MSME seek fiscal aid amid crisis

The COVID-19 pandemic has affected nearly all areas and sectors of businesses, people, economy, trade and the financial system worldwide. The finance minister Nirmala Sitharaman announced $ 22.3 billion funds to help the poor people striving for all the necessities during this lock-down period. The biggest effect of covid-19 pandemic is on the Micro Small and Medium Enterprises (MSMEs) exporters. This is because this sector constitutes nearly 45% of the total outbound shipments. It also contributes nearly 25% to the GDP of the country.

MSME’s problems:

The CEO of one of the MSME, Anntech Offshore Engineering Pvt. Ltd. Ashokan Puthenpurackal said to the media that the major clients are refusing to make payments to the company. Thus impacting the cash flow of the company. All the small mid-sized and large companies are trying to borrow credit from banks and other financial institutions, calls for tax deferrals to ensure a continuous flow of operations and to maintain stability in the economy. The decreasing cash flow with no financial support will lead the company to lay off of its employees.

The government is trying to provide incentives to the most affected sectors like hospitality, tourism, etc. and is also planning for tax deferral payments. The other countries are trying to help the companies by providing Bank guarantees and fiscal support of at least 30% of the GDP. In India, it is less than 1% of the GDP. Experts say that the government should provide support of at least $8 trillion.

RBI’s support:

The RBI has headed to provide support for the economy but the governor Shaktikanta Das explained the significance of fiscal measures during this pandemic situation. The condition will continue to be unstable and there will be an increase in the NPAs, insolvencies, unemployment problems, etc. The Indian Government has not announced any special packages for the MSME sector but is now concerned mainly for the people of the country and to control the number of COVID patients.

Any chaotic and constant measures announced will lead to increase in the fiscal debt. Before taking any measure/decision, the government has to look into all the aspects and their impact on the people. The Central Government is also planning to provide $39 billion of loans to MSMEs. It will help to recover the businesses thereby helping to revive the economy. This proffer can be used by the firms to borrow 2/10th of their credit limit. It will also have a fund to pay for defaults, if any. The government is considering the problems of the manufacturing units who are struggling to operate their business amid lock-down.

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