India offers relief to small enterprises under massive economic stimulus

Priya Jestin


MUMBAI (ICIS)–The first tranche of India’s massive economic stimulus package was meant to prop up the micro, small and medium enterprise (MSME) sector of the giant emerging market economy amid the coronavirus pandemic.

Indian finance minister Nirmala Sitharaman announced on Wednesday evening a rupee (Rs) 3tr ($40bn) collateral-free loan scheme for the country’s 4.5m MSME units.

This will ensure their access to working capital to resume business activity and safeguard jobs as India emerges from nearly two months of nationwide lockdown.

Non-banking financial companies (NBFCs), and microfinance institutions, which mainly serve the MSME sector will also receive support through a Rs300bn investment scheme fully guaranteed by the government, and an expanded partial credit guarantee scheme.

These measures should help revive the MSMEs, which was the worst-hit sector by the pandemic-induced lockdown. Due to the lockdown since 25 March, small companies with weak cash flows had stopped paying wages and were forced to retrench employees.

MSMEs account for nearly 30% of India’s GDP and employ over 120m people. These businesses usually depend on month-to-month operation, with little reserves.

A major bulk of the chemical, specialty chemical, agrochemical and auto ancillary units form part of the MSME sector.

Under the stimulus package, the government has introduced a turnover criterion and removed the distinction between manufacturing and services units.

The revised classification will allow enterprises in both manufacturing and service sector to be defined as ‘micro’ if they have an investment up to Rs10m and turnover up to Rs50m.

Earlier, firms were considered micro if they had an investment up to Rs250,000. Similar changes have been made in the category of ‘small’ and ‘medium’ enterprises.

This will allow the MSMEs to scale up and expand their operations without losing the benefits of being in the MSME sector.

In line with supporting the sector, global tenders will be banned for government procurement contracts worth up to Rs2bn.

India’s total Rs20tr stimulus package, which is equivalent to nearly 10% of its GDP, should help revive the emerging market giant amid ravages inflicted by an extended nationwide lockdown to contain the coronavirus pandemic.

The country will release its GDP data for the fiscal year ending March 2020 by the end of the month.

“The redefinition of MSMEs and the decision to not have global tenders for government procurement up to Rs2bn, will assist this sector to grow and emerge as a vibrant and dynamic sector, contributing to self-reliance and employment in a big way,” said Chandrajit Banerjee, director general of industry body Confederation of Indian Industry (CII).

“The fiscal stimulus package promises to place India back on the path to economic recovery,” he added.

Federation of Indian Chambers of Commerce and Industry (FICCI) president Sangita Reddy said the industry looks forward to more such measures.

Deepak Jain, president of the Automotive Components Manufacturers Association (ACMA) believed that a significant number of ACMA members will benefit from this announcement.

“Infusion of liquidity through the loans and the debt scheme will ease the severe challenge of working capital being faced by the sector,” he added.

Federation of Indian Micro and Small & Medium Enterprises (FISME) secretary general Anil Bhardwaj, however, said that the current measures were not enough and the industry expected more from the government.

We were expecting the government would provide direct support. Our losses are mounting and there is no business,” he added.

Meanwhile, official data released on Tuesday showed that India’s March industrial production shrank 16.7% year on year, as factories shut down in late March.

Industrial output for fiscal the fiscal year ending March 2020 contracted by 0.7% compared with a growth rate of 3.8% in 2018-19, the data showed.

Manufacturing, which accounts for 78% of the index of industrial production (IIP), showed a drop of 20.6% with all the 23 sub-sectors posting year-on-year contractions.

The automobiles sector, which is a key downstream for petrochemicals, saw a 49.5% year-on-year slump in motor vehicle production in March.

Focus article by Priya Jestin

($1 = Rs75.50)

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