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A day after Unlock 1, Cabinet approves economic package for MSMEs, farmers

Medium enterprises in the manufacturing and services sectors will now include companies with investment of Rs 50 crore in plant and machinery and turnover up to Rs 250 crore.

Written by Sunny Verma , Harikishan Sharma | New Delhi |
Updated: June 2, 2020 7:43:57 am
modi cabinet meeting, pm modi cabinet meeting, india lockdown, lockdown relaxations, economic relief package, lockdown economic relief package, Rs 20-lakh crore relief package, India news, indian express news At the Union Cabinet meeting on Monday. (PIB)

THE UNION CABINET Monday approved an expanded definition of MSMEs, a Rs 50,000 crore Fund of Funds to provide equity support to growth-oriented MSMEs, and Rs 20,000 crore funding support to distressed companies through provision of partial credit guarantee. It also decided that export turnover of companies will not be counted in the limits of turnover for any category of MSME.

Medium enterprises in the manufacturing and services sectors will now include companies with investment of Rs 50 crore in plant and machinery and turnover up to Rs 250 crore, as against the May 13 announcement by the Finance Minister that had set investment and turnover limits at Rs 10 crore and Rs 100 crore, respectively.

Federation of Indian Export Organisations (FIEO) President Sharad Kumar Saraf said enhancement of the turnover limit for medium units is most pragmatic. It will help infuse technology as margins in certain sectors are so low that enhancement in investment in plant and machinery would not have been of much use unless accompanied by an increase in turnover limit to Rs 250 crore. Exclusion of exports from turnover, will benefit a lot of gems and jewellery companies, who would have breached the MSME criteria due to sheer cost of their inputs, he said.

Read | Piyush Goyal: ‘Will achieve $5 trillion economy… won’t let Covid affect resolve’

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While the definition of medium enterprises have been widened, Rs 3 lakh crore of collateral free loans to MSMEs announced earlier will be provided through the criteria announced on May 13. The government had announced that emergency credit facility for MSMEs with Rs 25 crore debt outstanding and Rs 100 crore turnover. Banks will provide them additional 20 per cent credit backed by 100 per cent government guarantee against these loans. No change has been made in these criteria.

Gadkari said these changes should kick in from July 1 as the government will amend the law through an Ordinance.

Also Read | One in three small businesses close to winding up, says survey

The Cabinet also approved setting up of a Rs 50,000 crore Fund of Funds to provide equity support to MSMEs, encouraging them to get listed on stock exchanges. Gadkari said this would help growing companies with good track record get equity funding from the government at initial stages, which they can then capitalise while listing on stock exchanges. He said the proposed Fund should also benefit from such eventual listing of the MSMEs. Listing of companies will help free up capital of the Fund which can be further used for equity infusion. This would provide significant equity support to a large number of growth oriented MSMEs. Over the next few years, he hoped that the fund size can rise up to Rs 3 lakh crore.

Another Distressed Asset Fund will be set up to support MSMEs in significant stress, and the corpus of this fund can rise up to Rs 20,000 crore. The government will provide a support of Rs 4,000 crore to the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) which will help in facilitating Rs 20,000 crore of subordinate debt to nearly 2 lakh enterprises. Stressed small companies whose loans have been classified as NPAs will be given subordinate debt by banks against a partial credit guarantee provided by the government.

MSMEs, which make up for about 45 per cent of the country’s total manufacturing output, 40 per cent of exports, almost 30 per cent of the national GDP and operate across the value chain – including cycle parts, auto parts, textiles products, toys, hand tools – are stressed due to depleting internal reserves and low visibility of demand. Easing of the lockdown, and support measures provided by the government through banking channels, would help them survive through the slump induced by economic shutdown that has been in force to prevent spread of Covid-19.

Explained | Why are Medium, Small, Micro Enterprises worst hit by Covid-19 lockdown?

For the farm sector, the government announced Minimum Support Prices for kharif season 2020-21, based on recommendation of the Commission for Agricultural Costs and Prices (CACP). The return over cost for these 14 crops ranges from 50 per cent to 83 per cent, the government said. For street vendors, the government said they can avail loans Rs 10,000, repayable in one year monthly instalments. The government will provide interest subsidy of 7 per cent annually on a six-monthly basis on timely/ early repayment of the loan.

In another decision, the Cabinet approved extending the repayment date for short term loans up to Rs 3 lakh for agriculture and allied activities to August 31 from May 31. This will help the farmers to repay/ renew such loans up to the extended repayment date at 4 per cent a year interest without attracting any penalty. Farmers will continue to benefit from the 2 per cent interest subvention and 3 per cent prompt repayment incentive during the extended repayment period.

The MSP for paddy has been increased by Rs 53 a quintal to Rs 1,868 or 2.92 per cent compared with KMS 2019-20. Agriculture Minister Narendra Singh Tomar said, “Based on the recommendation of the Commission for Agricultural Costs and Prices (CACP), the Union Cabinet has approved MSP of 14 crops.” The increase in support price of paddy will ensure 50 per cent return over the cost to the farmers, he said.

The highest increase in MSP (Rs 755 per quintal) was for nigerseed, followed by sesamum (Rs 370 per quintal), urad (Rs 300 per quintal) and long staple cotton (Rs 275 per quintal). The lowest increase, in percentage terms, was for moong (2.07 per cent or Rs 146 per quintal). The MSP for cotton (medium staple) has been increased by Rs 260 per quintal to Rs 5,515 per quintal for 2020-21 from Rs 5,255 per quintal last year. “The differential remuneration is aimed at encouraging crop diversification,” said a government statement.

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