Atma Nirbhar Bharat Abhiyaan: What’s in it for the MSMEs?

Updated on Oct 13, 2020 | By Author Sakshi Shekhawat

The Prime Minister then announced a historic relief package of ₹20 Lac crores which is almost 10% of India’s GDP to combat this virus and provide life support to the economy from going bust in these difficult times. The rescue package was called the “Aatma Nirbhar Bhaarat Abhiyaan” which translates to Self-reliant India as it focussed on strengthening the foundations of the Indian economy from within.  The details of this package were revealed in tranches by the finance minister on consecutive days. 
There was a keen highlight on the MSME sector in the maiden tranch of this relief package. In this blog, we shall discuss the 3 main pillars of support that the Government of India has provided the MSMEs in this fight against the virus slump.

One of the historic moves made was the change and clarity in the definition of MSME, that was brought about. It was being mulled over for quite some time now and the cabinet finally approved the proposal of this new definition that provided ample clarity to the industry and allowed them room to grow while availing benefits of schemes as under MSME. The new definition of the MSMEs is shown in the image below:

As mentioned above, with the clarity in the definition, there were 3 main steps taken to provide necessary credit support to the MSME industry. They are as follows:

An automatic Emergency Working Capital Facility for Businesses worth ₹3 lac crores

This is the common COVID emergency credit line (CCECL) facility that is extended to all MSMEs. Under this facility, GOI aims to provide an automatic collateral-free emergency line of credit to all businesses at concessional rates. The important factor to note here is the ‘automatic’ in the statement. This means that this is not subjective and there is no approval required by bankers on case to case basis. Any business that is eligible according to the guidelines prescribed by the government will be automatically eligible for this emergency credit line. 
The quantum of such a loan shall be capped at 20% of the outstanding credit of that particular MSME as of 29 February 2020. All units with up to ₹100 crores of turnover and up to ₹25crore outstanding shall be eligible. However, this is only applicable if the accounts of the businesses are standard. Stressed or NPA accounts will not be eligible for this facility. The tenor of this loan is of 4 years with a 12-month moratorium allowed. Businesses can avail of this loan by simply intimating to their banks before 31st October 2020. No additional collateral shall be requested by banks for this credit extended and a 100% guarantee of the principal and interest will be assumed by the government. No guarantee fees are required to pay either.

Subordinate Debt for Stressed MSMEs

While the previous facility was for the standard MSMEs, the government has also made room for the stressed accounts and businesses. A total provision of ₹20,000 crores will be made for MSMEs which are classified as stressed or NPA. Out of this, the government shall support them with ₹4000cr to the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). Subordinate debt will be provided to promoters by all banks of such MSMEs which shall be equal to 15% of their existing stake in the business, subject to a maximum of ₹75 lakhs.

An equity infusion scheme through MSME Fund of Funds

The previous two measures dealt with both the standard and stressed MSMEs. The government has gone a step further for a set of MSMEs that it labels as ‘viable’. This refers to those MSMEs that have a viable business and are facing hardship due to this pandemic. For such viable businesses, the GOI has sought to set up a fund of funds with a corpus of ₹10,000 crores that will provide funding support to such units in the way of equity infusion. This fund of funds will be operated through a mother and a few daughter funds. They aim to use leverage to mobilize ₹50,000 crores worth of equity through the fund of funds.

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