The Union Finance Minister recently unveiled a series of liquidity measures to support businesses, particularly Micro, Small, and Medium enterprises (MSMEs). These measures are part of the first tranche of the Atmanirbhar Bharat Abhiyan and an integral aspect of the Rs. 20-lakh-crore economic stimulus package designed to combat the effects of the Covid-19 pandemic. This economic stimulus encompasses liquidity financing measures and credit guarantees.
Support for Salaried Workers and Taxpayers
Key announcements were made to alleviate the pressure on salaried workers and taxpayers. The due date for income tax returns for financial year 2019-20 has been extended to November 30, 2020. The rates of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) have been reduced by 25% for the FY 2020-21. Provident Fund (PF) payments have been decreased from 12% to 10% for both employers and employees for the next three months.
Assistance to NBFCs, Housing Finance Companies and Microfinance Institutions
Many of these institutions cater to the MSMEs financially and will receive support through a Rs.30,000 crore investment scheme fully guaranteed by the Centre. Additionally, an expanded partial credit guarantee scheme worth Rs.45,000 crores has also been proposed, wherein the first 20% of losses will be borne by the Centre.
Aid for Power Distribution Companies
Power distribution companies, currently facing a tremendous cash flow crisis, are due to receive a Rs. 90,000 crore liquidity injection. This measure is expected to alleviate their financial difficulties.
Real Estate and Contractor Support
Contractors will receive a six-month extension for work completion from all Central agencies, along with partial bank guarantees to ease their cash flows. Registered real estate projects will also get a six-month extension for registration and completion under the Real Estate (Regulation and Development) Act (RERA), with Covid-19 being treated as a “force majeure” event.
Global Tenders to be Disallowed
To safeguard the interests of Indian MSMEs and other companies from unfair competition, global tenders will be disallowed in government procurement tenders upto Rs 200 crores.
Liquidity Measures for MSMEs
The definition of MSMEs has been widened to allow for higher investment limits and the inclusion of turnover-based criteria. The government will offer credit guarantees for MSMEs instead of directly injecting money into the economy, including collateral-free loans worth Rs. 3 lakh crores.
Emergency Credit Line and Subordinate Debt Scheme
MSMEs can access an emergency credit line that ensures working capital to resume business activities and safeguard jobs. The provision is available for MSMEs with an outstanding loan of Rs. 25 crore or less and a turnover below Rs 100 crore. These loans will have a tenure of 4 years with a moratorium of 12 months.
Equity Infusion and Credit Guarantees to MSMEs
The government will set up a Fund of Funds with a corpus of Rs 10,000 crores to provide equity funding to MSMEs with high growth potential and viability. Credit Guarantee Schemes assure the bank that the government will repay its loan if the MSME fails to do so, thereby solving the dual issue of reluctant lending by banks and insufficient government funds for direct economic aid.
Overall Implications of Economic Stimulus
The announced stimulus measures mainly focus on supply side measures, aiming to activate businesses in the MSME, real estate, and NBFC sectors. For a holistic revival, the Indian economy requires both supply and demand side measures.