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MP Finance Minister Announce Relief and Credit Support Measures for Businesses
MP Finance Minister Announce Relief and Credit Support Measures for Businesses
May 14, 2020
A day after Prime Minister Narendra Modi announced a
Rs 20 trillion stimulus
to revive growth in the world’s fifth-largest economy, Finance Minister Nirmala Sitharaman rolled out the first part of the package with the spotlight on the micro, small and medium enterprises (MSME)s on Wednesday.
In his fifth public address ever since the country’s announced the world’s largest lockdown to contain the COVID-19 pandemic on March 24, Prime Minister Modi gave a clarion call for a ‘Self-Reliant India’ as well as outlined five pillars of the economy, infrastructure, system, demography and demand on which this would be based.
In her opening remarks, Sitharaman lauded the prime minister for laying out a comprehensive vision in his address to the nation. She further said that after spending considerable time, the prime minister had himself ensured that inputs obtained from widespread consultation form a part of the economic package in India’s fight against COVID-19.
“Essentially, the goal is to build a self-reliant India that is why the economic package is called Aatmamirbhar Bharat Abhiyaan she said. Citing the pillars on which this was to be achieved, she added, “Our focus would be on land, labour, liquidity and laws.”
Sitharaman further said that the government under the leadership of Prime Minister Modi was regularly seeking feedback from all stakeholders and, hence, it would be fitting to recall some reforms that were undertaken since 2014.
“Soon after Budget 2020 came COVID-19 and within hours of the announcement of Lockdown 1.0, Pradhan Mantri Garib Kalyan Yojna (PMGKY) was announced,” Sitharaman said. She said the government would work to make the package more robust.
“Beginning today, for the next few days, I shall be coming here with the entire team of the Ministry of Finance to detail the prime minister’s vision for Aatmanirbhar Bharat laid out by the Prime Minister yesterday,” Sitharaman said.
She announced measures focused on getting back to work to enable employees and employers, businesses, especially MSMEs, to get back to production and workers back to gainful employment. Efforts to strengthen non-banking finance companies (NBFC)s, housing finance companies (HFC)s, microfinance sector and power sector were also unveiled. Other than this, the tax relief to business, relief from contractual commitments to contractors in public procurement and compliance relief to the real estate sector were also covered.
Rs 3 trillion emergency working capital facility for businesses, including MSMEs
To provide relief to the business, additional working capital finance of 20 per cent of the outstanding credit as on February 29, in the form of a term loan at a concessional rate of interest will be provided. This will be available to units with up to Rs 250 million outstanding and turnover of up to Rs 1 billion whose accounts are standard. The units will not have to provide any guarantee or collateral of their own. The amount will be 100 per cent guaranteed by the Govt of India providing total liquidity of Rs 3 trillion to over 4.5 million MSMEs.
Rs 200 Billion Subordinated Debt for Stressed MSMEs
Provision made for Rs 200 billion subordinated debt for 200,000 MSMEs that are non-performing assets (NPA)s or are stressed. The government will support them with Rs 400 billion to Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). Banks are expected to provide the subordinate-debt to promoters of such MSMEs equal to 15 per cent of his existing stake in the unit subject to a maximum of Rs 750,000.
Rs 500 Billion Equity Infusion Through MSME ‘Fund of Funds’
The government will set up a ‘fund of funds’ with a corpus of Rs 100 billion that will provide equity funding support for MSMEs. The fund of funds shall be operated through a mother and a few daughter funds. It is expected that with leverage of 1:4 at the level of daughter funds, this fund of funds will be able to mobilise equity of about Rs 500 billion.
New Definition of MSME
The definition of MSME will be revised by raising the Investment limit. Also, a criterion of turnover was also being introduced. The distinction between the manufacturing and service sector will also be eliminated.
Other Measures for MSMEs
E-market linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions. MSME receivables from the government and CPSEs will be released in 45 days.
No Global Tenders for Govt Tenders of up to Rs 200 crores.
General Financial Rules (GFR) of the government will be amended to disallow global tender inquiries in the procurement of goods and services of the value of less than Rs 2 billion.
Employees Provident Fund Support for Business and Organised Worker
The scheme introduced as part of PMGKP under which Govt of India contributes 12 per cent of salary each on behalf of both employer and employee to Employees’ Provident Fund (EPF) will be extended by another three months for salary months of June, July and August 2020. Total benefits accrued are about Rs 25 billion to over 720,000 employees.
EPF Contribution Reduced for Employers and Employees for 3 Months
Statutory provident fund contribution of both employer and employee reduced to 10 per cent each from existing 12 per cent each for all establishments covered by Employee Provident Fund Organisation (EPFO) for the next three months. This will provide liquidity of about Rs 22.5 billion per month.
Rs 300 Billion Special Liquidity Scheme for NBFC, HFC & MFIs
The government will launch Rs 300 billion special liquidity scheme, with the liquidity being provided by the Reserve Bank of India. The investment will be made in primary and secondary market transactions in investment-grade debt paper of NBFCs, housing finance companies (HFC)s and microfinance institutions (MFI)s. This will be 100 per cent guaranteed by the Govt of India.
Rs 450 Billion Partial Credit Guarantee Scheme 2.0 for Liabilities of NBFCs & MFIs
Existing Partial Credit Guarantee scheme is being revamped and now will be extended to cover the borrowings of lower-rated NBFCs, HFCs and other MFIs. The Govt of India will provide 20 per cent first loss of sovereign guarantee to public sector banks.
Rs 900 Billion Liquidity Injection for Distribution Companies
Power Finance Corporation (PFC) and REC will infuse liquidity in power distribution companies to the extent of Rs 900 billion in two equal installments. This amount will be used by such companies to pay their dues to transmission & generation companies. Further, central public sector enterprise power generation companies will give a rebate to distribution companies on the condition that the same is passed on to the final consumers as a relief towards their fixed charges.
Relief to Contractors
All central agencies like Ministry of Railways, Ministry of Road Transport and Highways and Central Public Works Department (CPWD) will give an extension of up to six months for completion of contractual obligations, including in respect of engineering, procurement and construction (EPC) and concession agreements.
Relief to Real Estate Projects
The state governments are being advised to invoke the force majeure clause under RERA. The registration and completion date for all registered projects will be extended up to six months and may be further extended by another three months based on a state’s situation. Various statutory compliances under RERA will also be extended concurrently.
Tax Relief to Business
The pending income tax refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership and LLPs and cooperatives shall be issued immediately.
Rates for Tax Deduction at Source and Tax Collected at Source has been reduced. The TDS rates for all non-salaried payments to residents, and tax collected at source rate will be reduced by 25 per cent of the specified rates for the remaining period of FY2020-21. This measure is expected to provide liquidity to the tune of Rs 500 billion.
The due date of all Income Tax Returns for Assessment Year 2020-21 will be extended to November 30, 2020. Similarly, the tax audit due date will be extended to October 31, 2020. The date for making payment without additional amount under the dispute resolution Vivad Se Vishwas scheme will be extended to December 31, 2020.
Ministry Of Finance
Aatmamirbhar Bharat Abhiyaan
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