Ease of Doing Business for MSMEs: Finance Minister Nirmala Sitharaman’s decision on Thursday for the government to bear the 24 per cent contribution of both employee and employer combined to the Employees’ Provident Fund for the coming three months is welcoming for small businesses, said MSME sector experts. The move will help MSMEs in terms of better cash flows and liquidity. “This is good in terms of cash flows for MSMEs. Also since one doesn’t know whether this lockdown would continue beyond April 14, MSME would not be worried about the deadline of payments. Hence, there would be no violation on account of missing the deadline even as they won’t have to worry about interest or penalty for late payments,” Sanjay Bhatia, President, FICCI-CMSME told Financial Express Online. The announcement will be applicable from April 1, 2020.
EPF rules mandate a 12 per cent contribution by both employee and employer from the monthly salary. “This comes as a huge relief to the SMEs at a time when the companies in the sector are witnessing cash flow crunch on account of slower business movement and payment delay from the customers. In addition, the scheme puts additional money in the hands of employees in these tough times, as the scheme comes with the option to withdraw a part of their EPFO balances,” Shachindra Nath, Executive Chairman, UGRO Capital (small business lender) told Financial Express Online. However, this relief isn’t for every MSME. Businesses having up to 100 employees and 90 per cent of them earning less than Rs 15,000 per month would be able to avail this benefit.
“The move will provide some relief in these tough times to MSMEs. Those employees on wages below Rs 15,000 would take home a little more. But even with this, it is going to be very difficult for these SMEs to survive this downturn,” Akash Gehani, COO and Co-founder, Instamojo (payment gateway for MSMEs) told Financial Express Online. Moreover with the said criteria, it “will not allow the announced benefits to have a far-reaching effect,” Raunak Singh, Founding Partner, Avitr Legal told Financial Express Online. Nonetheless, “it may be said to be a welcome move at a time when the employer fraternity in India has been looking forward to such initiatives from the government,” Singh added.