India Announces Package for Micro, Small & Medium Enterprises During COVID-19

The Indian Government has announced a package of US$2680 billion—20 lakh crore rupees, which equates to approximately 10% of Gross Domestic Product (GDP)—for the country’s struggling economy due to the Coronavirus epidemic. The relief was announced for various sectors, one of these being the important sector of Micro, Small and Medium Enterprises (MSME). The Finance Minister gave a large economic package to this sector under the Self-Reliant India campaign because six crore manufacturing and service units are registered under this category and they contribute 30% of India’s exports and 120 million jobs.

The following important announcements for MSMEs need to be noted in the package announced by the Ministry of Finance;

1.Change in definition of MSME

Previously, the definition of MSME was based on the amount invested. Now classification is based on turnover as well as investment amount, and there is no distinguishing between the manufacturing and service sector. Please see Figure 1 below.

Figure 1.

2. Collateral-Free Loan to MSMEs

The government implemented an emergency loan of three lakh crores rupees to help businesses during the COVID-19 pandemic. To be eligible, an MSME will have outstanding loans of up to US$3.35 million (Rs25 crores) and turnover of up to US$13.40 million (Rs 100 crores). In such a situation, these businesses will receive a new loan up to the value of 20% of their outstanding loans, with the scheme running from 25 February 2020 to 31 October 2020. The loan will be for a period of four years, and the moratorium period will be one year. This additional loan will not require a guarantee, processing fee or mortgage.

3. Global tender restrictions

The government will no longer issue global tenders for procurement up to US$ 26.77 million (Rs 200 crores), meaning only Indian businesses can participate in the tender.

4. US$0.5 billion Subordinated Fund

In this category, eligible MSMEs will receive a loan for NPA (Non-Performing Assets) running at a loss. The government will provide four thousand crores to the Credit Guarantee Fund, which will give credit guarantee to the bank. The bank will provide a loan to the MSME, which will be invested as equity. That is, if any part of an NPA receives one rupee in this category, then a bank loan of three rupees can be taken out by leveraging it, thereby increasing the business credit.

5. Fund of Funds for Business Expansion

The government will invest US$ 6.67 billion (Rs 50 thousand crore) to assist with business expansion, with a corpus fund of US$1.34 billion (Rs 10 thousand crore) being formed. To assist with the expansion of a well-performing company, funds will be provided through this scheme. Equity funding will be made available, also helping the company to list on the stock exchange.

6. Other changes

Other important changes include:
a) The government will make all payments due to the MSME within 45 days.
b) The government will provide a provident fund for both employers and employees with a salary of up to Rs 15,000 per month, from March 2020 to August 2020. There should not be more than 100 employees in that organization.
c) The government will now take encouraging steps for local e-commerce and fintech technology. This will free the country from the clutches of foreign digital companies and allow indigenous companies to be self-reliant.
d) A government contractor will be employed for a period of four months and the proportionate bank guarantee will be released on completion of the work.
e) The COVID-19 period will be considered a ‘Force Majeure’ under the Real Estate Regulation and Development Act (RERA), with timelines extended for the completion of housing projects.
f) Anyone with an income tax dispute can avail of the Vivad se Vishwaas trust scheme until 31 December without incurring penalties.
g) The last date for filing income tax returns for the financial year 19-20 has now been extended to 30 November 2020.
h) The current rates of Tax Deducted at Source (TDS) have now been reduced by 25%. It will be applicable for the remaining financial year up to 31 March 2021.
i) MSMEs have been given extensions on the date of insolvency proceedings and COVID-19 related debt is excluded from the definition of “default” under the insolvency and bankruptcy code.

7. Advantages of small scale and medium industries after the COVID-19 pandemic

Understanding the importance of MSMEs, the government increased the threshold limit of medium industry investment. This is so companies would not avoid growth, fearing that they would no longer qualify for MSME benefits. With the manufacturing and service industries merging within the definition of MSME, many new businesses will qualify for this classification. Apart from very large companies, almost all industries and service sectors will be defined as an MSME.

Many special advantages have been given to MSMEs such as:

• concessions for trade mark fees;
• subsidy for patent fees;
• concession for electricity bills;
• loan interest deferment;
• bank loans for unpaid customer invoices;
• a mandatory order that government sectors purchase 25% of their requirements solely from MSME sectors.

One can register their MSME online via the Udyog Aadhaar Memorandum (UAM) portal set up by the Ministry of Micro, Small Medium Enterprises. The process is simple and there is no fee.

MSMEs applying for a small loan may receive fast pre-approval (approximately one hour wait) with the loan money deposited into a nominated account, provided all required documentation is submitted within eight days.

Note: The figures converted to Dollars from INR in this article are rounded off and subject to fluctuation.