Wait for the fine print, say MSMEs in response to finance minister’s sops for the sector

May 14, 2020 | CNBC TV 18

Union finance minister Nirmala Sitharaman dedicated a significant portion of her 92-minute press conference to addressing the fiscal needs of the MSME sector.

In that time, she elaborated on a series of measures that would boost the fiscal health of these companies. But these may have just fallen short of impressing the sector altogether.

Right atop the list of sops that the government has announced for the sector is the announcement of collateral-free loans up to Rs 3 lakh crore for MSMEs with turnover of Rs 100 crore and a current outstanding loan amount of Rs 25 crore.

“These loans come with a four year tenure and moratorium on principal amount for 12 months,” said Sitharaman, “There is no guarantee fee, and no fresh collateral is required. The amount will benefit 45 lakh MSME units, help them resume business activity, and safeguard jobs.” The MSMEs themselves, however, are choosing to wait for the fine print, before celebrating.

Devil Is In The Detail: CII MSME Panel Convenor

The MSME sector is sceptical about the finance minister’s announcement of collateral-free loans. “Loans that have been granted, collateral-free, have issues because there is a lot to be read in the fine print, since the devil is in the detail,” said R Srikanth, convenor, MSME Panel, CII Tamil Nadu, “We will have to wait and see how banks roll out the loans before we welcome it wholeheartedly. The governments make well meaning announcements, but their implementation is a whole other matter.”

However, the move has been singled for praise by investment bankers. “Collateral-free loans will help infuse much-needed liquidity in the sector and help these units address their cash flow problems,” said Mahesh Singhi, founder and managing director, Singhi Advisors, “This move will prove crucial for MSMEs to kickstart business activities and provide job protection to employees.”

‘2 Percent Rebate On Provident Fund Is Small Money’

The finance minister also announced a list of sops including a two-percent rebate on the 12 percent of basic salary that employers contribute to an employee’s provident fund and an upward revision of the investment limit that would go into defining an MSME.

Srikanth also took exception to the government’s 2 percent rebate on the 12 percent contribution to provident funds, made by an employer for three months.

“This does not make sense to small companies since it will only help big players given that several MSMEs employ between 10 and 15 people covered by PF. So, a 2-percent rebate is small money,” said Srikanth, who also runs Chennai-based MSME, Alfa Rubber & Springs. “We were expecting a direct cash benefit for wage support, which has not been forthcoming,” he added.

‘Change In Definition Of MSMEs A Huge Boost’

The finance minister said the government would tweak the definition of an MSME, to include companies that have investments of up to Rs 1 crore under the ‘micro’ category. At present, that limit is restricted to Rs 25 lakh. “The upward revision in the investment limit of MSMEs will help bring an increased number of MSME units access to institutional working capital,” said Rajesh Narain Gupta, Managing Partner, SNG & Partners.

“The revision in the definition of an MSME is a long-awaited measure from the government of India to push MSMEs forward. It’s better late than never,” Srikanth added, “We hope a large chunk of MSMEs will take advantage of this measure.”

‘Removal Of Global Tenders, A Positive Move’

Sitharaman’s decision to remove global tenders for government procurements up to Rs 200 crore, has won praise since experts believe this would give the sector better opportunities to be in the running for these tenders.

“Removal of global tender for government procurement up to Rs 200 crores, besides helping the MSMEs, will also boost the Make in India scheme,” said VK Vijayakumar, chief investment strategist, Geojit Financial Services, “A notable feature of the package is that it will not strain the govt finances beyond a point since most of the funding is by way of credit guarantees by the government.”