The 3 Lakh Crore Collateral Free
Loans For MSMEs
A Critical Analysis
Amidst the Pandemic, where the
economy of the country is falling, the lockdown stopping everyone from even
stepping out of their homes and increase in the number of deaths, there came a
silver lining on 13 May, 2020 for all businesses and enterprises. With the
country slowly getting ready for the after corona phase, one of the key
questions is regarding the revival of the economy. With GDP rapidly falling to
all time lows it was imperative for the government to announce drastic
measures. The Prime Minister in his last address to the nation on 12th
May, 2020 also spoke about the need to be self dependent or Atma Nirbhar. So
everyone in the country held their breaths and waited patiently for the Finance
Minister to speak and announce the 20 lakh crore package which the Prime
Minister claimed would cater all the sections of the society.
So The Finance Minister Nirmala
Sitharaman announced Rs 3 lakh crore collateral free automatic loan for
businesses, including MSMEs. The Speech by our
Finance Minister has brought a much-needed relief to restart the economy, and
build the Aatmanirbhar Bharat Abhiyan focused by our Prime Minister.
This move intends to benefit 45 lakh small businesses, she said while shining
light on PM Narendra Modi’s Rs 20 lakh crore economic package. The loan will
have tenure of four years along with a 12 month moratorium, she added. This
time period will give businesses a reasonable turnaround time to get back on
their feet. This will be a step towards self
reliant India and support “Make in India”. This will also help MSMEs to
increase their businesses.[1]
MSME sector is considered as the
backbone of the country's economy as the sector contributes over 28 per cent of
the GDP and more than 40 per cent of exports, while creating employment for
about 11 crore people, second highest after agriculture. To help out stressed MSMEs in dire times, the government
will also take burden of Rs 20,000 crore subordinate debt, benefiting 2 lakh
such businesses in the country.
The series of measures
announced by our Finance Minister will be in assistance to micro and small businesses
that are facing severe cash, steps to boost liquidity for non-banking financial
companies (NBFCs). That will be really necessary as the business has suffered
huge losses due to the lockdown.
In this article we'll assess how
these schemes will help the MSMEs and small and local businesses to recover
losses and get these loans on for which the government is giving the guarantees
from their side. We would also critically analyze the scheme and highlight some
of the concerns surrounding this announcement.
Banks, though flush
with cash, have been unwilling to lend to this category of borrowers as they
fear that the money will not be repaid. It is to break this logjam that the
government has said that it will backstop banks up to 3-lakh crore and said that
these loans do not need collaterals. Banks are now expected to be more
comfortable in assisting this category of borrowers because the risk is zero
(since the loans are guaranteed by the central government).
This will act as
initial seed money for these small enterprises hit by zero cash flow due to the
national lockdown. This loan will help them buy raw materials, pay initial
bills and daily wages to employees. In short, this will be like working capital
for cranking up their businesses again.
● These loans to MSMEs with one-year
moratorium will be one of the strongest point;
● Securities will be fully guaranteed
by Government of India, which will provide liquidity and build confidence in
the market;
● Liquidity measures linked to TDS,
EPF and master support to MSMEs, will help and protect many jobs for
Indians.[2]
● The scheme can be availed till 31st
October 2020 with no guarantee fee and no fixed collateral.
● The
government has also altered the definition of MSME. With the latest changes,
those units which have invested up to Rs 1 crore will now be called micro units
as opposed to the earlier limit of Rs 25 lakh. Those units which have a
turnover of up to Rs 5 crore will now be called micro units, FM said, adding
that a turnover based criteria is being introduced to define small scale
businesses.
● The
credit line will be 100% guaranteed by the government through the Credit
Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), but no guarantee
fee.
● The government has
barred Global tenders from procurements up to Rs 200 crores [3]. The move should
improve the competitiveness of Indian MSMEs on government contracts. It should
also see an increase in registration by MSMEs and Mid-Market businesses on such
platforms.
While many of the
experts have referred to this package as a game changer but still there are
some reservations in one section of society. They are quite skeptical of the
relief which could be granted through this package and are advocating a direct
transfer of funds .Some of their major arguments are as follows:
● The pandemic is an extraordinary situation and the world is
still wary of setting any time limit till things might get normal. The market
players are still not sure about the demand of goods once some of the
restrictions are relaxed.
● Many argue that in this situation who would take fresh loans as
the criteria set by the scheme is that only those business enterprises are
eligible whose credit limit is upto 25 crores the existing term loans like cash
credit limits have been reduced by bank which is a big setback for MSME companies.
● Even after so many weeks of providing relaxations most of the
business enterprises are not able to resume their services because of non
availability of labour and raw materials. In these circumstances a direct
transfer of funds could have been a better solution so as to reduce the fixed
expenses of the business enterprises.
● A direct reimbursement of salaries of the labourers could have
been a lucrative option. This would have solved two fold purposes. One it would
have encouraged the labourers to stay wherever they were and this would have
not lo the mad rush of the migrants to go back to their native places. Second
this would have also reduced the fixed costs of the business enterprises and
there would have been a quite low level of layoffs.
● Another key reservation about the scheme is that there are some
business industries who have not taken any sort of credit but are now under
stress but this scheme does not talk about such industries.
● The scheme will cover only existing
borrowers with outstanding credit limit of up to 25 crore as on 29 February
2020 and having a turnover of up to 100 crore. Although it is being said that
this scheme is to help all the MSMEs however, the limit put up by the
government on turnover is huge which would be covered mostly by enterprises
with strong financial background and only they will be able to get this
benefit. This loan according to me would easily be recoverable as giving it to
enterprises with huge turnover will keep it secured even without the collateral.
These are some
concerns about the scheme. We hope that these are extraordinary situations and
the government is making the best possible efforts to solve this crisis by
taking strong measures to improve the liquidity in the system. The
government has taken a right step in understanding the need of the MSME sector
by releasing of emergency credit lines to MSMEs, capping of interest, and
credit guarantee which will help them get back on their feet and respond to
this crisis and this article just tries to clarify both the perspectives about
this scheme.
IF A GOOD WRITER LIVES INSIDE YOU, THEN MAIL YOUR BIO, PICTURE WITH YOUR BLOG.... WE WILL SHORTLY PUBLISH IT
JUST MAIL US ON abizchancellor@gmail.com
AUTHOR: JASLEEN KAUR
Currently in the Final Year of 3 Year LLB in Law Centre-2, Faculty of Law, University of Delhi
B.Com (DU), Company Secretary (CS) Aspirant,
Technical Content Writer for the portal Cscartindia.com which caters to Company Secretary Students
.
From a CA aspirant, to pursuing bcom hnrs,from someone working at Pwc to someone pursuing law from Faculty of Law Delhi University, life has been a roller coaster ride for Gurkaran Singh. Presently he is pursuing Law from Law centre 2 Delhi University. He has authored a policy document for ministry of law and justice. He has also worked as a research assistant on a book on mediation
Disclaimer:
No reader should act on the basis of any statement contained herein without seeking professional advice. The results & the interpretation has been done on the basis of my understanding of the Act & Rules, where applicable and with reference to the general articles and analysis. The author explicitly disclaims any financial or other liability of any kind arising on account of any action taken pursuant to the results or interpretation of this document. With respect to information available herein before, the author doesn’t make any warranty, express/implied or assume any liability or responsibility for the accuracy, completeness, or usefulness of such information.
For any help/assistance write us on abizchancellor@gmail.com
No comments:
Post a Comment