The Indian economy has witnessed a major setback due to the coronavirus outbreak. The finance ministry has been sharing relief measures for businesses and taxpayers to combat the loss in business and trade due to the lockdown. There have been several latest decisions taken by the finance ministry in the recently held 40th GST Council Meeting.
At this time of crises, MSMEs i.e. the Micro, Small, and Medium size businesses have been affected supremely. The MSMEs are the ones that offer employment to a major portion of the economically weaker sections of the country. They are the backbone of our business ecosystem. So, to compensate for their loss and to offer them support, the government has announced a few relief measures for the MSMEs.
The measures released by the government for MSMEs:
1. Collateral-free Automatic Loans upto INR 3 Lakh Crore
Government has introduced collateral-free automatic loans up to INR 3,00,000 Crore. MSMEs can borrow emergency credit from banks and NBFCs up to 20% of their entire outstanding credit as on Feb 29, 2020. These loans are available for businesses with up to INR 25 Crore outstanding and INR 100 Crore turnover only; that’s the eligibility requirement. The businesses will have a 4-year tenor and a moratorium of 12 months on the principal payment. The government has provided a full credit guarantee to lenders on the principal + interest amount. The scheme has been made available till 31 October 2020.
2. Subordinate Debt – INR 20,000 Crore
The government has announced INR 20,000 Crore as subordinate debt. The medium, small and micro-size businesses who have declared NPAs (Non-Performing Asset) or those stressed will be eligible for equity support. The finance ministry will also offer INR 4000 Crore to CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) in order to provide partial credit guarantee and support to the banks and NBFCs for lending MSMEs.
3. Equity Infusion – INR 50,000 Crore
For MSMEs, the government is set to infuse INR 50,000 Crore in ‘equity’ through a fund of funds. It will be operated through a mother fund and a few daughter funds. The fund Structure will help leverage INR 50,000 Crore of funds at daughter funds level. A corpus of INR 10,000 crore will be set
4. Forbidden Global tenders
In order to address the problem of unfair competition between Indian MSMEs and foreign companies, the government has taken the decision to not allow global tenders in procurements up to INR 200 Crore. The foreign companies who are far ahead in size and strength thus become a threat to our home companies. This will help MSMEs to cope up during this time of crises.
5. MSME Dues
The finance ministry has given an assurance that the government and the central public sector enterprises will release all pending MSME payments/dues in 45 days. Update from the government also states that fintech enterprises will be used to boost transaction-based lending in this sector and the data will be used by the e-marketplace.
6. Redefining MSMEs
Finance Minister revised the definition of MSMEs to a new one so as to address the developing fear of out-growing in size and losing out on the benefits. According to the new definition, there will be no bifurcation. Manufacturing and Service sector businesses will be defined under a common metric. It will be a mix of equipment and turnover and investment in plants and machinery. Let us understand the difference between the old and new definition provided by the government.
Old Definition of MSMEs is as following:
| Manufacturing Sector | Services Sector |
|---|---|
| Micro Enterprises
– Investment less than INR 0.25 crore |
Micro Enterprises
– Investment less than INR 0.1 crore |
| Small Enterprises
– Investment less than INR 5 crore |
Small Enterprises
– Investment less than INR 2 crore |
| Medium Enterprises
– Investment less than 10 crore |
Medium Enterprises
– Investment less than 5 crore |
The New Definition of the MSMEs:
The new definition combines Manufacturing and Service sector MSMEs, allowing them to enjoy the same benefits.
| Manufacturing and Service Sectors | Investment (In INR) | Turnover (In INR) |
|---|---|---|
| Micro Enterprises | Less than 1 crore | Under 5 crore |
| Small Enterprises | Less than 10 crore | Under 50 crore |
| Medium Enterprises | Less than 20 crore | Under 100 crore |
Along with these, the government has released several other COVID-19 relief measures for all kinds of taxpayers. Here are the following for your reference:
- Lockdown 1: COVID 19 Relief measures introduced on 24th March 2020
- Advisory for Composition Dealers amidst COVID 19
- Form PMT 09 for transfer of E-Cash Ledger Balance
- Clarification Issued by CBIC for GST Refund Issues
- Lockdown 3.0: COVID 19 New Relief Measures issued in May
- Updates in GST Dues dates amidst COVID 19 Lockdown
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