Covid 19:  Relief Measures to small businesses in India. Atmanirbhar Bharat Abhiyan.

"Atmanirbhar" means self sufficient or self-independent

 

The Micro, Small and Medium Enterprise (MSME) sector plays an important role in India’s economy by making significant contribution to manufacturing output, creating employment, exports and especially by providing inclusive growth in the country. MSMEs are considered as the backbone of India, because when they flourish, the economy of the country also grows. Having recognised the MSME sector as the engine of a growing India, the Government of India has effected several policies and support measures since independence to strengthen the sector.

Some of the important policies and support measures are listed below –

·     The Micro, Small and Medium Enterprises Development Organisation (earlier known as Small Industries Development Organization (SIDO)) was set up in 1954 as an apex body for sustained and organised growth of MSMEs. Within next two years, the National Small Industries Corporation, the Khadi and Village Industries Commission and the Coir Board were also set up.

·   The new Policy for Small, Tiny and Village Enterprises of August, 1991 laid the framework for Government support in the context of liberalisation, which sought to replace protection with competitiveness to infuse more vitality and growth to MSEs in the face of foreign competition and open market.

·       The Ministry of MSME (earlier known as Ministry of Small Scale Industries and Agro & Rural Industries (SSI & ARI)) came into being from 1999 to provide focused attention to the development and promotion of the sector.

·     In 2014, the Government of India launched a swadeshi movement called “Make in India” to encourage companies to manufacture their products in India. Ever since, several measures such as Solar Chakra Mission, Udyam Snagam, MSME Sampark, MSME Sambandh, etc have been launched to enthuse the MSME sector to become a vibrant and dynamic sector of the Indian economy. 

 

The Micro, Small and Medium Enterprises Development Act was enacted in 2006 and aims at facilitating the promotion, development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. This Act provides for specific funds for promotion and development of these enterprises, progressive credit policies, economic and technical support and eased doing of business. 

 

In 2020, the COVID 19 pandemic has threatened the Indian economy resulting in the possibility of a breakdown of the MSME sector. However, the Government of India has been quick to respond with measures to safeguard the MSME sector and announced the ‘Atmanirbhar Bharat’ scheme on 13 May 2020. 

 

As part of the scheme, the definition of MSME has been revised with an upwards revision in the investment limits as below. However, the notification amending the law is yet to be announced: 

 

Existing MSME Classification

Rs. 1 crore = USD 133,333

Criteria : Investment in Plant & Machinery or Equipment. Amount in Indian Rupees

Classification

Micro

Small

Medium

Manufacturing Enterprises

Investment < 25 lakhs

Investment < 5 crores

Investment < 10 crores

Services Enterprises

Investment < 10 lakhs

Investment < 2 crores

Investment < 5 crores

 Proposed Revised MSME Classification

Composite Criteria : Investment and Annual Turnover. Amount in Indian Rupees

Micro

Small

Medium

Investment < 1 crore and Turnover < 5 crores

Investment < 10 crores and Turnover < 50 crores

Investment < 20 crores (further revised to 50 crore) and Turnover < 100 crores (further revised to 250 crores)

 

Apart from the revision in definition, the following other measures were announced to revive the growth of MSMEs in this time of economic slowdown due to COVID-19 crisis.

 

1.    Credit Guarantee Scheme – The Credit Guarantee Scheme offers unsecured loan facilities to MSME businesses. MSME businesses can avail term loans or working capital loans under the scheme. These loans would be collateral free and would not require MSMEs to pledge any security or arrange for third party guarantee for availing credit. If the MSME, which has availed a loan under the Credit Guarantee Scheme, becomes sick due to reasons beyond the control of the organisation, the lender also provides rehabilitation facility to such MSMEs. This assistance is provided under the guarantee scheme.

 

The credit guarantee with an additional amount of Rs.3 lakh crore by the Government is intended to help MSMEs, that have a Rs.25 crore outstanding loan or less than Rs.100 crore turnover. This provision will rescue MSMEs that need additional funding to meet operational liabilities and restart operations. Salient Features are –

·         100% credit guarantee cover on principal and interest (earlier it was 75% credit guarantee)

·         With a new 12 months’ moratorium on payment of principal

·         Tenor – 4 years

·         Last date to avail scheme – 31 October 2020

 

2.    Subordinate debt for NPA/stressed MSMEs – The Government has made provision for Rs. 20,000 crores as subordinate debt to help MSMEs with stressed accounts or non-performing assets (NPA). Under this scheme, the promoters of the MSME will be given debt equal to 15% of his existing stake in the MSME unit, subject to a maximum of Rs.75 lakhs, which then the promoter will have to infuse as equity. This subordinate debt to be provided by banks, would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for the Medium and Small Entrepreneurs (CGTMSE).

 

3.    Fund of Funds – The Government has created a fund with a corpus of Rs.50,000 crores for MSMEs with growth potential and viability. The objective of this fund is to infuse equity to help MSMEs expand and grow. While the Government is likely to contribute Rs.10,000 crores, while other institutions like SBI and LIC are likely to fund the remaining amount. This fund, which will operate through a mother fund and a few daughter funds, will also help MSMEs get listed on the main board of stock exchanges.

 

The objective of this scheme is to encourage high rated MSMEs to explore public markets, instead of banks for their capital requirements, wherein the Government will buy 15 per cent of the amount raised as equity stake from the Fund of Funds. This gives a clear message to small businesses to not just leverage bank funding only, but also their own equity otherwise they will create huge stress on their own as well as a bank’s balance sheet. The fund aims to help MSMEs with “growth potential and viability” even as they “face severe shortage of equity”.

 

4.    Indian MSMEs and other companies have often faced unfair competition from foreign companies. Therefore, Global tenders will be disallowed in Government procurement tenders upto Rs 200 crores.

 

5.    Government of India and Central Public Sector Enterprises to clear all receivables due to MSMEs in the next 45 days.

 

6.    A reduction of 25% on the existing rate on the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) from May 14, 2020 to March 31, 2021.

 

7.    The Vivaad se Vishwas Scheme, addressing disputes on indirect tax payments, has been extended till December 31, 2020. The Scheme details are at a highlevel as mentioned below:

 

Tax Payment made  

In appeals, writ, SLP, arbitration related to disputed tax

In appeals, writ, SLP, arbitration related to disputed penalty or interest or fee

On or before 31 December 2020

100% of the disputed tax (125% in search cases) [waiver of interest & penalty]

25% of the disputed penalty or interest or fee

After 31 December 2020

110% of the disputed tax (135% in search cases) [waiver of interest & penalty]

30% of the disputed penalty or interest or fee

 

These financial incentives are expected to revive and restor the MSME sector and help the country be self-reliant under the Atmanirbhar Bharat Abhiyan.

 

We had earlier written about the impact of the economic downturn for MSME in September 2019 https://www.novojuris.com/thought-leadership/economic-downturn-double-impact-for-msmes

The biggest issue is non-receipt of money for the goods sold or services rendered. If all corporates and businesses consciously release the payments as per the agreed payment cycle, we think it would be an incredible push, perhaps much more than easier loan approvals. Perhaps, the business houses should incentivise its employees on meeting the payment cycles, rather than how delayed the payments were made.

Further, it would be also helpful if the MSME department provides for entity details like Ministry of Company Affairs for all the companies and LLPs on its website www.mca.gov.in 

 

 

Author: NovoJuris Legal

 

 

References : http://dcmsme.gov.in/ssiindia/MSME_OVERVIEW09.pdf

https://msme.gov.in/whatsnew/atmanirbhar-presentation-part-1-business-including-msmes-13-5-2020

 

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