Why govt’s cost this year for Rs 5.94 lakh crore MSME package is Rs 25,500 crore
The government’s skin in the game is limited to credit guarantees. For loans to MSMEs, it amounts to guarantees on credit worth Rs 3 lakh crore on collateral free loans.
Finance Minister Nirmala Sitharaman at Wednesday’s press conference. (Express photo: Amit Sharma)
WHILE Finance Minister Nirmala Sitharaman’s MSME package, which adds up to Rs 5.94 lakh crore, will go some distance in providing credit to small business on the back of government guarantees, the fiscal cost of her first tranche in the current financial year is about Rs 25,000 crore. Much of it is liquidity relief, which doesn’t put any burden on the exchequer, according to tax and policy experts.
The government’s skin in the game is limited to credit guarantees. For loans to MSMEs, it amounts to guarantees on credit worth Rs 3 lakh crore on collateral-free loans. Since there is a one-year moratorium on repayment of principal by businesses getting credit under the collateral-free loan scheme, no cost will accrue to the government at least in 2020-21.
You have exhausted your monthly limit of free stories.
Read more stories for free with an Express account.
For subordinate loans of Rs 20,000 crore, its direct support is only Rs 4,000 crore to Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) set up by Sidbi and the government of India. CGTMSE, in turn, provides partial credit guarantee to banks.
Sitharaman also announced an equity infusion of Rs 50,000 crore through a Fund of Funds mechanism, operated by a Mother Fund and few daughter funds. In this case, the government is set to contribute Rs 10,000 crore in the Mother Fund, which could be further leveraged. This fund is likely to invest up to 15 per cent in the equity of small businesses.
To help financial companies raise funds, the Finance Minister said the government would guarantee investment-grade debt paper issued by them. While this would allow companies in the financial sector to cumulatively raise up to Rs 30,000 crore, the government’s exposure will be only in terms of the guarantee, and any fiscal burden will be limited to the extent of defaults on these papers.
The government also provided for stressed NBFCs, again through guarantees. But here the government said it would take the first 20 per cent loss of the total Rs 45,000 crore to be raised by companies, which could be even unrated. In this case, the government’s risk is highest, and could be up to Rs 9,000 crore.
Story continues below this ad
Another relief announced by the Finance Minister is an extension of the scheme announced on March 26. Here, the government’s would directly contribute Rs 2,500 crore towards employer and employee EPF contribution. The companies eligible are those with less than 100 employees and 90 per cent of them earning up to Rs 15,000.
The Rs 90,000 crore liquidity injection to power distribution companies does not have any direct burden on government finances as the loans to be provided by Power Finance Corporation and Rural Electrification Corporation would be given against state guarantees.
The 25 per cent reduction on Tax Deducted at Source and Tax Collection at Source is again a liquidity infusion measure. “It only provides temporary cash in the hands of the taxpayer,” said Ranen Banerjee, Leader, Economic Advisory Services, PricewaterhouseCoopers India.
P. Vaidyanathan Iyer is The Indian Express’s Managing Editor, and leads the newspaper’s reporting across the country. He writes on India’s political economy, and works closely with reporters exploring investigation in subjects where business and politics intersect.
He was earlier the Resident Editor in Mumbai driving Maharashtra’s political and government coverage. He joined the newspaper in April 2008 as its National Business Editor in Delhi, reporting and leading the economy and policy coverage.
He has won several accolades including the Ramnath Goenka Excellence in Journalism Award twice, the KC Kulish Award of Merit, and the Prem Bhatia Award for Political Reporting and Analysis. A member of the Pulitzer-winning International Consortium of Investigative Journalists (ICIJ), Vaidyanathan worked on several projects investigating offshore tax havens.
He co-authored Panama Papers: The Untold India Story of the Trailblazing Offshore Investigation, published by Penguin.
... Read More
