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Prime Minister Narendra Modi in his televised address to the nation on Tuesday, May 12, announced a humongous Rs 20 lakh crore economic relief package termed Atmanirbhar Bharat Abhiyaan.
The package aimed to provide relief to the people of the country under financial stress due to uninvited coronavirus lockdown and also to revive the COVID-19 hit economy.
It was unveiled and detailed out by Finance Minister Nirmala Sitharaman in five tranches with immediate and long term policy reforms bundled together.
Government's Relief To MSMEs
The first tranche, announced by the Union Finance Minister was aimed at Micro, Small and Medium Enterprises (MSMEs).
The finance ministry has redefined the classification of enterprises defined under MSMEs.
Such enterprises will now be classified based on their investment as well as turnover, clubbing both manufacturing and services under the definition.
Up to ₹1 crore
|Up to ₹5 crore ||Micro Unit|
Up to ₹10 crore
Up to ₹50 crore
Up to ₹20 crore
|Up to ₹100 crore|
The revised classification has been done in an attempt to provide relief to the existing-stressed business which now can qualify for broader safeguards under the law.
A total of ₹3-lakh crore has been allocated to provide funds to all such MSMEs with a turnover of up to ₹100 crore and with outstanding credit of up to ₹25 crore.
Enterprises under the aforementioned category can avail fresh loan amount can be up to 20% its outstanding credit as on February 29, 2020.
These loans will have four-year tenure and will be open until October 31. Startups that meet the MSMEs criteria can register on Udyog Aadhar and avail the benefits.
Collateral- Free Loans
The Centre has decided to offer collateral-free loans to MSMEs.
To avail a collateral loan, the borrower has to pledge an asset.
The loan amount depends on the value of the collateral. This type of loan is secured because the lender has the option to liquidate the asset in case of payment default on the part of the borrower.
These loans will stand fully guaranteed by the Centre to avoid the financial burden of defaults on the banking sector and to allow them to provide risk-free loan to such borrowers.
There will also be a principal repayment moratorium (principal payment to be deferred/postponed) for 12 months and the interest rate will be capped. Also, there will be no guarantee fee.
It is expected that the loan amount would inject liquidity in the companies that don't have cash inflow due to the coronavirus crisis and the lockdown.
This liquidity would aid them in buying raw materials, pay for fixed expenses such as electricity bill and wages to employees and would support in kickstarting the operation as the country gears to open up in the gradual weeks.
About 45 lakh MSMEs are expected to gain from this scheme.
A scheme has also been proposed for the promoters of these units.
A partial credit guarantee scheme has been extended to enable promoters to increase their equity in their businesses i.e provide liquidity.
A total of ₹20,000 crore will be put into the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) whereby banks will lend money to promoters which can be invested as equity in their businesses.
In another move to infuse equity into MSMEs, a Fund of funds system will be created with an infusion of ₹50,000 crore which will be used to provide finances to MSMEs through 'daughter funds' of the main Fund of funds.
It has been created to aid the enterprises to grow in size and capacity with equity and reportedly also help them get listed for stocks.
In a welcome move, the Finance Minister raised the minimum threshold of initiating insolvency proceedings from ₹ 1 lakh to ₹ 1 crore. This would provide protection to the MSMEs and help them tide over a crisis-situation.
The Finance Minister added that the insolvency proceedings will not be initiated up to one year.
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