Credit and Finance for MSMEs: As MSMEs stare at a bigger cash flow problem ahead if the current lockdown continues by the government, there is also a possibility of them being exposed to an existential crisis. To ensure MSMEs have enough liquidity and working capital, industry body FICCI on Monday suggested the government a slew of measures including clearing all payments and dues including GST refunds to MSMEs at the earliest, interest rate subvention at 3 per cent instead of 2 per cent on loans that are healthy and not NPAs etc.
“It is extremely important to ensure the flow of money into the working capital of such enterprises otherwise there will be a risk to the survival of these enterprises,” FICCI said in a report on challenges and suggestions to fight Covid-19. According to the MSME ministry’s FY19 annual report, India has 6.33 crore MSMEs out of which 6.30 crore are micro-businesses. Last week Assocham in a similar recommendation report to the government had asked for concessional working capital loans “equivalent to one to three month’s (based upon the extent of disruption) average turnover of last year” and another concessional finance “at a rate of 5 per cent for three months through SIDBI,” to support SMEs.
“Without strong financial stimulus, domestic industries are likely to enter a slowdown cycle in the coming weeks, and this will have a clear negative impact on India’s export capabilities in the medium to long term,” Pushkar Mukewar, Co-founder of trade financing company Drip Capital told Financial Express Online. FICCI also asked for MSMEs receivables from the government or third parties to be converted into “one-year commercial paper to be subscribed by banks under special refinancing window of RBI,” to help MSMEs tide over the working capital challenge.
Among other key suggestions included cash grants, wage subsidy up to 50 per cent for all registered workers for nine months, and automatic renewal of “credit limit sanctions being processed from March onwards” for a year without any change in commercial terms. FICCI requested SEBI to ask rating agencies not to downgrade SME sector from March onwards. It also sought to restore those downgraded by one notch to the ratings before the Coronavirus outbreak.