The focus area of today’s announcement included the Micro, Small and Medium Enterprises (MSMEs), NBFCs and MFIs.
13 May 2020 | 7122 Views | By Shahkar Abidi
Auto industry welcomes re-definition of MSMEs and spate of liquidity boosting measures from the Finance Minister for Micro, Small and Medium Enterprises (MSMEs), NBFCs and MFIs. This included collateral free loans for MSMEs upto 300,000 crores.
After Prime Minister Narendra Modi announced a Rs 20 lakh crore (US$ 260 billion) economic ...
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Auto industry welcomes re-definition of MSMEs and spate of liquidity boosting measures from the Finance Minister for Micro, Small and Medium Enterprises (MSMEs), NBFCs and MFIs. This included collateral free loans for MSMEs upto 300,000 crores.
After Prime Minister Narendra Modi announced a Rs 20 lakh crore (US$ 260 billion) economic relief package under the scheme christened 'Atma Nirbhar Bharat' or Self-Reliant India, the Finance Minister, Nirmala Sitharaman came out with the first tranche of the details of the mega stimulus package. The focus area of today’s announcement included the Micro, Small and Medium Enterprises (MSMEs), NBFCs and MFIs.
According to Finance Minister, the collateral free loan from banks and non-banking financial institutions (NBFCs) may constitute up to 20 percent of the entire outstanding credit as on February 29 this year. The borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover will be eligible for the loan which will be for the tenure of 4 years. A moratorium of one year is also available on payment of principal repayment.
MSMEs which constitute over 70 percent of India’s automotive component manufacturing plays an important role in the supply chain. Any critical development with regard to MSMEs therefore has a direct bearing on the overall automotive industry
Further, Sitharaman announced facilitating provision of Rs 20,000 crore as subordinate debt. Even the MSMEs which are NPAs currently will be included under this scheme. But the measures are not just limited to non-performing MSMEs. Even those with a viable business opportunity had something to look forward to from the Finance Minister. There will be Rs 50,000 crore equity infusion to encourage such companies to expand in size and capacity.
Industry experts claim that the measures will help the auto companies which have been badly hit due to Covid19 and need additional funding to meet the operational liabilities, purchase raw materials, pay employees and others and thereby restart their businesses. The gravity of the situation can be gauged from the fact that domestic automotive industry is estimated to be losing over Rs 2,300 crore turnover a day since the lockdown began on March 24. Further, the industry may collectively accumulate losses of about Rs 126,500 crore over a 55-day period, considering lockdown has been extended till May 17.
Redefining MSMEs
The government also re-defined the parameters of what constituted a MSME.
Additionally in an effort to further boost the business viability, it has been decided that global tender will be disallowed up to Rs 200 crores to benefit MSMEs. According to the Finance Minister, Indian MSMEs and other companies often faced unfair competition from foreign companies. This measure is expected to help MSMEs to participate more actively, particularly for Government procurement.
Auto industry hails the announcement
Hailing the latest announcements from the Finance Minister, Deepak Jain, president, ACMA said, “With this new classification, a significant number of ACMA members stand to benefit as the sector is dominated by smaller enterprises. That apart, infusion of liquidity through the Collateral Free Automatic loans and the Subordinate debt scheme, will ease the severe challenge of Working Capital being faced by the sector.”
Jain is hopeful that the government will soon announce a package for demand generation for the automotive sector, “A uniform GST rate of 18% on all vehicles and auto components, backed by an incentive-based scrappage policy would bring the automotive industry back on track. That apart, we look forward to support from the government for payment of salaries of workmen and contractual labour during the lockdown period.”,
Naveen Soni, senior vice president - Sales & Services, Toyota Kirloskar Motor gave a thumbs up to the re-definition of what comprised a MSMEs. “Furthermore, the reclassification of the MSME sector, based on investment and turn over will open up various enterprises to remain as MSMEs, aiding cash flow with collateral free loans.”
Sunjay Kapur, chairman, Sona Comstar, said “It’s a good first step to address the issue of survival as a large number of small businesses which is the backbone of our country and measures taken to help them in way of collateral free loans and the fund of funds.''
Maxson Lewis, managing director, Magenta Power too welcomes the decision, "Making capital available to the MSME sector which is the biggest employer is welcome."