Prime Minister Sri Narendra Modi emphasized the importance of a ‘Self Reliant India’ in fighting the COVID-19 crisis during his speech on May 12^th, 2020.

The Core focus of his speech was “Go Local”, “Be Vocal” and “Make it Global”. He announced a recovery package of Rs. 20 lakh core which approximates 10% of India’s GDP. The package is targeted to cater to various sections including cottage industry, MSMEs, laborers, farmers & middle class.

His vision for a Self-Reliant India will stand on the following five pillars:

1. Economy - Which brings quantum jumps and not incremental jumps
2. Infrastructure -Which should become the identity of India
3. System - Which are based on 21^st century technology
4. Vibrant Demography - Which is our source of energy for a Self Reliant India
5. Demand - Whereby our demand and supply chain should be utilized to full capacity

Let’s look at how you can benefit from the Rs. 20 lakh Crore package:

1. Financial aid for the MSME sector:

The MSME Sector has been selected to receive the lion’s share of help, and rightly so as they need it the most, and we need them the most. Separate classifications for manufacturing and service sector are to be removed, and composite criteria for their definitions were identified as follows –

1. Micro – Investment <1 Cr & Turnover <5 Cr
2. Small – Investment <10 Cr & Turnover <50 Cr
3. Medium – Investment <20 Cr & Turnover <100 Cr

With these new definitions for MSMEs, there will hopefully be more registrations and a reduced fear among businesses to not qualify within the criteria. MSMEs are going to be the direct benefactors of financing and liquidity provisions, offered in the form of –

Subordinate Debt for Stressed MSMEs – Rs. 20,000 Crores

Stressed MSMEs in need of equity support will receive a net amount of Rs. 20,000 cr as subordinate debt from the Govt. Any functioning MSMEs that are NPA or are stressed will be eligible, and an estimated 2 lakh businesses are expected to benefit. The Govt. will also release a support of Rs. 4000 Cr to CGTMSE, to be provided to banks as partial Credit Guarantee support. The banks will give debts to promoters of MSME, to infuse as equity in the units.

Collateral-Free Automatic Loans for Businesses including MSMEs – Rs. 3,00,000 Crores

There has been a massive shutdown of MSMEs and businesses unable to meet their operational liabilities or raw material costs. Banks and NBFCs are to now provide an Emergency Credit Line to Businesses/MSMEs of up to 20% of the entire outstanding credit as on 29.02.2020. This scheme is to remain available till 31.10.2020, and carry no guarantee fee or fresh collateral. The Government hopes that this scheme will allow approximately 45 lakh units to resume business activity and safeguard jobs. The details of the loan terms are -

1. Borrowers with upto Rs. 25 Cr outstanding and Rs. 100 Cr turnover will be eligible
2. Loans will have a 4 year tenor with a moratorium of 12 months on Principal repayment
3. The interest is to be capped
4. 100% credit guarantee cover will be given to Banks and NBFCs on principal and interest

Equity Infusion for MSMEs through Fund of Funds – Rs. 50,000 Crores

To address the severe shortage of equity faced by MSMEs, a Fund of Funds with a Corpus of Rs. 10,000 Cr will be set up. The FOF will be operated through a Mother Fund and a few daughter funds, helping to leverage Rs. 50,000 Cr at the daughter fund level. This funding will be for MSMEs with growth potential and viability, and hopes to expand MSME size as well as capacity, encouraging MSMEs to get listed on the main board of Stock Exchanges.

Along with the financial support offered by the scheme to MSMEs, there are a few provisions designed to benefit their chances of recovery and survival by boosting the market demand and delivery capability of the MSMEs –

1. Global tenders of upto Rs. 200 Cr to be disallowed – to ensure that Indian MSMEs can find sufficient market demand and not face unfair competition from foreign companies
2. E-marketing linkage for MSMEs is to be promoted as a replacement for trade-fairs, exhibitions and other forms of marketing that have been banned due to COVID-19
3. All receivables for MSMEs from the Govt. and CPSEs are to be released within 45 days
4. FinTech will be used to enhance transaction based lending using the data generated by the e-marketplace

Our comments:

Based on above, it seems that MSMEs, who have never availed any loan so far which not be able to get the support under this scheme. The purpose of this scheme may get lost. Government must clarify on this point. Further, the point of contention of funds of fund will always be valuations. Government must come up with the guidelines for the valuations in such cases. The only way for MSMEs at large seems to be through promotor route where promotor will take personal loan and put into MSME as equity.

2. Employees' Provident Fund Support:

The Employees’ Provident Fund Organization (EPFO) has announced that the government will support employees and businesses with a combined amount of Rs. 2500 crore and Rs. 6750 crore Liquidity Support. Extending earlier support, and making new provisions for benefits to be applicable to about 6.5 lakh establishments covered under EPFO and about 4.3 crore such employees, the scheme stated –

1. Under the Pradhan Mantri Garib Kalyan Package (PMGKP), payment of 12% employer and employee contribution will be made into EPF accounts of eligible establishments for another 3 months – June, July and August 2020 (applicable for Employee having salary less than Rs. 15,000 and upto 100 employees)
2. Statutory PF contribution for employer and employee to be reduced to 10% (from existing 12%) for all establishments for 3 months (i.e. till August 2020)
3. 5 crore workers registered under the EPFO scheme are to get non-refundable advance from their account which will be the lower of 75% of the total amount or three months of wages
4. CPSEs and State PSUs to continue to contribute 12% as employer contribution

Our comments:

This can be some relief the MSMEs where 24% cost can be saved on their payroll cost for employees whose salaries are less than Rs. 15,000. Larger MSMEs can save upto 4% of salary cost from this provision. However, most of the companies work on CTC model and this may not directly benefit to the company unless the companies announces a salary cut.

3. Direct Tax Measures:

In order to provide more funds at the disposal of the taxpayers, and release Liquidity of Rs. 50,000 crores, 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 through the entire FY 2020-21 i.e. till 31^st March 2021. This reduced rate will be applicable to payment for contract, professional fees, interest, rent, dividend, commission, brokerage, etc. Refer our blog on Revised TDS rates for New TDS rates.

Additionally, several due-dates have been revised, such as –

1. Tax audit due date has been extended till October 31^st, 2020 ( from existing September 20^th)
2. Due date for filing of income tax returns has been extended till November 30^th, 2020 ( from existing July 31^st and October 31^st)
3. Assessments getting barred on September 30^th, 2020 extended till December 31^st, 2020, and those getting barred on March 31^st, 2021 extended till September 30^th, 2021
4. Period of ‘Vivad se Vishwas Scheme’ for making payment without additional amount will be extended to December 31^st, 2020
5. All the pending income-tax refunds up to INR 5 lakh to charitable trusts and non-corporate businesses & professions including proprietorship, partnership, LLP and Co-operatives shall be issued immediately

Our comments:

This provision will definitely give some liquidity in the market. However, there will not be any immediate benefit on the same because most of the companies are delaying their payments to their suppliers. Considering the current situations, where most of the MSMEs may go into red, Government shall come out a Zero TDS auto approval scheme for all MSMEs where they can apply a Zero TDS certificate and it can be auto approved for FY 2020-21 (AY 2021-22). This can be a breather to MSMEs.

Immediate Tax refunds to MSMEs is definitely a great relief. Many MSMEs has already received this refund. Extending the due date is not a relief as such because the Indian business are very much used to due date extensions in the past and this doesn’t have any financial relief. Government must differentiate between the financials relief and procedural relief under Covid.

4. Support for NBFCs/HFCs/MFIs:

Amidst the difficulties faced by NBFCs/HFCs/MFIs in raising money in debt markets, the Govt. will launch a Rs. 30,000 crore Special Liquidity Scheme, to make investments in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs. The securities will be fully guaranteed by the Govt. and RBI/Govt. measures will be supplemented to augment the liquidity.

Furthermore, those NBFCs/HFCs/MFIs whose credit rating is too low, will be given liquidity to do fresh lending to MSMEs and individuals via the extension of the PCGS to PCGS 2.0 whichwill also cover borrowings such as primary issuance of Bonds/CPs of such entities. The Govt. will bear the first 20% of the losses. This is estimated to release liquidity of up to Rs. 45000 Crore.

Our comments:

This measure is expected to have some impact on MSMEs getting funds form NBFCs/HFCs and MFIs.

5. Support for DISCOMs:

Power Distribution Companies (DISCOMs) are also at a very low point due to plummeting revenues and unprecedented cash flow problems. Currently, the DISCOM payables to Power Generation and Transmission Companies (Gencos) are ~ Rs 94,000 crore. The Govt. will inject liquidity of Rs.90,000 crore to DISCOMs against receivables through loans given against State guarantees for the exclusive purpose of discharging liabilities of Discoms to Gencos.

The DISCOMs will be required to perform specific activities/ reforms in linkage to these loans, such as –

1. Digital payments facility by Discoms for consumers
2. liquidation of outstanding dues of State Governments
3. Plan to reduce financial and operational losses

Central Public Sector Gencos will give a rebate to Discoms, which shall be passed on to the final consumers (industries).

Our comments:

Government should have looked into giving some direct relief to MSMEs in terms of waiving fix load charges for next 6 months. That could have benefited the MSMEs directly in lowering their outflow.

6. Miscellaneous support actions:

Various other measures to help support the industry, especially MSMEs and small businessmen, are being arranged for, including –

7. Relaxation in Statutory and Compliance Matters:

Statutory regulations and compliance requirements are getting temporarily relaxed to encourage economic recovery –

1. Extending last date for Income Tax Returns to June 30^th, 2020
2. Extending filing GST returns to end of June 2020
3. 24*7 custom clearance till 30^th June, 2020
4. Relaxation for 3 months for debit cardholders to withdraw cash free from any ATMs, etc
5. Allowing payment before 15^th May, 2020 for Motor Vehicle and Health Insurance Policies
6. Mandatory Board meetings extended by 60 days till 30^th September
7. Allowing Extraordinary General Meetings through Video Conference with e-voting/simplified voting facility

Our comments:

No financial relief. These are just procedural relief and not going to have any implications on MSME survival.

8. Measures taken by the RBI:

The Reserve Bank of India has been requested by the Govt. of India to provide relied for the economy, and has raised the Ways and Means advanced limits of States by 60% and enhanced the Overdraft duration limits. Additionally, the following measures were also taken –

1. Moratorium of three months on payment of installments and payment of Interest on Working Capital Facilities in respect of all Term Loans
2. Easing of Working Capital Financing by reducing margins
3. Reduction of Cash Reserve Ratio (CRR) has resulted in liquidity enhancement of Rs. 1,37,000 crores
4. Targeted Long Term Repo Operations (TLTROs) of Rs. 1,00,050 crore for fresh deployment in investment grade corporate bonds, commercial paper, and non-convertible debentures
5. TLTRO of Rs.50,000 crore for investing them in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, and MFIs
6. Increased the banks’ limit for borrowing overnight under the marginal standing facility (MSF), allowing the banking system to avail an additional Rs. 1,37,000 crore of liquidity at the reduced MSF rate
7. Announced special refinance facilities to NABARD, SIDBI and the NHB for a total amount of Rs. 50,000 crore at the policy repo rate
8. Announced the opening of a special liquidity facility (SLF) of Rs. 50,000 crore for mutual funds to alleviate intensified liquidity pressures
9. For loans by NBFCs to commercial real estate sector, additional time of one year has been given for extension of the date for commencement for commercial operations (DCCO)

Our comments:

These measures are expected to solve liquidity issues in the market, which is essential in the current scenario. However, there is no direct benefits to MSMEs in the country.

9. Relief measures for Contractors:

Certain relief measures are being put into place for contractors to ensure that construction stays alive and begins recovering example

1. Extension of up to 6 months (without costs to contractor) to be provided by all Central Agencies (like Railways, Ministry of Road Transport & Highways, Central Public Works Dept, etc.) This will cover construction/works and goods and services contracts and obligations like completion of work, intermediate milestones and extension of concession period in PPP contracts
2. Government agencies to partially release bank guarantees, to the extent contracts are partially completed, to ease cash flows

Our comments:

These measures are expected to help a lot of MSMEs who had given bank guarantees on government projects. Bank guarantee also cost money to MSMEs and this will help them to reduce their cost.

10. Relief measures under RERA:

The adverse effects of the COVID-19 lockdown and quarantines put projects in risk of defaulting on RERA timelines, and timelines need to be extended. These measures taken by the Ministry of Housing and Urban Affairs will de-stress real estate developers and ensure completion of projects so that home buyers are able to get delivery of their booked houses with new timelines, by advising States/UTs to –

1. Treat COVID-19 as an event of ‘Force Majeure’ under RERA
2. Extend the registration and completion date suo-moto by 6 months for all registered projects expiring on or after 25^th March, 2020 without individual applications
3. Regulatory Authorities may extend this for another period of upto 3 months, if needed
4. Issue fresh ‘Project Registration Certificates’ automatically with revised timelines
5. Extend timelines for various statuary compliances under RERA concurrently

Our comments:

Since its enactment, RERA has given hard times to Builders. This interim relief will help real estate segments some breather in not falling into trap of RERA. However, real estate expected much significant government support to boost the demand. Considering the existing level of real estate inventory in the country, if immediate steps are not taken by government to boost real estate demand, it will be a challenging situation for this sector.

Get the benefits you deserve with TYASuite

Make sure that you receive all the benefits you are due from this new relief scheme by the Govt. of India by signing up with TYASuite Software Solutions. With our plug-and-play cloud ERP software, get integrated access to all modules of business processing in one single platform, and have complete access over remote cloud-based applications.

With our Procurement to Pay, Project Management, Compliance Management, Vendor Management, Inventory Management, Asset Management and full deck of ERP tools, make sure you stay on top of the coming economic revolution. Never miss out important news, manage your business seamlessly and enhance your profitability by going digital with TYASuite.

Sign up today for a FREE DEMO, and get 3 months usage of our tools for no cost!