What are the measures taken for MSMEs amidst Covid-19 Pandemic?

Ashish M. Shaji

13 Sep, 2022

The Micro, Small, and Medium Enterprises (MSME) sector have been one of those sectors that have come out as a vibrant and dynamic sector of the Indian economy. It has resulted in a large number of employment opportunities and has played a significant role in the industrialization of rural and backward areas. However, MSMEs amidst Covid-19 have been affected severely.

How have MSMEs been impacted by the Covid-19 pandemic?

MSME sector has already gone through financial distress owing to demonetization and poorly implemented GST. However, the present pandemic of Covid-19 has threatened to adversely impact this sector. The imposition of lockdown across the country has caused halted production and slump in demand, and due to this, MSMEs amidst Covid-19 are unable to pay their creditors.

According to a survey, nearly 50% of MSMEs have witnessed a 20-50% impact on their earnings due to the Covid-19 pandemic. The pandemic is also going to cause delays in payments from their buyers as people’s earnings have been affected due to lockdown situations. It is one of the biggest causes of concern for this sector.

It has also resulted in a lack of labor availability as a number of migrant laborers have gone back. MSMEs are also expected to be impacted by the pandemic in terms of loan against collateral as a loan to MSMEs are given against property, but in times such as these, property values fall, and that inhibits the extension of new loans.

Measures taken by the Ministry of MSMEs amidst Covid-19

The Ministry of MSME and its organizations have looked to assist the states in their effort to encourage entrepreneurship, employment, and livelihood opportunities.

Various schemes or programs have been undertaken by the ministry with a view to providing:

• Adequate flow of credit from financial institutions/banks;
• Integrated infrastructure facilities;
• Access to modern management practices;
• Entrepreneurship development and skill up-gradation through training; and
• Cluster wise measures to ensure capacity building and empowerment of the units and their collectives.

Our recommendation: What are some of the policy measures to uplift MSME sectors?

Measures taken by the government for MSMEs amidst Covid-19 under Atmanirbhar Bharat

The Indian Prime Minister addressed the nation on 12th May 2020 and announced several measures for MSMEs under Atmanirbhar Bharat, which are discussed below.

• Rs. 3 lakh crore collateral-free emergency credit line  

This scheme by the government aims to mitigate the economic distress faced by the MSME sector by providing them additional funding of up to Rs. 2 lakh crore from banks and NBFC as ECL (Emergency Credit Line) up to 20% of entire outstanding credit as on 29^th Feb 2020. It will be fully guaranteed by the government, and no collateral is needed from banks or NBFCs. It is expected to benefit 45 lakh companies to revive their businesses and also bolster their liquidity.

• Rs. 20000 crore subordinate debt for stressed MSMEs

This scheme is expected to help MSMEs to restart their businesses and produce new jobs. The functioning MSMEs that are NPA or are stressed would be eligible. This scheme is expected to benefit more than two lakh MSMEs. Under this scheme, the government shall provide support of Rs. 4000 crore to Credit Guarantee Fund Trust for MSEs, which will provide a support of partial credit guarantee to banks.

• Rs. 50000 crore equity infusion through MSME funds

This scheme provides for setting up of Rs. 10,000 crore fund/corpus to bring equity that is short in MSME. The setting up of fund of funds will provide equity funding for the growth of MSMEs. The fund will be operated by a mother fund and will also have few daughter funds. The fund shall infuse Rs. 50000 crore at daughter funds level.

• Global tenders to be disallowed up to Rs. 200 crores

With a view to boosting self-reliant India, Make in India, and vocal and local initiatives, global tenders are set to be disallowed in government procurement tenders up to Rs. 200 crores.

Various other measures for MSMEs amidst Covid-19

Various other measures have been taken that will help MSMEs to sustain and grow. The measures are as follows:

• Promotion of e-market linkages for MSMEs to act as a replacement for trade fairs and exhibitions. It is expected to benefit the MSME sector greatly.
• Usage of fintech /digitization to enhance transaction-based lending using the data generated by the e-marketplace.
• The government has been monitoring the settlement of dues to MSME vendors from both government and Central Public Sector Undertakings. MSME receivables from government and Central Public Sector Enterprises to be released in 45 days.
•  24*7 custom clearances till 30^th Jun 2020.
• Contribution to the statutory provident fund by the employer as well as employee to be reduced to 10% each from existing 12% each for establishments that are covered by EPFO (Employees Provident Fund Organization) for the next three months.
• Announcements such as the reduction in TDS and TCS by 25% and all refund to entities, including Proprietorship, partnership firms, and LLP, etc. to be issued immediately, is also expected to improve the liquidity situation of MSMEs. Likewise, the extension of the compliance date of different income tax-related deadlines is also expected to help. The smaller units can now work peacefully and plant their focus on work and productivity for the next few months.

Conclusion

Also, read: A Brief Insight into Digital Lending in MSME