Stimulus package for more than 60 million MSMES in the works
NEW DELHI: The Prime Minister’s Office (PMO) may soon finalise a comprehensive stimulus package for over 60 million micro, small and medium enterprises (MSMES) that is likely to include up to 3% additional interest subsidies and a redefinition of the sector on the basis of turnover, officials familiar with the matter said. The package is an attempt to shield the sector from adverse impact of the coronavirus disease (Covid-19) pandemic and boost its growth in the long term, said two government officials who asked not to be named.
They added that the government has already tied up funds worth ₹8,000 crore from multilateral financial institutions that could help reducing interest rates for MSMES by another 2-3%. On top of the 2% existing interest subvention, the effectively rate of interest for the sector may go down to approximately 6-7%, the officials said. Once the PMO clears the fiscal stimulus and structural changes this week, the matter will be sent to the Cabinet.
MSMES are a key priority for the government as the sector accounts for over 28% of India’s GDP, contributes about 45% to manufacturing output, accounts for more than 40% exports, and employs more than 110 million people which is second only to the agriculture sector.
The proposed package will also effectively address liquidity issues of MSMES. Scheduled commercial banks, non-banking financial companies (NBFCS) and cooperative banks may be prompted to give priority lending to the sector with the government giving 75% guarantee for the loan amount and units asked to give collaterals for the balance 25%, one of the officials said.
At the same time, large staterun firms and private companies will be asked to expedite the payment of about ₹6 lakh crore in dues to MSMES, with the government likely to specify a threemonth time limit for large companies to clear dues without facing penalties, the official added.
In order to strengthen the sector in the long term, the government has decided to change the definition of MSMES from capacity to turnover-based. “This is as per the recommendation of UK Sinha Committee,” the second official said. The Reserve Bank of India (RBI) in January 2019 constituted an “Expert Committee on Micro, Small and Medium Enterprises” under the chairmanship of Sinha to suggest longterm measures for the economic and financial sustainability of the MSME sector.
The committee submitted its report on June 18, 2019. The change of definition—to turnover from the current classification that is based on investments in plant and machinery—was one of the committee’s key recommendations.
As per the current classification, a manufacturing unit up to ₹25 lakh investment is a micro enterprise, between ₹25 lakh and ₹5 crore is a small enterprise, and between ₹5 crore and ₹25 crore is a medium enterprise. For the services sector the classification of micro, small and medium is investment up to ₹10 lakh, between ₹10 lakh and ₹2 crore, and between ₹2 crore and ₹5 crore, respectively.