The MSMEs in India account for around 30 percent of India’s GDP and 45 percent of exports (source MSME report 2018-19). It plays a very significant part in providing growth and financial stimulus to the Indian Economy. However,the businesses and MSMEs have crumbled and are worst hit by the pandemic. The Atmanirbhar Bharat that was announced on Wednesday covers a paramount part for them.The finance minister elaborately talked about six measures for MSMEs which will be briefly discussed here.
The first help that the government has decided to do is in the form of collateral-free automatic loans amounting Rs. 3 lakh crores from which 45 lakh units are to be benefitted. To put it simply, MSMEs can avail loans without any guarantee and which is to be sanctioned easily without much paperwork.
The government has announced a stimulus package of Rs.20000 crores in the form of subordinate debt for stressed MSMEs from which 2 lakh MSMEs are likely to benefit.Here stressed MSMEs refers to those MSMEs which are struggling with debt.Under subordinate debt, if a borrower defaults, the creditors who own subordinated debt will not be paid out until after senior bondholders are paid the dues in full. These loans usually have higher yield and lower credit rating.
The major problem that MSMEs face is the shortage of equity.Therefore,the government has proposed to infuse Rs.50000 crore equity which will be operated through a mother fund and a few daughter funds.For instance,the centre will put only Rs 10,000 crore into this and get other PSU institutions like SBI or LIC to help fund the remaining amount.
The government has also revised the definition of the MSMEs with an additional criteria of turnover.A low threshold(under the earlier criteria) created a sense of fear among them that their outgrowth will eventually drive them out of the benefits granted.This had significantly hindered their growth.
To give 'MAKE IN INDIA' a boost, the measure of banning ‘global companies’ for participating in government tenders that are worth up to Rs 200 crore has been put forward.Now these tenders will only be allowed for the Indian companies and will save them from pugnacious competition.
Due to the ongoing pandemic,businesses and MSMEs have been facing problems of marketing.Considering this,the government has announced that e-market linkages would be provided to them to make up for the lack of trade fairs and exhibitions.
Though the government has gained mostly positive appraisal about the package but it is essential to assess what percentage of the total MSMEs will be finally benefitted. In a recent interview to the Quint,former finance minister Mr. P.Chidambaram stated that only 45 lakh MSMEs are going to gain, leaving a mammoth of 6.3 crore MSMEs with no assistance which is approximately 93.3% of the total MSMEs.The point that a lot of economists have made to tackle the prolonging effect of the lockdown to the economy is by stimulating demand which somewhat lacks here.Also the success of the scheme will be achieved only when the purpose trickles down to the focussed ones after all the bureaucratic hurdles.