Rs 20 Lakh Crore Booster Shot: Sitharaman Unveils First Instalment Aimed at MSMEs, NBFCs, Discoms

The total value of announcements made today run up to nearly Rs 6 lakh crore, but most of it is heavily credit-focused. It is unclear therefore how much of this will result in direct and additional spending by the Centre.

New Delhi: Finance minister Nirmala Sitharaman on Wednesday announced a host of measures aimed at helping ease the liquidity and financial concerns of India’s micro, small and medium enterprises (MSMEs), which have been hit hard by the COVID-19 lockdown.

Sitharaman also unveiled a special liquidity scheme worth Rs 30,000 crore for non-banking financial companies, housing finance companies and microfinance institutions and a separate plan to infuse Rs 90,000 crore into power distribution companies.

The measures – which are the first tranche of the broader Rs 20 lakh crore package announced by Prime Minister Narendra Modi on May 12 – include government guarantee for Rs 3 lakh crore worth of collateral-free automatic loans, a subordinate debt programme and a number of relaxations on the EPF and TDS  front.

Other components of Modi’s package are still unknown and will be unveiled by the finance ministry over the next few days through a series of planned daily briefings.

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“Essentially, this is to spur growth and to build a self-reliant India. That is why this initiative is called ‘Atmanirbhar Bharat Abhiyan’,” the finance minister said, adding this would not mean that India would become an “isolationist country

The mission is to make a confident nation and the intention is to build local brands and take them to the global level, she added.

While the total value of the announcements made by the finance minister today run up to nearly Rs 6 lakh crore, it is unclear how much of this will result in direct and additional spending by the Centre.

To a question on the cash outgo given today’s relief measures, Sitharaman responded by merely saying that journalists should wait for all announcements over the coming days.

The Congress Party has criticised the announcements, saying that there was little focus on the demand-side of the economic crisis.

“The Finance Minister announced some support measures for MSMEs, although my comment is, the measures were skewed in favour of the larger MSMEs – about 45 lakh MSMEs. I think the bulk of the 6.3 crore MSMEs were left high and dry,” said former finance minister P Chidambaram.

“We welcome the offer of subordinate debt (Rs 20,000 crore) and equity corpus fund (Rs 10,000 crore), but we will await the ‘terms and conditions’.  The devil is in the detail.  On the credit guarantee fund, It is not the entire Fund that will be actually spent. The expenditure will be limited to the extent of NPAs in the outstanding guaranteed credit to MSMEs. Assuming an NPA level of 20-50 per cent, the actual expenditure over the period of the loans (which may be years) will be a maximum of Rs 3,00,000 crore.”

Full list

Sitharaman announced 16 steps today – six measures for MSMEs, two measures related to EPF, two related to NBFCs, HFCs and MFIs, one or discoms, one for real estates in addition to three other tax measures.

The full list of announcements is as follows:

  • Rs 3 lakh crore collateral-free automatic loans for business, including MSMEs. Emergency credit line to Businesses/MSMEs from Banks and NBFCs up to 20% of entire outstanding credit as on February 29, 2020. Borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover eligible. Loans to have a 4 year tenor with moratorium of 12 months on Principal repayment. Interest to be capped.100% credit guarantee cover to Banks and NBFCs on principal and interest.
  • Rs 20,000 crore subordinate debt for MSMEs.
  • Rs 50,000 crore equity infusion through MSME Fund of Funds.
  • New definition of MSMEs that will allow the to grow without losing government benefits.
  • Global tenders worth up to Rs 200 crore will now be disallowed.
  • Rs 2500 crore EPF support for businesses and workers for three more months
  • EPF contribution reduced for business and workers for 3 months – Rs 6750 crore.
  • Rs 30,000 crore liquidity facility for NBFC/HCs/MFIs
  • Rs 45,000 crore partial credit guarantee scheme 2.0 for NBFC
  • Rs 90,000 crore liquidity injection for DISCOMs
  • The rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts shall be reduced by 25% of the existing rates. This reduction shall be applicable for the remaining part of the FY 2020-21 i.e. from tomorrow to 31st March, 2021. This measure will release liquidity of Rs. 50,000 crore.
  • Extension of registration and completion date of real estate projects under RERA
  • Due date of all income-tax return for FY 2019-20 will be extended from 31st July, 2020 & 31st October, 2020 to 30th November, 2020 and Tax audit from 30th September, 2020 to 31st October,2020.