May 26, 2020
Impact of COVID 19 on MSMEs
COVID-19 situation was never anticipated to occur; the outbreak of the pandemic left the world with the loss of humans and resources. Social distancing is the only vaccination that is discovered so far to control the spread of the disease. The vaccination of social distancing, however, laid to complete lockdown in various economies of the world including India. It has been problematic for various businesses especially the small ones. The worst situation is faced by the freshly started small enterprises.
Though the Indian Ministry of Micro, Small and Medium Enterprises (‘MSME’) engages millions of people in the world, however, the continued lockdown is proving highly detrimental to MSMEs. To help MSMEs to survive such a situation, the Government of India along with Reserve Bank of India has come up with various measures to safeguard businesses and livelihoods of the employees. All these measures would definitely act as immunity boosters for afflicted MSMEs.
The various measures taken by the Government are:
1. Widening the definition of MSMEs
Low threshold limits in the definition of MSMEs have created a fear among MSMEs of graduating out of the benefits that were available to them and hence killing the urge to grow. Therefore, the definition of MSME has been revised. This shall be done by increasing the existing investment limits and introducing the additional criteria of turnover. Further, the distinction between manufacturing and service sector MSMEs is eliminated.
2. Collateral-free Automatic Loans MSMEs along with other funding options
MSMEs have been badly hit due to COVID19, therefore, it needs additional funding to meet operational liabilities already built up, to buy raw material, and to restart businesses. Therefore, Emergency Credit Line shall be provided to MSMEs from Banks and NBFCs. Stressed MSMEs shall also, be provided with equity support by providing loans to the promoters of MSMEs. Further, equity funding shall be provided by the government through the Fund of Funds.
3. Global tenders shall be disallowed
Indian MSMEs and other companies have often faced unfair competition from foreign companies. Therefore, Global tenders will be disallowed in Government procurement tenders.
4. Payment of pending dues & e-market linkage facilities
Bearing in mind the inability of MSMEs to participate in trade fairs due to COVID-19, unified e-market linkages will be provided to MSMEs across the Board. Central Government bodies & PSUs shall pay all the pending payments to MSMEs in 45 days.
5. Ease of Doing business through IBC related measures
The minimum threshold to initiate insolvency proceedings under Insolvency and Bankruptcy Code (‘IBC’) has been increased and fresh initiation of insolvency proceedings has been suspended up to one year to protect MSMEs. Further, the Covid-19 related debt shall be excluded from the definition of default under IBC.
6. Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength (CHAMPION)
Technology platform to empower MSMEs. Champion is a portal setup for supporting MSMEs by solving their grievances, help capture new opportunities and to grow in such hard times. It is a fully integrated system on real time basis with GOI’s main grievances portal CPGRAMS and MSME Ministry’s own other web based mechanisms. Link for Champion website: https://champions.gov.in/MyMsme/grievance/COM_Grievance_Welcome.aspx
7. Other measures
The moratorium of 3 months on payment of installments and payment of interest on working capital facilities in respect of all term loans and easing of working capital financing by reducing margins. The government has also introduced measures permitting delayed GST payments until June 2020, without levy of interest, late fees, or penalties.
Many of the above-mentioned reforms are only proposed and not yet sanctioned which brings in various hurdles for MSMEs. The major problem faced by MSMEs is a shortage of funds which will lead to delayed payments of GST and other taxes that are to be met on a monthly basis; increased working capital requirements; delayed payment of salaries and creditors, etc.
MSMEs, being the backbone of the Indian economy deserve urgent financial stimulus and a safety net along with a strong and composite MSME policy framework.