandable revenue pressure,” said Deepak Sood, Secretary General, Assocham in a statement. He added that the government’s Ease of Doing Business and Competitive Manufacturing focus needs to go in overdrive with reforms to the Electricity Act, Unified Tariff and Unbundling of Natural Gas, removal of old and redundant laws for a fantastic economic rebound post-pandemic.

Assocham also sought interest subvention for the trade and industry with validity till March 31, 2022, especially, for micro and small businesses. Likewise, NPA norms should be relaxed for MSMEs, if not for all industries. “As cash flow cycles have been affected and businesses have not been able to realize receivables on time, it will be helpful if one-time relaxation in recognizing NPAs is provided, extending the past due norm from 90 days to 180 days,” it added.

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The RBI had last month announced Resolution Framework 2.0 to allow individuals, small businesses, and MSMEs — with loans up to Rs 25 crore and who have not availed restructuring under Resolution Framework 1.0 and others and were classified as ‘Standard’ as on March 31, 2021 — avail one-time restructuring under the proposed framework till September 30, 2021. For those who had already availed restructuring under last year’s Resolution Framework 1.0, Governor Shaktikanta Das had allowed banks to modify their plans to increase the period of the moratorium and/or extend the residual tenor up to a total of two years.

Particularly for the hospitality sector, Assocham suggested allowing GST input credit for restaurants. “The restaurant industry is the only sector that is not allowed to claim tax credits under the current GST regime. This undermines the stated objective of bringing more businesses into the organized fold and heavily increases the capital expenditure.”

According to the hospitality body Federation of Hotel & Restaurant Associations of India (FHRAI), the hotel sector’s total revenue declined around 75 per cent in the last financial year. The revenue hit was near Rs 1.30 lakh crore in FY21 vis-à-vis Rs 1.82 lakh crore in FY20. The sector’s revenue at the beginning of 2021 was under 20 per cent of pre-pandemic levels and since April 2021 the revenue hasn’t crossed 5 per cent, the body had said in a statement on Wednesday.

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