FM’s stimulus package focus on MSME; Rs 3 lakh Cr collateral-free loan for sector
News analysis

FM’s stimulus package focus on MSME; Rs 3 lakh Cr collateral-free loan for sector

Ajayan

Taking forward Prime Minister Narendra Modi's announcement on Tuesday of a Rs 20-lakh crore stimulus package, Finance Minister Nirmala Sitharaman on Wednesday gave out broad contours strengthening Modi’s going vocal on local.

The focus of the announcement was more on small and medium sector, making Sitharaman say that unfair competition from foreign companies was to be a thing of the past. For this global tenders would be disallowed in Government procurement up to Rs 200 crore. This would give the MSME sector a bigger role to play.

For this the Government has decided to redefine MSMEs, raising the investment limit to Rs 1 crore.

"The definition of MSMEs is being changed for their advantage so that they can grow in size and get benefits. Investment limit which defined MSMEs have been revised upwards. Additional criteria being brought in would be in turnover size - earlier differentiation between manufacturing and service MSMEs will be categorised similarly," she said.

The Finance Minister also announced that Rs 3 lakh crore would be made available for collateral-free loan for those MSME units which have Rs 25 crore outstanding loan payments or Rs 100 crore turnover. These loans would be available with four-year tenure and a moratorium of 12 months. The move is expected to benefit 45 lakh units, she said, and more was that it would allow them to resume activity and safeguard jobs.

MSMEs needed `handholding’ for which a Rs 50,000-crore 'fund of funds' through 'mother fund - daughter fund' framework was being created. “This is to expand their capacity and to get listed on markets which they choose," the Minister said.

The government also decided to extend the previous provident fund measures announced under PM Garib Kalyan Yojna for another three months. This means the government will pay the employer's share of EPF for firms with 100 staff, earning less than Rs 15,000, till August. Nearly 3.6 lakh establishments are expected to benefit from this. This should provide Rs 2500 crore liquidity.

TDS rates have been cut by 25 pc and this is expected to infuse liquidity of Rs 50,000 crore. The reduction would be for non-salaried specified payments made to residents and rates of tax collected at source (TCS) for 2020-21. Payment for contract, professional fees, interest, rent, dividend, commission and brokerage would be eligible to this reduced rate of TDS.

All central agencies would provide an extension of six months without cost to the contractor to obligations like completion of work.

As earnings of the power distribution companies had plummeted, the government provisioned for loans, proposing to inject Rs 90,000 crore liquidity, against state guarantees. This will be done exclusively for the purpose of clearing the dues of power generation companies.

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