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Editorials - July 22, 2022

MSME definition to be widened further.

MSME definition to be widened further.

Government considers further broadening of the definition of micro, small and medium enterprises (MSMEs). With a vision to extend various official benefits to small businesses and to make sure that their schemes reach the maximum eligible firms, government is trying to pull as many micro, small and medium businesses as possible under the ambit of the definition of MSME.

The original definition:

Definition of MSME used to define micro units as having investment not more than Rs 25 lakh, small unit having investment between Rs 25 lakh -Rs 5 cr and medium one having investment between Rs 5 cr – Rs 10 cr. And in case of services, investment in a micro enterprise was must up to Rs 10 lakh in equipment, for that of small enterprise between Rs 10 lakh and Rs 2 cr and that of medium between Rs 2 cr – Rs 5 cr bracket. While announcing the Rs 20 lakh cr economic package, it was announced that definition of MSME shall be amended by making alterations in the both, the investment limits as well as in the annual turnover figures.

According to the new definition of MSME that had announced along with the economic package announcement, micro units were to be defined as those units whose investment does not exceed Rs 1 cr and have annual turnover limit Rs 5 crore, while a small enterprise shall be the one having investment between Rs 5 crore and Rs 10 crore and annual turnover limit of Rs 50 crore and medium units to have investment between Rs 10 cr – Rs 20 cr and annual turnover of Rs 100 cr. Government also made it clear that MSMEs should now cover both manufacturing and service enterprises alike.

Now the above definition stands further changes in limits:

MSME and Transport Minister, Nitin Gadkari mentions to media that the ministry is planning to increase the recently set annual turnover limit of Rs 100 cr for medium enterprises to Rs 250cr, this 250cr limit of turnover may also exclude export sales for the purpose of calculation of eligibility of the firm.
With the same intension the investment limit to qualify the definition of medium enterprise under MSME has been proposed to increase to Rs 50 cr from Rs 20 cr.

The two suggestions mentioned above are pending for approval from Ministry of Finance:

This move shall also motivate those MSMEs that fell in the earlier brackets of limitations to now explore and take risks to further expand and make more investments and enhance turnovers, as they shall be able to avail the same benefits even after growing a little big. This move shall therefore lead to witnessing growth in this sector. The NSS survey of 2015-16 reveals the count of MSMEs in India, totaling to 6.34 cr, comprising of around 6.3 crore micro units, while 3.31 lakh small and 5,000 medium firms.

 

What is on platter for the MSMEs?

On achieving the status of MSMEs, businesses would get assorted benefits like periodic governmental and regulatory relief, besides 25 per cent of official blocking of loans under priority sector lending programmes. Further, as per the conditions, these shall be eligible for enjoying recently announced benefits like additional collateral free working capital loan up to 20 per cent having guaranteed capital of Rs 3 lakh cr. Rs 20,000 cr and Rs 50,000 cr funds to further boost equity base of these small business that have growth potential.

According to the government, the collateral-free loan alone is expected to aid 45 lakh MSME units. There shall be different rules relating to insolvency for MSMEs. Promoters who are not the willful defaulters shall be allowed to bid for their stressed assets whereas large companies are not allowed to do the same. In FY19, 42,458 MSMEs together enabled central public sector firms to procure 30 per cent of their procurement worth Rs 33,264 cr. Further, MSME Ministry had also revealed that these businesses are known to have created 11.10 cr job opportunities in FY16 and MSMEs form 29 per cent of the total GDP.

 

 

 

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Business, Market News, Markets - May 19, 2020

BSE, NSE cut listing fees for SMEs

BSE, NSE cut listing fees for SMEs

 

Due to COVID-19 pandemic, all the sectors have been affected badly but SMEs segments are affected the most. Therefore, during the announcements of details of Rs 20 lakh crore stimulus package, Finance minister Nirmala Sitharaman made special announcements related to MSMEs.

 

Reduction in listing fees:

Now to support SMEs and MSMEs, Indian stock exchanges BSE and NSE came forward. They have relaxed listing norms and reduced listing fee for small and medium enterprises by 25%. However, this norms are applicable to both existing and new firms which are looking forward to list on BSE SME platform and NSE SME platform.

 

What are the Current charges?

Currently for SMEs, Rs 25,000 or 0.1 percent of market capitalization of firm is the listing fee charged by BSE. The NSE charges around Rs 10,000 to Rs 45,000, depending on the SME firms market capitalization. Until now, BSE has 322 small and medium companies listed and has raised around Rs 3,278.84 crore from the market. Their market capitalisation is of Rs 15,865.39 crore so far. On the other side, so far only 209 small and medium companies are listed on NSE and have raised over Rs 3,200 crore.

 

What measures have been announced by government?

Due to the covid-19 lock down, many industries are facing problems like job losses and are cash strapped. During this situation, the main concern for MSMEs is that they are not able to restart their operations due to supply issues and non-availability of labour. Last week, while making announcement for packages in tranches, government changed the definition for MSMEs and linked it to the turnover limits of the companies so that their businesses grow with benefits. They announced measures for MSMEs and Rs 3 lakh crore package for collateral free automatic loans with separate funds for equity support.

However, these Rs 3 lakh crore will also be useful for existing borrowers who have over Rs 100 crore turnover and Rs 25 crore outstanding. Fresh loans can be taken by companies up to 20% of their outstanding. These loans have tenure of 4 years, with moratorium repayment period of 12 months. However, the government will also give them credit guarantee of 100 percent which will cover interest and principal to banking and non-banking institutions. Government will give around Rs 4,000 crore funds to Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMSE) with partial credit guarantee to banks. However for expansion of MSMEs, the government will provide corpus of Rs 10,000 crore so that they can also list after expansion.

 

Further Expectations:

Micro, small and medium enterprises (MSMEs) are very cautious while taking any kind of fresh loans, as they are not sure about the demands for their products after all activity resumes. Most of the micro, small and medium businesses and enterprises are expecting from the government, to give them direct relief by waiving their electricity bills and other fixed expenditure such as payment of salaries. However, banks have already reduced their loans such as credit limit. Anil Bhardwaj, Secretary general of federation of Indian micro, small & medium enterprises (FISME) said, for all the small business and enterprises, government will take care of their fixed expenses. MSME industry has three major demand, interest payments, easy access to loans and payments of salaries from the government, during this situation due to COVID-19 lock down.

 

 

FPIs exit markets after economic package announcement.

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Business, Economy - May 16, 2020

Government announces first tranche of economic package

Government announces first tranche of economic package

To go by the struggle caused due to COVID-19, Finance Minister Nirmala Sitharaman has announced an economic package of ₹ 20 lakh crore under government’s Atma Nirbhar Bharat Abhiyan / Self-Reliant India. Government noted Lockdown 4.0 will be implemented, with all the new rules and regulation which are applicable state wise and will be completely different from the previous lockdowns. The national movement of Atma Nirbhar Bharat Abhiyan / Self-Reliant India initiated by Prime Minister Narendra Modi is to support India’s small and local business. He emphasized on slogan viz. #VOCALFORLOCAL.

 

Aid to Non-Banking Financial Companies (NBFCs) in this economic booster package:

Non-banking financial companies (NBFCs), Microfinance institutions (MFIs) and Housing finance companies (HFCs) will get liquidity support of ₹30,000 crore under liquidity scheme. Under this scheme, banks can invest in investment-grade debt papers issued by NBFCs, HFCs and MFIs through both primary and secondary market transactions. The investment up to ₹30,000 crore will be entirely guaranteed by Government of India.

Additionally, NBFCs, MFIs, and HFCs will even get the assistance of ₹45,000 crore under partial guarantee scheme. This assistance provided by the government is to provide liquidity support to institutions whose credit rating is low. This will be applicable to all unrated papers and the papers with ratings of AA and below issued by NBFCs, MFIs, and HFCs. This will enhance the liquidity support of all the institutions under NBFCs, MFIs, and HFCs. Under this scheme, the first 20% loss will be borne by Indian government i.e. public sector banks resulting in a liquidity of ₹45,000 crore.

 

Aid to Micro, Small and Medium Enterprises (MSMEs) in this economic booster package:

New rules and regulation introduced in MSMEs is to enhance the growth of small businesses are as follows:

1) Government of India introduced the new definition for Micro, Small and Medium Enterprises (MSMEs) which includes increase in investment limits, new additional criteria of turnover, manufacturing and service sector will be considered same and introduced some new amendments to law. New definition states micro units, small units and medium can invest up to ₹1 crore and turnover below ₹5 crore, ₹10 crore and turnover below ₹50 crore, ₹20 crore and turnover below ₹100 crore, respectively.

2) Government introduced the provision of Collateral-free Automatic Loans of ₹3 lakh crore. This provision will help 45 lakh MSMEs in India. MSMEs can avail loan from banks, and NBFC’s. The eligibility criteria of granting loan is MSMEs with ₹25 crore outstanding credit & turnover of ₹100 crore are eligible to take advantage of this provision. They can avail the scheme before October 31st 2020. However, interest will be charged on the loan granted, but 100% guarantee will be ensured by Banks & NBFCs.

3) MSMEs which are undergoing through massive losses and NPAs, provision of Subordinate Debt worth ₹ 20,000 crore will be offered by the government. Approximately 2 lakh small companies will be aided through this provision. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) will get assistance of ₹4,000 crore from government in return CGTMSE will provide partial credit guarantee support to banks.

4) Government will set up Fund of Funds (FoF) amounting ₹10,000 crore. This will help MSMEs for equity funding and in their potential growth and viability. Set up Fund of Funds (FoF) will be functioned by Mother Funds and some daughter funds. Daughter fund level will help Fund of Funds (FoF) to provide assistance of ₹50,000 crore MSME’s to get listed on stock exchanges and also for their expansion.

5) To support movement of VOCAL FOR LOCAL government will not pass global tender worth ₹200 crore. This step will immensely help in the growth of MSME’s.

6) Government noted all the dues of Micro, Small and Medium Enterprises (MSMEs) will be cleared in the upcoming 45 days.

 

 

Aid to Employee Provident Funds (EPF’s) in this economic booster package:

Government of India stated they will extend their support under Employees Provident Fund scheme by 3 months i.e. for the month of June, July, and August 2020. This provision will cover 3.67 lakh institutions and help approximately 71 lakh employees by providing liquidity relief of ₹2,500 crore.

Relief of ₹6,750 crore will be observed by a reduction in Employees Provident Funds (EPF) contribution for business and workers. This provision will cover 6.5 lakh institutions covered under Employees Provident Fund Organization (EPFO) and approximately 4.3 crore employees are benefited. However, state run Public sector undertakings (PSU’s) will continue to pay 12% as employer contribution.

 

Aid to contractors in this economic booster package:

Railways, Ministry of Road Transport and Highways, and various central agency will get leeway up to 6 months in construction work, all contacts which have obligations to complete in a stipulated time period. Bank guarantees are partially released to ease cash flows.

 

• Aid to Real Estate sector in this economic booster package:

Extension of 6 months will be provided in a timeline of all Real Estate Regulatory Authority (RERA) projects. All the registration and completion dates of projects under RERA will be covered in this provision.

 

Aid in Tax Reforms in this economic booster package:

There will be a reduction of 25% in TDS/TCS on all the transactions executed by individuals and businesses. This provision will help to provide liquidity support of ₹50,000 crore. This reduction will be effective from 14th May 2020 to 31st March 2021. Due date of income tax return (ITR) filings is extended to 30th November 2020.

 

 

 

What are liquid funds? Find more

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Business, Economy - April 30, 2020

MSME seek fiscal aid amid crisis

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.

 

 

Real estate sees investment growth in 2019

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