Tag: india discoms

Govt May Not Extend Rs 3 Lakh Crore Credit Guarantee Scheme for MSMEs Beyond October

The sanctioned amount under the programme, which was part of the COVID-19 relief package, has only hit 65% of the target, sources said.

New Delhi: The government is unlikely to extend the Rs 3 trillion-Emergency Credit Line Guarantee Scheme (ECLGS) for MSME sector beyond October even though the sanctioned amount so far is only nearly 65% of the target, sources said.

The scheme is meant to provide financial support to businesses, primarily Micro, Small and Medium Enterprises (MSMEs), impacted by slowdown triggered by the coronavirus pandemic.

Sources said the objective is to provide support to all those affected and if there are no takers for the scheme, there is no need to extend the scheme even though there is some room left.

On August 1, the government widened the scope of the Rs 3 trillion-scheme by doubling the upper ceiling of loans outstanding and including certain loans given to professionals like doctors, lawyers and chartered accountants for business purposes under its ambit.

Also read: Why India’s MSME Sector Needs More Than a Leg-Up

To ensure more companies can benefit from the scheme, it was decided to increase the upper ceiling of loans outstanding as on February 29 for being eligible under the scheme from Rs 25 crore to Rs 50 crore.

The maximum amount of Guaranteed Emergency Credit Line (GECL) funding under the scheme was correspondingly increased from Rs 5 crore to Rs 10 crore.

Announced as part of the government’s Rs 20.97 trillion-economic package in the wake of the coronavirus pandemic, the scheme was later tweaked to be made applicable for companies with an annual turnover of Rs 250 crore as against the earlier threshold of Rs 100 crore.
Banks and Non-Banking Financial Companies (NBFCs) have approved loans worth about Rs 1,87,579 trillion while disbursement stood at Rs 1,36,140 crore as on October 5.

On May 20, the Cabinet approved additional funding of up to Rs 3 trillion at a concessional rate of 9.25 per cent through ECLGS for MSME sector.

Under the scheme, 100 per cent guarantee coverage will be provided by the National Credit Guarantee Trustee Company (NCGTC) for additional funding of up to Rs 3 trillion to eligible MSMEs and interested Micro Units Development and Refinance Agency (MUDRA) borrowers in the form of GECL facility.

The scheme will be applicable to all loans sanctioned under GECL facility during the period from the date of announcement of the scheme to October 31 or till the amount of Rs 3 trillion is sanctioned under GECL, whichever is earlier.

MSMEs Face Unbelievable Disaster, Poor Forgotten: Karan Thapar Interviews Jayati Ghosh

Prof Ghosh said she was very doubtful of the finance minister’s commitment that MSME dues would be cleared within 45 days as such commitments have been frequently made and reneged upon.

In a strong and forceful attack on the government’s recent package of measures to alleviate the suffering of the poor and vulnerable, as well as the plight of MSMEs, Professor Jayati Ghosh has said no one would have believed that a democratic government would treat its own citizens, who are poor and vulnerable, so badly.

Ghosh said it seems as if the Modi government just doesn’t care what happens to the hundreds of millions who’ve lost their livelihood and face destitution and starvation. She said she was embarrassed – and not just disappointed – by the measures announced by the finance minister on Thursday to tackle the plight of migrant workers.

In a 27-minute interview to Karan Thapar for The Wire, Prof Ghosh, who chairs the Centre for Economic Studies and Planning at Jawaharlal Nehru University, went on to say that India’s elite were also to blame for the way the poor, who are one-third of the population, are being treated. She said that they were permitting it to happen from the comfort of their homes.

Prof Ghosh said she was appalled the government had not ordered immediate cash transfers and enhanced the free grain allocation. She said, as things stand, the relief measures announced in March terminated at the end of June, which is six weeks away, but the government had not even spoken of extending them. She told The Wire that whilst ration card portability or affordable rental accommodation schemes were welcome and necessary they were hardly what was needed in an immediate existential crisis. She said the interest subvention for Mudra Shishu loans was meaningless because it was well known, for quite a while before the lockdown, that the vast majority of these loans would be defaulted upon.

Prof Ghosh told The Wire that the measures announced on Wednesday to help MSMEs would not make a meaningful difference. What was needed – but not done – were three steps: immediate payment of the Rs 5 lakh crore dues owed to MSMEs by the government, vigorous steps to increase demand by giving people money and increased funds for state government who are in the frontline of the struggle to fight the virus and revive lives and livelihoods.

Prof Ghosh said she was very doubtful of the finance minister’s commitment that MSME dues would be cleared within 45 days by the Central government and central PSUs. She said such commitments had been frequently made and reneged upon.

Why the Fiscal Damage of the Government’s Latest Economic Package is Not That High

The total fiscal outlay for FY20-21 is only to the extent of Rs 16,500 crore. Worries of a Rs 5 trillion shortfall in revenue collections have been laid to rest for the time.

A 10% of GDP stimulus–wow! That was the expression I had when I heard it in the address to the nation by the prime minister. There was a clamour for a big stimulus and it could not have got any bigger.

But then as the number of zeros after two settled down in my mind, I got worried as to what it would do to the fiscal math, debt stock and consequent implications on the economy. The questions that came to me were what will happen to inflation, will there be a sovereign rating downgrade by a couple of notches, will the exchange rate go out of control, what will it do to the bond yields, will it crowd out private investment and so on. I was therefore eagerly awaiting the speech of the finance minister to get to the details and the fine print.

After listening to the speech by the finance minister, I am now a little less worried with the questions that were coming to my mind. It is primarily because the total stimulus package details that were announced today add up to Rs 5.94 trillion. However, we need to note that this is not a fiscal outlay for the current year. The direct fiscal costs from the stimulus measures announced are not that large.

If we look at the biggest item of Rs 3 trillion collateral-free loans for SMEs, there is no cost to the exchequer this financial year. The banks will do the lending and the only cost will be the NPAs on account of these loans that are being guaranteed by the government. These costs will begin occurring only in the next financial year and that to the extent of the loans going bad. MSMEs getting this collateral-free loan would not like to be willful defaulters on these as it will cause their credit records to be spoilt and good performance on servicing these loans may lead to lesser collateral requirements for such borrowers in future.

Also read: PM CARES Makes Its First Move: Rs 3,100 Crore for Care of Migrants, Acquiring Ventilators

Similarly on the next two items of subordinated debt and equity infusion in MSMEs of Rs 20,000 crore and Rs 50,000 crore, respectively, entail an actual outlay of Rs 14,000 crore only. The EPF support for an additional three months will entail an outlay of Rs 2,500 crore this year. The reduction in statutory PF limits does not entail any additional outlay. The Rs 30,000 crore special liquidity scheme for NBFCs/HFCs/MFIs also does not entail any additional fiscal burden during this financial year and the implication can come in the year of maturity of these securities in case there is a default and invocation of the guarantee.

Similar is the case with the Partial Credit Guarantee scheme. The Rs 90,000 crore of liquidity injection in the discoms will also not entail any additional stress on the fiscal as this money will come back to the central government through the gencos as they will receive this from the discoms. If the receivables of the discoms go bad, it will put pressure on the state budgets as the liquidity infusion to the discoms is expected to be guaranteed by the states. The Rs 50,000 crore liquidity injection through relief on TDS and TCS is also an accouniting issue and it will only impact to the extent of float enjoyed by the government as these got settled in the next financial year with cash basis accounting being followed by the government.

Thus, the total fiscal outlay for FY20-21 is only to the extent of Rs 16,500 crore. My worries that a Rs 20 trillion of stimulus with about Rs 5 trillion shortfall in revenue collections (including non-realisation of the divestment proceeds of Rs 2 trillion makes it a Rs 25 trillion additional deficit) has therefore been laid to rest for the time.

Also read: In First Round of Stimulus, Sitharaman has Leaned on Banks and PSUs to Deliver the Goods

The government has very rightly focused on the MSMEs that contributes to a significant part of the GDP and employment. MSMEs have been hit badly over the past few years and COVID-19 was like the proverbial last nail in the coffin. The measures announced today will surely provide a new lease of life to the MSMEs. The new definitions will also provide the incentive to the dwarf MSMEs to grow and shed their fears of losing out on benefits upon growing. The services sector MSMEs will benefit greatly with the significant jump in investment and turnover limits and will see a huge boost. The work from home being a new normal could help in the growth in smaller service sector MSMEs.

By arrangement with Business Standard.

Liquidity Measures Do Not Amount to Fiscal Stimulus, says Chidambaram on Economic Package

While the former finance minister criticised the Centre for completely leaving out informal sector workers, other opposition leaders called the relief package another false promise.

New Delhi: Former finance minister P. Chidambaram criticised the Union government for completely leaving out India’s informal sector workers from the relief package that finance minister Nirmal Sitharaman spelled out on Wednesday.

While commenting on the fiscal stimulus package, he said, “Let me first point out that there is nothing, absolutely nothing in what the FM said today for the lakhs of poor, hungry and devastated migrant workers who have walked — and many thousands are still walking — back to their home states. This is a cruel blow dealt to those who toil every day.”

Also read: Rs 20 Lakh Crore Booster Shot: Sitharaman Unveils First Instalment Aimed at MSMEs, NBFCs, Discoms

He said that Prime Minister Narendra Modi’s announcement of an economic stimulus worth Rs 20 lakh crore “as expected… and as perhaps it was intended by the government… grabbed headlines”.

“The page, however, was blank,” the Congress leader said.

Advocating that the Union government should have initiated cash transfers to the poor, as eminent economist Thomas Pikkety had said on Tuesday, Chidambaram said that neglecting the poor (approximately 13 crore families) would push many “into destitution”.

While he welcomed the relief to MSMEs – the offer of subordinate debt (Rs 20,000 crore) and equity corpus fund (Rs 10,000 crore) – he said even this measure was skewed in favour of the larger MSMEs (around 45 lakh), while the “bulk of the 6.3 crore” units were “left high and dry”. He said he would still prefer to wait for the “terms and conditions” for the relief measures announced by the finance minister before he could comment with greater authority.

“The devil is in the detail. On the credit guarantee fund, it is not the entire fund that will be actually spent. The expenditure will be limited to the extent of NPAs in the outstanding guaranteed credit to MSMEs. Assuming an NPA level of 20-50 per cent, the actual expenditure over the period of the loans (which may be years) will be a maximum of Rs 3,00,000 crore,” he said.

He further said that the government on Wednesday had announced schemes that would be valued at Rs 3,60,000 crore, while the promise was of a Rs 20 lakh crore package.

Also read: PM’s Relief Package Speech: Opposition Cautious About Details

“Where is the rest of the Rs 16.4 lakh crore?  This government is a prisoner of its own ignorance and fears. The government must spend more, but it is not willing to do so. The government must borrow more, but it is not willing to do so. The government must allow states to borrow more and spend more, but it is not willing to do so. Except for the modest MSME package, we are disappointed with today’s announcements,” he said.

He added that a slew of liquidity-related measures spelled out by the government do not qualify as fiscal stimulus. “Such measures do not amount to fiscal measures of support and nowhere in the world are they included or counted in a fiscal stimulus package,” he observed.

What did other opposition leaders say?

Other opposition parties hit out at the government for not catering to the more immediate needs of the economy. The Communist Party of India (Marxist) general secretary said that there was nothing in the package for the working classes who have been the worst victims of the lockdown. He said that although the states, which are at the forefront of the fight against the coronavirus pandemic, have been asking for funds from the Centre, the finance minister did not bother to address the issue at all.

On the reduction of employees provident fund contribution from 12% to 10%, as announced by Sitharaman, Yechury said, “What a ‘package’! People’s own money, being packaged back to them as refunds and a boost! People’s own savings and income tax refunds being given back to them – How can this be a ‘stimulus’?”

Manoj Kumar Jha of the Rashtriya Janata Dal said that Modi’s much-touted relief package was yet another false promise. He said that by ignoring millions of workers from the relief package, the Prime Minister has once again indicated that his motto of “self-reliance” was only meant to ask the poor to fend for themselves.

Trinamool Congress MP Derek O’ Brien, too, accused the Centre of “killing federalism” as there was nothing in the financial package to aid the states.

In First Round of Stimulus, Sitharaman has Leaned on Banks and PSUs to Deliver the Goods

While all of them are important measures, most of them will not add to the fiscal deficit.

The prime minister, Narendra Modi, boosted market confidence by announcing on Tuesday a Rs 20 trillion package. The composition of the same was always going to be a point of interest.

The economic relief package was expected to be in some tranches, and hence, theFinance Minister (FM) will have something for the market players in the next couple of days.

The FM has spoken of 15 odd measures in Round 1 with focus on micro, small and medium enterprises (MSMEs), non-bank finance companies (NBFCs) and power sector, which is significant. This is in keeping in mind both the importance of the tenet of ‘Make in India’ and going local.

The credit angle is interesting for them as the Rs 3 trillion to be disbursed by banks would go as collateral free debt for four years with a 12-month moratorium. This will help them to access funds to meet requirements for payment of salaries and raw materials.

Also read: The Simple, and Simplistic, Messaging of Modi’s Lectures Is a Big Hit With His Audience

For the units under stress, Rs 20,000 crore support is to be provided as subordinate debt. The ones which are viable, Rs 50,000 crore of equity infusion is to be created from a fund of funds, or Rs 10,000 crore, so as to enable them to grow and get listed on SME exchanges. Hence, the flow of funds will improve for the SMEs. It would, however, need to be seen whether banks would go beyond the priority sector stipulation over here, as there are loans being given even today to the SMEs under MUDRA, and hence the delta involved would be interesting to watch.

The alteration of the definition of MSMEs is definitely good for them. So far, there was an incentive to remain small due to the benefits to be drawn by being so classified. However, now they could grow to higher levels as specified, which will help to build scale. On-time payments will help them to get their dues from government agencies.

The other big announcement pertains to the NBFCs, which do not have a good rating. For this, there are two measures. The first is guaranteeing Rs 30,000 crore of debt and giving 20% first loss guarantee of Rs 45,000 crore. These, as can be seen, would be contingent liabilities for the government and hence not really add to the fiscal deficit until invoked.

Also read: India Needs a Big-Bang Stimulus, Not Sermons on How There Is No Free Lunch

The third big measure is for discoms for Rs 90,000 crore, which will be funded by Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC) against receivables of these distribution companies. This move will ensure that the Discoms can make payments to their suppliers, which would be the generators and transmission companies. Hence, this is good move for the power ecosystem.

These two big measures would involve around Rs 3 trillion from banks, Rs 30,000 crore from the budget for subordinate debt and equity support (it can be assumed that Rs 40,000 crore of the Rs 50,000 crore would be funded by private players), and Rs 75,000 crore as contingent liability.

The third is being supported by the public sector undertakings (PSUs), which would probably have to use their reserves or borrow from the market. Given their good credit rating, they would be in a position to do so at a lower cost. Quite clearly, these big measures have been kept outside the direct ambit of the Budget as of now and involves other agencies like banks and PSUs providing the funding.

Given that around Rs 7.5 trillion of relief was provided by the Reserve Bank of India (RBI) and government earlier, the balance Rs 12.5 trillion was to be expounded on. Wednesday’s measures are for around Rs 5.85 trillion (including Rs 50,000 crore in TDS, which is not a give-away as it has to be paid at the end of the day). Another Rs 6.5 trillion or so would probably be announced over the next few days. We need to wait and watch.

By arrangement with Business Standard.

Rs 20 Lakh Crore Booster Shot: Sitharaman Unveils First Instalment Aimed at MSMEs, NBFCs, Discoms

The total value of announcements made today run up to nearly Rs 6 lakh crore, but most of it is heavily credit-focused. It is unclear therefore how much of this will result in direct and additional spending by the Centre.

New Delhi: Finance minister Nirmala Sitharaman on Wednesday announced a host of measures aimed at helping ease the liquidity and financial concerns of India’s micro, small and medium enterprises (MSMEs), which have been hit hard by the COVID-19 lockdown.

Sitharaman also unveiled a special liquidity scheme worth Rs 30,000 crore for non-banking financial companies, housing finance companies and microfinance institutions and a separate plan to infuse Rs 90,000 crore into power distribution companies.

The measures – which are the first tranche of the broader Rs 20 lakh crore package announced by Prime Minister Narendra Modi on May 12 – include government guarantee for Rs 3 lakh crore worth of collateral-free automatic loans, a subordinate debt programme and a number of relaxations on the EPF and TDS  front.

Other components of Modi’s package are still unknown and will be unveiled by the finance ministry over the next few days through a series of planned daily briefings.

Also read: The Simple, and Simplistic, Messaging of Modi’s Lectures Is a Big Hit With His Audience

“Essentially, this is to spur growth and to build a self-reliant India. That is why this initiative is called ‘Atmanirbhar Bharat Abhiyan’,” the finance minister said, adding this would not mean that India would become an “isolationist country

The mission is to make a confident nation and the intention is to build local brands and take them to the global level, she added.

While the total value of the announcements made by the finance minister today run up to nearly Rs 6 lakh crore, it is unclear how much of this will result in direct and additional spending by the Centre.

To a question on the cash outgo given today’s relief measures, Sitharaman responded by merely saying that journalists should wait for all announcements over the coming days.

The Congress Party has criticised the announcements, saying that there was little focus on the demand-side of the economic crisis.

“The Finance Minister announced some support measures for MSMEs, although my comment is, the measures were skewed in favour of the larger MSMEs – about 45 lakh MSMEs. I think the bulk of the 6.3 crore MSMEs were left high and dry,” said former finance minister P Chidambaram.

“We welcome the offer of subordinate debt (Rs 20,000 crore) and equity corpus fund (Rs 10,000 crore), but we will await the ‘terms and conditions’.  The devil is in the detail.  On the credit guarantee fund, It is not the entire Fund that will be actually spent. The expenditure will be limited to the extent of NPAs in the outstanding guaranteed credit to MSMEs. Assuming an NPA level of 20-50 per cent, the actual expenditure over the period of the loans (which may be years) will be a maximum of Rs 3,00,000 crore.”

Full list

Sitharaman announced 16 steps today – six measures for MSMEs, two measures related to EPF, two related to NBFCs, HFCs and MFIs, one or discoms, one for real estates in addition to three other tax measures.

The full list of announcements is as follows:

  • Rs 3 lakh crore collateral-free automatic loans for business, including MSMEs. Emergency credit line to Businesses/MSMEs from Banks and NBFCs up to 20% of entire outstanding credit as on February 29, 2020. Borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover eligible. Loans to have a 4 year tenor with moratorium of 12 months on Principal repayment. Interest to be capped.100% credit guarantee cover to Banks and NBFCs on principal and interest.
  • Rs 20,000 crore subordinate debt for MSMEs.
  • Rs 50,000 crore equity infusion through MSME Fund of Funds.
  • New definition of MSMEs that will allow the to grow without losing government benefits.
  • Global tenders worth up to Rs 200 crore will now be disallowed.
  • Rs 2500 crore EPF support for businesses and workers for three more months
  • EPF contribution reduced for business and workers for 3 months – Rs 6750 crore.
  • Rs 30,000 crore liquidity facility for NBFC/HCs/MFIs
  • Rs 45,000 crore partial credit guarantee scheme 2.0 for NBFC
  • Rs 90,000 crore liquidity injection for DISCOMs
  • The rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts shall be reduced by 25% of the existing rates. This reduction shall be applicable for the remaining part of the FY 2020-21 i.e. from tomorrow to 31st March, 2021. This measure will release liquidity of Rs. 50,000 crore.
  • Extension of registration and completion date of real estate projects under RERA
  • Due date of all income-tax return for FY 2019-20 will be extended from 31st July, 2020 & 31st October, 2020 to 30th November, 2020 and Tax audit from 30th September, 2020 to 31st October,2020.