Anushruti Singh
Just a day after Prime Minister Narendra Modi announced the Rs 20 lakh crore Aatmanirbhar Bharat package during his national address on Tuesday, the Finance Minister Nirmala Sitharaman shared the first tranche of the mega stimulus package. The first series of measures, that focussed on the relief to the MSME (micro small and medium enterprises) sector, has garnered positive reactions from the Indian Inc.
The first tranche that includes 15 different measures were more focussed on enabling employees and employers, businesses, especially MSMEs, to get back to production and workers back to employment.
Efforts to strengthen non-banking finance institutions (NBFCs), housing finance companies (HFCs), micro finance sector and power sector were also revealed. Additionally, tax relief to business, relief from contractual commitments to contractors in public procurement and compliance relief to real estate sector were also covered.
The revised definition of MSMEs remained the highlight of the FM announcement.
As part of which, investment limits have been raised and turnover is included; distinction between manufacturing and services is eliminated; Rs 3 lakh crore Emergency Working Capital Facility for businesses; Rs 20,000 crore subordinate debt benefit for stressed MSMEs; Rs 50,000 crore equity infusion through MSME Fund of Funds; and e-market linkage to MSMEs is ensured.
A booster package for MSMEs
Experts, analysts and entrepreneurs are of one belief that the package is a booster for the MSME sector and will directly impact nearly 45 lakh MSMEs.
Dun and Bradstreet India chief economist Arun Singh sees the stimulus package exceeding all expectations. He says, “The stimulus package is huge and will certainly kickstart the economic activity and fuel optimism.”
“The multiplier effect on the economy will depend on the length of implementation of the fiscal package. The government intends a broader and a comprehensive fiscal package which would ensure channelization of resources to all the segments of the economy and there is less concentration or benefit to only a certain section of the population,” he adds.
The revised definition of MSMEs is expected to include a greater number of firms within the definition of MSMEs.
Since this is a permanent change and not just confined to the current scenario, this is expected to help in the transition of the ‘mindset’ of firms. They would now aim to grow higher without the fear of losing out on the benefits given to MSMEs, Singh believes.
The amount allocated for Collateral free Automatic loans, Subordinate Debt for MSMEs and Equity infusion through MSME funds of Fund amounts to 76 per cent of the credit disbursed to MSMEs during FY20, he informs.
About Rs 450 billion loans were disbursed to MSMEs under collateral free loans during FY20.
“MSMEs that are likely to face increased risk averseness would benefit hugely from the Rs 200 bn subordinate loans announced for them,” believes Singh.
Delay in payments have long been a primary problem for the MSMEs. According to several reports, in 2018 an estimated Rs. 1.8 trillion was trapped in the balance sheet of India Inc. in the form of receivables, with MSMEs bearing the brunt of it.
Applauding the measures Ravi Venkatesan, chairman and founder of Global Alliance for Mass Entrepreneurship (GAME) shares that the stimulus will not just improve the morale of the MSME sector but will be a turning point in history for us as a country to emerge as a true economic power.
“It is time for small businesses to not just survive but thrive.”
He further adds, “The Rs 45,000 crore partial credit guarantee scheme for NBFCs will boost fresh lending to MSMEs and add much-needed confidence to mass entrepreneurs (individuals who hire 2-10 people) to embrace the “new normal” of a post-Covid world.”
The additional government support for e-market linkages for MSMEs is the need of the hour, helping local enterprises seize the opportunity and be part of global value chains. In addition, the up to Rs 3 lakh collateral-free loans increased moratorium of 12 months, and 100 per cent credit guarantee to banks and NBFCs should improve the risk-taking appetite of entrepreneurs.
“The focus on creating a ‘self-reliant India’ campaign with a global competitive spirit deeply resonates with our mission,” Venkatesan feels.
On the other hand, Kumar Rajagopalan, CEO, Retailers Association of India (RAI), sees steps such as reduction in TDS rates for payments keeping liquidity back with businesses. “The other is the 2 per cent reduction each in the EPF contribution of both, the employer and employee, which gives cash back in the hands of people who need it in the immediate term,” he notes.
Statutory relaxation, collateral-free loan support, debt relief and equity infusion are other measures that will play a big role in accelerating the revival of MSMEs, Rajagopalan adds.
However, as on date, retail is not covered under the MSME sector, he shares while talking about retailer issues particularly, and adds that RAI has spoken to the MSME Minister Nitin Gadkari to enable the same, so that millions of MSME retail enterprises too can reap the benefits.
“We will wait for it to happen,” he quips.
Much-needed liquidity boost
The government has also announced Rs 30,000 crores Special Liquidity Scheme for NBFC/HFC/MFIs and Rs 45,000 crores Partial Credit Guarantee Scheme 2.0 for liabilities of NBFCs/MFIs.
According to Kaushal Agarwal, chairman at the Guardians Real Estate Advisory, the government has intended to resurrect the economy by reviving sentiment.
“The Rs 30,000 crores infusion in NBFCs, HFCs and micro-finance companies with the help of debt papers and additional 20 per cent emergency credit line to businesses will directly impact the real estate sector and bring much required liquidity for construction and project completion.”
Additionally, the invoking of force majeure clause for registered real estate projects will protect the interest of developers, by extending the completion timeline by a duration of six months under RERA automatically, he adds.
Agarwal believes said that the same was much required as a lot many developers could face challenges of aligning construction workers and labourers for the next few months as a result of their migration.
“The 25 per cent TDS reduction will benefit existing homebuyers as it will leave additional money in their hands,” he points out.
On the other hand, Vikas Chaturvedi, CEO, Xanadu Realty hopes that the government should announce impactful measures to increase demand – be it through interest rate reductions, waiver of registration duty, tax incentives, subvention, and reduction of GST.
Roma Priya, Founder of Burgeon Law, a boutique law firm catering to startup investment ecosystem, says these steps give home-grown enterprises the necessary handholding. “Many of our startups are facing a crisis with the liabilities and are waiting to resume activity and engage their workforce, at least for the next quarter.”
Similarly, Meghna Suryakumar, founder and CEO, Crediwatch, a credit intelligence firm provides data insights to lenders, claims the revised MSME definition has been a long pending demand from multiple industry associations.
“While MSMEs have tried to remain within a particular size in order to benefit from the MSME tag in the past, the new definition will promote them into growing further in size and scale.”
Further reacting on global tenders barred from procurements up to Rs 200 crores, she explains, “The government’s e-procurement sites have typically been flooded by large foreign players, who bring unfair advantage in terms of pricing and size. MSMEs working as ancillary units (e.g. autos, infrastructure) lose the bidding on smaller deals. The move should improve the competitiveness of Indian MSMEs on government contracts.
“It should also see an increase in registration by MSMEs and mid-market businesses on such platforms.”
Suryakumar also feels the new terms should benefit as many as 45 lakh businesses. “We believe, setting the threshold for eligibility (Rs 25 crore outstanding and Rs 100 crore turnover) is helpful but it is yet to be seen whether public sector banks will underwrite such unsecured loans at a faster pace on the back of these terms. The real-need of the hour is to move to cash-flow based lending.”
The need for long term capital is expected to increase three months from now as businesses grapple with uncertain demand and high fixed costs, Suryakumar says while adding that the Rs 70,000 crore facility should assist stressed MSMEs in raising funds as the tide turns.
“While a technology-driven approach may pave a way to lower recurring costs in the future, the FM’s announcements should ease the stress of a large number of promoters, partnership firms and
small private limited entities. Coupled with lower TDS and TCS rates, the cash-in-hand should be prudently used by these MSMEs in the months to come.”
Startups wish for faster implementation
Entrepreneurs feel the measures also give a fillip to the startup ecosystem.
Ankur Mittal, co-founder at Inflection Point Ventures, a platform for angel investors and startups, states that it’s heartening to see openness to leveraging fin-tech to enhance transaction-based lending using data.
In addition, he hopes the policies and processes to avail the schemes are also well-defined and hassle-free for the enterprises “so that these initiatives translate into activity on the ground as soon as possible,” Mittal asserts.
Anuj Garg, co-founder and CEO, Inscripts, a Mumbai based product development company that built video conferencing product ‘Say Namaste’ opines that disallowing global tenders up to Rs 200 crores in government procurement will give Indian companies a big boost to participate and maybe even win lucrative government contracts.
“We hope the procedure to avail these services and benefits are less complicated,” adds Garg. On the other hand, Pankit Desai, co-founder and CEO, Sequretek, a cybersecurity company, shares, “A long-standing request of the industry to remove distinction between manufacturing and service business have also been addressed which will further make ease of doing business better.”
He further adds that the major announcement for startups like his is the fund of funds which is Rs 10,000 crore, that will help new-age companies acquire a much-needed runway.
While the reduction in EPF rates for one quarter, TDS rate reduction and pending IT refunds will help in creating additional liquidity in the near term, believes Anuj Aggarwal, co-founder and CFO at 247around, an after-sales service startup.
He, however, suggests there are other issues which would have been addressed. MSMEs – which don’t have existing loans or are not stressed/NPAs – fail to qualify for the emergency credit line. Due to this, according to Aggarwal, many small enterprises would not be able to solve their current issues like paying salaries, making vendor payments and buying material etc.
“We are still checking the finer details and discussing it with experts.” He further suggests that more direct and immediate benefits could help MSMEs to kickstart business. Like support in employee wages, income tax benefits, instant loans basis GST profile without any conditions, etc.
Other entrepreneurs and experts also are of opinion that through the economic stimulus package government’s intent is to not only support small businesses during these unprecedented times, but also to provide them with an opportunity to avail these benefits to sustain and grow.
“Overall, I think this economic stimulus will prove to be a game-changer for Indian businesses,” say Sandip Chhettri, COO, TradeIndia.com, an online B2B marketplace.
“Rs 3 lakh crore collateral-free automatic loans for businesses to meet operational liabilities, buy raw material and restart business. Without a doubt, this is going to be a great relief for the lockdown-hit MSMEs in every nook and corner country,” he believes.
Chhettri points out that the measures have addressed two other key issues of the sector, which were unfair competition from large foreign companies in the government procurement process and delayed payment. “These two long-pending demands are met in a single stroke.”
The new India
The stakeholders believe that the industry is at a pivotal intersection; and if these new economic reforms, as proposed by the government, are implemented – a new India will emerge.
V Deekshith Vara Prasad, founder and CEO, Air Ok Technologies, “Our greatest asset is our young generation who are capable, eager and available, but what we lack is opportunity. I feel this is the time for India to build its own indigenous infrastructure, its own industries and emerge as world leader.”
Most importantly, decisions taken for MSMEs would address the real crisis of supply chain management, which India has been facing since decades. There’s no doubt that this crisis made us realize the importance of local manufacturing.
“A 6-point strategy on the MSME sector would help this sector bloom and ensure that all our demands during any further crisis can be met locally. It’s not a one-day job, it’s a continuous process where people should build this country on this opportunity by initiating and availing new reforms.”
“Now it’s time to be vocal about our products and help local products go global,” Prasad concludes.
