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As India is preparing to get into the Fourth phase of lockdown, PM Modi gave out his vision of making the country self-reliant in a bid to emerge stronger from the current COVDI19 crisis. In this context, he announced a 20 lakh crore equivalent to 10% of India GDP relief package to support MSMEs, migrant labourers, salaried classes as well domestic manufacturers. The package includes the previous relief measures announced by the government as well as the earlier liquidity support provided by RBI.
Following this, Finance Minister Nirmala Sitharaman on 13th May announced the first set of 15 measures under the ‘Atmanirbhar Package’. The measures are divided under four key heads as applicable to industry, NBFCs and tax payers:
- EPF Related
- Tax Related
- MSME Related
- Non-Bank Related
Relief under Atmanirbhar Bharat Package: Related to EPF
- In the previous measures, the Government had committed to pay the employer and employee’s contribution of 12% each to EPF for eligible establishments under the Pradhan Mantri Garib Kalyan Package. The government contributed for March, April and May 2020. This benefit has been extended further for three months, upto August 2020. The EPF relief will be amounting to about Rs. 2,500 crore, extending the benefit to nearly 3.6 lakh establishments and around 72.22 lakh employees.
- For those businesses who are not covered under the Pradhan Mantri Garib Kalyan Package, the Government has reduced the statutory contribution to EPF of both employees and employers from 12% to 10% for the next 3 months. The benefit of this relief will cover almost 6.5 lakh establishments which are registered under the EPF and about 4.3 crore employees. A total of Rs. 6,750 crore liquidity will be provided through this step to employees and employers over the course of 3 months.
Relief under Atmanirbhar Bharat Package: Related to Tax
- Government has announced 25% lower rates of TDS and TCS for all non-salaried specified payments like rent, interest, professional fees, commission, etc. The reduced rates will be applicable till 31st March 2021 and this is expected to provide immediate liquidity for all taxpayers.
- The due dates of IT return has been extended from 31st July, 2020 and 31st October, 2020 to 30th November 2020. The tax audits have also been extended by a month.
- The assessment dates which were barred as September 2020 have been extended to December 2020 also those who were getting barred as on 31st March 2021 have been extended till 30th September, 2021. The Vivad-se-Vishwas Scheme is also being has also been extended to 31st December, 2021 without the requirement of making any additional payment.
Relief under Atmanirbhar Bharat Package: Related to MSMEs
- New Definition of MSMEs: Definition of MSMEs has been changed to increase the number of enterprises who are eligible for benefit under government and banking sector MSME schemes. Under the proposed changes, the government has introduced a turnover and investment-based criterion for classification of MSMEs as compared to previous definition of classifying MSMEs only based on investment in plant and machinery. Further, under the new definition the investment slabs have been increased and the distinction between definition of manufacturing and services MSMEs has been removed.
The new definition for MSME is:
Manufacturing and Services
Turnover of less than Rs. 5 cr. & Investment of less than Rs. 1 cr
Turnover of less than Rs. 50 cr. & Investment of less than Rs. 10 cr
Turnover of less than Rs. 100 cr. & Investment of less than Rs. 20 cr
- Collateral free automatic loans For businesses which include SMEs have been announced. These loans will have a tenure of 4 years and the validity to avail these loans is up to October 31st. Enterprises with turnover of up to Rs. 100 crore turnover are eligible for the scheme and any lending under the scheme is will be 100% guaranteed by the government. The MSMEs will get the option of up to 12 months of moratorium period. Under the scheme, loan amount worth Rs 3 lakh crore will be provided and around 45 lakh enterprises are expected to benefit from it.
- In view of providing support to the stressed MSMEs, Rs. 20,000 crore will be infused through subordinate debt. The benefit is available for all NPAs or stressed MSMEs. Within this ambit Rs. 4,000 crore will be provided to CGTMSE for providing a partial guarantee to banks to enable them in extending the benefit to stressed MSMEs. About 2 lakh MSMEs are expected to be benefited from it.
- A Funds of Fund initiative has been introduced for those MSMEs which have a growth potential and are viable. The support will be provided through a corpus of worth Rs. 10,000 in mother fund and daughter fund. This infusion is aimed to help these MSMEs expand their market and get listed.
- Global tenders in government procurement of worth Rs. 200 crores or less will be disallowed to promote Indian MSMEs who find it difficult to meet competition from Global companies. The government will also provide e-market facilities to MSMEs as a measure to tide over the difficulties in operating physical trade fairs and marketplaces. Transaction based lending will be boosted based on the data collected from e-marketplaces.
- Further, the government committed that all pending payments of MSME vendors to Government of India and Central Public Sector Undertakings will be cleared within the next 45 days.
The above measures are expected to give the much required liquidity and funding support to MSMEs who are staring at a huge cashflow problem due to months of business disruption under the lockdown.
Relief under Atmanirbhar Bharat Package: Non Banks Related
- In order to infuse liquidity in NBFCs/HFCs/MFIs, Rs. 30,000 crore Special Liquidity Scheme has been announced in which investment will be made in primary and secondary market investment grade debts papers of NBFCs, HFCs, and MFIs. The Government of India will provide full guarantee on these securities. This has been done to ensure that Non-bank entities have adequate funds to tide over cash flow or liquidity issues created by reduced funding from banks and mutual funds.
- Another liquidity infusion of about Rs. 45,000 crore will be done under the Partial Credit Guarantee Scheme. Under the scheme, commercial papers and borrowings of any investment grade issued by NBFCs or HFCs or MFIs will be provided a partial guarantee. Under the partial guarantee schemes, the Indian Government will bear the first 20 per cent loss. The scheme will be available for all investment grade as well as un-rated debt issuances.
Several of the schemes announced by the government are addressed at providing liquidity support to MSMEs, individuals as well as NBFCs as opposed to providing any direct cash infusion or support. Many of the schemes are extension of past schemes or are based on long standing recommendations of various committees on the subject. Whether the schemes will deliver on the defined objectives will depend on the ground level execution and commitment of the state governments as well the involved agencies to implement the scheme in a non-bureaucratic manner.