Atmanirbhar Bharat – The Self-Reliant India Movement Simplified 1.0
Phase 1: Reviving MSMEs & Other Businesses
In cognizance of the Covid-19 pandemic, the honourable Prime Minister of India Shri Narendra Modi made a historic announcement of dedicating INR 20 lakh crore (~10% of India’s GDP) towards the revival of our collapsing economy. The objective of an ‘Atmanirbhar Bharat’ is not global isolation but self-sustainability in times of crisis and the measures are focused majorly on land, labour, liquidity and law.
When brought to a grinding halt, it is imperative to mobilize funds and enable the flow of liquidity in cash-deprived markets to spur growth. The Reserve Bank of India, upon request from the GOI, disbursed ~ INR 18,000 crore in refunds, benefitting about 14 lakh taxpayers. But of course, the RBI alone cannot save an entire economy from drowning and administrative policy changes must also be made to bring about changes on a massive scale.
Announcements will be released over a period of 4-5 days by the Finance Minister Mrs Nirmala Sitharaman. Today’s tranche of announcements is all about the resuscitation of MSMEs and injecting liquidity into the economic framework.
Let’s put the spotlight on these measures and what they mean for the economy:
- Loans for businesses including all MSMEs:
- Value: INR 3 lakh crore of collateral-free automatic loans deployed for disbursal.
- Who Benefits: 45 Lakh MSMEs (eligibility to avail is loan outstanding upto 25Cr or upto INR 100 crore in turnover)
- How: 100% credit guarantee on principal and interest will be given to banks and NBFCs by the GOI, 4-year tenure, 12-month moratorium, 1st year no payment of principal amount needed
- Equity Support to stressed MSMEs with NPAs:
- Value: INR 20,000 crore of subordinate debt facilitated by the GOI
- Who Benefits: 2 lakh stressed MSMEs
- How: INR 4,000 crore govt. support to CGTMSE (CGTMSE will provide partial guarantee to banks), banks will give debt to promoters, promoters will infuse it as equity in the MSME
- INR 50,000 crore equity infusion into MSMEs:
- Value: INR 10,000 crore Fund of Funds (FoF)to be created. FoF will be operated through a mother fund and few daughter funds. (INR 50,000 crore will be leveraged at daughter fund level)
- Who Benefits: Viable MSMEs that may need handholding
- How: MSMEs will be able to expand capacities and grow and eventually get listed on the stock exchange of choice.
- Definition of MSMEs tweaked:
- What was done: Manufacturing and services sector now considered equally.
- Revised criteria:
- Who Benefits: All MSMEs
- How: MSMEs that outgrew themselves would not fit the definition and not be able to avail of the benefits. That has been eliminated to include more MSMEs into the cluster.
- Tenders up to INR 200 crore for govt. procurement will no longer be on the global tender route:
- Who Benefits: All MSMEs
- How: Competition from foreign companies is eliminated thus putting Indian MSMEs on the top of the list, giving them equal opportunities. Maki In India initiative promoted.
- E-market linkage for MSMEs:
- Who benefits: All MSMEs
- How: All govt. receivables will be released within 45 days to infuse liquidity. Enables MSMEs to find markets to do business post the Covid-19 shutdown.
- Liquidity relief for all EPF establishments:
- Value: INR 2,500 crore
- Who Benefits: 3.67 lakh establishments, 72.22 lakh employees
- How: Under Pradhan Mantri Garib Kalyan Package (PMGKP), the GOI made the payments of 12% of employer and 12% employee contributions into accounts of eligible establishments. Support extended for 3 months until Aug 2020.
- Statutory employee PF contribution is reduced from 12% to 10% for 3 months:
- Value: Liquidity infusion of INR 6,750 crore
- Who Benefits: 6.5 lakh establishments, 4.3 crore employees
- How: CPSEs and State PSUs will continue to pay 12% thus providing leeway to non-PSUs. Businesses get the opportunity to ramp up.
- Special Liquidity Scheme for NBFCs, HFCs, MFIs:
- Value: INR 30,000 crore
- How they benefit: Investments in both primary and secondary market transactions in investment-grade debt papers. Securities fully guaranteed by GoI. (Supporting measure to RBI efforts)
- Partial Credit Guarantee Scheme for NBFCs:
- Value: INR 45,000 crore (expanded from 30,000 crore)
- How they benefit: first 20% loss will be borne by the guarantor i.e. GoI. AA and below-rated papers included. This measure will boost credit.
- Liquidity Injection into DISCOMS (Distribution Companies):
- Value: INR 90,000 crore
- How they benefit: Cash flows to DISCOMS have been severely impacted by demand shortage. Power Finance Corporation and Rural Electrification Corporation to infuse liquidity to DISCOMS against receivables. This will enable DISCOMS to push their liabilities to Generation Companies (GENCOS)
- The benefit will be passed to customers as DISCOMS will get a rebate
- Relief to Govt. Contractors:
- Who Benefits: Construction, goods and services contractors
- How they benefit: All GOI contractors to get an additional 6 months to complete all pending projects without any cost to the contractors. Partial bank guarantees will be released to maintain cash flow for the ongoing projects.
- Real Estate firms get relief on completion timelines (Projects under RERA):
- The completion date can be extended by 6 months if the project was registered on or before 25th Mar 2020. (suo moto – no need for new applications)
- Destress to real estate developers and regulatory authorities
- Fresh certificates will be issued with revised timelines
- Liquidity through TDS/TCS rate reduction:
- Value: INR 50,000 crores
- How it benefits us: From tomorrow till 31st Mar 2021 – TDS and TCS reduced by 25% of the existing rate. This money which would otherwise get paid as taxes is now available to the people.
Other Direct Tax Measures (as quoted):
- “All pending tax refunds to charitable trusts and non- corporate businesses & professions including proprietorship, partnership, LLP and Co-operatives shall be issued immediately”
- “Due date of all income-tax return for FY 2019-20 will be extended from 31st July 2020 & 31st October 2020 to 30th November 2020 and Tax audit from 30th September 2020 to 31st October 2020.”
- Date of assessments getting barred on 30th September 2020 extended to 31st December 2020 and those getting barred on 31st March 2021 will be extended to 30th September 2021.
- Period of Vivad se Vishwas Scheme for making payment without additional amount will be extended to 31st December 2020.
That brings us to the end of tranche one of the announcements. A plethora of good measures by the MoF is restoring the faith in our current government and at the same time improving the ease of doing business amid crisis.
Stay tuned for more updates that follow. Follow our Blog/Facebook page to get instant notifications!
Voracious reading regimes coupled with a penchant for writing led me away from a glamorous yet mundane corporate career. When nobody's calling, the mountains always are - you'll invariably find me atop one.