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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.
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.
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:
Our recommendation: What are some of the policy measures to uplift MSME sectors?
The Indian Prime Minister addressed the nation on 12th May 2020 and announced several measures for MSMEs under Atmanirbhar Bharat, which are discussed below.
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 29th 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.
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.
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.
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 have been taken that will help MSMEs to sustain and grow. The measures are as follows:
Also, read: A Brief Insight into Digital Lending in MSME