Govt focuses on revival of MSME sector as first tranche of Rs 20 lakh crore stimulus package announced

Following up on Prime Minister Narendra Modi's announcement of Rs 20 lakh crore stimulus package to restart the economy hit by the coronavirus pandemic, Union Finance Minister Nirmala Sitharaman on Wednesday laid out a comprehensive plan focused on the revival of cash-strapped MSME sector. 

In the first part of a series of announcements, Sitharaman said measures are focused on 'Getting back to work' which means enabling employees and employers, businesses, especially Micro Small and Medium Enterprises, to get back to production and workers back to gainful employment.

Sitharaman announced Rs 3 lakh crore emergency working capital facility for businesses, including MSMEs. 

To provide relief to the business, additional working capital finance of 20% of the outstanding credit as on 29 February 2020, in the form of a Term Loan at a concessional rate of interest will be provided, the minister said. These loans will be provided on collateral-free automatic mode which means that the units will not have to provide any guarantee or collateral of their own. 

The amount will be 100% guaranteed by the government providing a total liquidity of Rs 3 lakh crores to more than 45 lakh MSMEs, a press release by the Ministry of Finance said. 

This will be available to units with upto Rs 25 crore outstanding and turnover of up to Rs 100 crore whose accounts are standard. 

The government has also made a provision of Rs 20,000 crore subordinate debt for two lakh MSMEs which are NPA or are stressed. The government will support these firs, with Rs 4,000 crore to Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). 

Banks are expected to provide the subordinate-debt to promoters of such MSMEs equal to 15% of his existing stake in the unit subject to a maximum of Rs 75 lakhs, the ministry said.

Besides Rs 50,000 crore of equity infusion will be made through MSME fund of funds. The government will set up a Fund of Funds with a corpus of Rs 10,000 crore that will provide equity funding support for MSMEs. 

The Fund of Funds will be operated through a Mother and a few Daughter funds, Sitharaman announced. It is expected that with leverage of 1:4 at the level of daughter funds, the Fund of Funds will be able to mobilise equity of about Rs 50,000 crores, she said. 

The government will also revise the definition of MSME which has been a long-pending demand of the industry, the minister said. 

Definition of MSME will be revised by raising the Investment limit, she said, adding that additional criteria of turnover also being introduced. The distinction between manufacturing and service sector will also be eliminated. 

Units with investment up to Rs 1 crore or turnover up to Rs 5 crore will be called micro units. Similarly, criteria for small and medium units have been changed.

To promote Indian MSMEs, global tenders will be disallowed in government procurement upto Rs 200 crore. 

Besides, e-market linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions. MSME receivables from Government and CPSEs will be released in 45 days, the government has said.