Stimulus package likely next week; Guaranteed higher working capital limit for MSME on cards – The Hindu BusinessLine

Modi Government is all set to announce much awaited stimulus package with more focus on Micro, Small and Medium Enterprises (MSME). Package is likely to be announced within next 4-5 days.

Multiple sources confirmed that package will be a composite one. “On the one hand it will have guaranteed higher working capital limit for MSME, while on the other hand there will be initiation for more and more reform programs to attract investment and ease more for doing business,” a source said. The package is coming at a time when third phase of nationwide lockdown set to end on May 17. Though a range of relaxations has been given before the beginning of third round of lockdown started from May 4, still industries and especially MSMEs are having a tough time.

According to sources, broad contours of the package was finalised in the meeting called by the Prime Minister Narendra Modi on May 2 which was attended by senior Ministers and senior bureaucrats. Now, details are being worked out. Also, work is in progress for any legislative change through ordinances. Sources also informed that discussion has taken place with the Reserve Bank of India (RBI) for monetary action. In fact, an important measure to mobilise additional resource has already been formalised as the Government in consultation with the RBI decided to raise the total borrowings to ₹12 lakh crore from budgeted ₹ 7.8 lakh crore during current fiscal.

Package for MSMEs?

Talking about specifics, sources informed that in an effort to help MSME to regain the strength, one of the key proposals is to provide guarantee for overdraft up to 20 per cent of working capital limit. This issue is also listed for discussion for Finance Minister’s meeting with bankers on Monday, May 11. One of the agenda items reads as ‘Credit Support to MSMEs’ while another item says the meeting will discuss ways for ‘COVID-19 related sanctioned/pre-approved emergency credit and reassessment based additional working capital.’ The meeting will also discuss status of moratorium.

It may be noted that on March 27, the RBI announced moratorium for three months on all type of term loans. It was also decided to provide deferment of interest on working capital facilities. In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the deferment period. The moratorium/deferment was provided specifically to enable the borrowers to tide over the economic fallout from Covid-19. Hence, the same will not be treated as change in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade.

Importance of package for MSME can be gauged by facts that this sector provides employment to nearly 11 crore while its share in Gross Value Added (GVA is over 31 per cent. The share of MSME related products in total exports during 2018-19 was over 48 per cent.