Government initiatives to help MSMEs fight the economic repercussions of COVID-19

From making borrowing cheaper to extending repayment tenures and providing relief to workers, the Indian government is taking definite steps to help MSMEs tide over the pandemic crisis

Government initiatives to help MSMEs fight the economic repercussions of COVID-19

The coronavirus pandemic has pretty much brought all economic activity to a standstill around the world. The proactive nationwide lockdown in India that was enforced on March 25 as a means to slow the spread of the virus will soon be touching the 60-day mark. 

Businesses are dealing with supply chain disruptions, displaced labour, and a stifling liquidity crunch in addition to slowing demand. MSMEs (Micro, Small, and Medium Enterprises) are among the worst affected and there’s a risk that almost 25% of the businesses from this segment will slip into default as compared to 6% from the corporate sector. MSMEs employ over 114 million people, contribute to about 30% of the country’s GDP, and account for almost half the total exports. 

To minimise the permanent damage to the lives and livelihood of various entrepreneurs and small industry workers, the Central Government and the Reserve Bank of India (RBI) are looking to tweak regulatory and compliance procedures and provide a financial stimulus to businesses that are effectively the backbone of this country.

Borrowing to get cheaper

The RBI has taken the initiative to establish business continuity measures by introducing long-term repo operation (LTRO) to the tune of Rs 100,000 crore. Through this, RBI offers loans to banks for durations ranging from one to three years at short-term repo rates. This makes medium-term borrowing cheaper for banks, the benefit of which can be passed on to MSME customers. 

State-run banks have been encouraged to earmark loans worth Rs 60,000 crore for such disbursement. Many public sector banks have also extended emergency credit lines for existing borrowers for loans up to Rs 200 crore or 10% of the working capital limit sanctioned, though this varies from bank to bank.

Additionally, MSMEs that manufacture products or provide services related to the COVID-19 fightback can avail of concessional loans at 5% from the Small Industries Development Bank of India (SIDBI) within 48 hours. This entails minimal paperwork and there’s no need for any collateral.

Related: How to borrow money and benefit from it? 

Extension on repayment tenures

Businesses can avail of a three-month moratorium on all loan repayments, including term loans, working capital loans, retail loans, and crop loans. For funding-related working capital sanctioned in the form of cash credit/overdraft, banks can defer the recovery of interest applied during the said period. This breather in the repayment schedule is expected to let businesses navigate cash flow issues and take care of immediate payments such as salaries, rent, and utilities.

Additionally, the government is looking to relax the norms for classification of non-performing assets by increasing the delinquency period from 90 to 180 days. Also, the lockdown period will not be counted for businesses that are on the clock to complete activities relating to a corporate insolvency resolution process, as per the Insolvency and Bankruptcy Board of India (IBBI).

Deferment on IT and GST filing

In view of the challenges faced by taxpayers, Finance Minister Nirmala Sitharaman has announced various relief measures related to statutory and regulatory compliance matters for direct and indirect taxation.

The last date for filing original as well as revised income tax returns for FY 2018-19 has been extended from March 31 to June 30. Moreover, the penalty for non-payment of income tax, TDS, STT, etc. has been reduced to 9%, without the risk of additional penalty/prosecution initiated for such non-payment.

On the GST front, the Central Excise returns due for March, April, and May have a deadline of June 30. Applications pertaining to appeals, refund applications etc., under Customs or Service Tax too can be deferred till June 30. 

Related: Peer-to-peer (P2P) lending: A new lending and borrowing option to explore

Relief for workers

Workers employed in the formal sector who are subscribed to the Employees’ Provident Fund (EPF) will be able to withdraw three months of PF contribution. The Central Government will be making an allocation of Rs 5000 crore towards the PF reimbursement scheme as a part of its Rs 1.70-trillion Pradhan Mantri Garib Kalyan package. 

The funds will be disbursed in the form of reimbursements to businesses that will be paying wages to their employees for the next three months. Employers will have to show proof of payment of three months’ salary to workers to claim the benefit. This scheme is specifically for establishments that employ less than 100 workers. It is set to benefit about 7.9 million workers employed across 3,77,000 MSMEs. 

Related: Small businesses: Taxation 101

Last words

The government has taken some immediate steps to soften the blow for MSMEs; however, over 99% of the enterprises are categorised as ‘micro’ businesses that employ a majority of the labour from the unorganised sector. Experts suggest that the government should consider wage support or subsidy packages to incentivise smaller micro organisations to retain employees during this crisis.

In addition, there is a need to devise a policy framework with a plan of action based on how the different scenarios play out. This could outline compensation for loss of business, deference of utility bills and taxes, and easier access to credit. Experts are of the opinion that the government also needs to draw up a ‘reopening plan’ that will allow businesses to resume operating in a phased manner with all social distancing norms in place. 

Though the future may seem unpredictable, there’s a way for India to emerge stronger out of this mess. The government and businesses – both big and small – must arrive at a consensus on structural changes in business policy for the future, protection of the workforce, and risk management strategies. This will encourage a re-jig of the economy. Look at these initiatives by the Indian government to boost startups in India.




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