The thesis of the inherent nature of the crisis in the capitalist system, the inevitability of the boom-and-bust cycles can be substantiated both by the incisive analysis of Karl Marx, the immediacy of the internal contradictions of capitalism and the fact that the capitalist system has moved from crisis to crisis with disruptive effects. But the fault-lines today are truly real and worrisome. This time is different! br>
In line with the Prime Minister Shri Narendra Modi’s vision of ‘Atmanirbhar Bharat’ (self-reliant India) outlined on May 12, 2020, the Finance Minister Mrs. Nirmala Sitharaman announced three Special economic packages of Rs. 20 lakh crores from May 13-15 2020. This works out to 10 per cent of India’s GDP. This comprehensive package is founded on the five pillars of Atmanirbhar Bharat, viz., Economy, Infrastructure, System, Vibrant Demography and Demand. It is, therefore, contextually significant in resuscitating India’s economy and consolidating India’s position in the comity of nations at the present juncture. This package caters to various sections cottage industry, MSMEs, labours, middle class and industries among others. br>
The range and sweep of the measures announced are reminiscent of the New Deal. This was a series of programmes and projects instituted during the Great Depression by President Franklin Roosevelt to restore prosperity to Americans. While the package meets the needs of various sections across the development spectrum, it is focused on the cottage industry, MSMEs, labourers, middle class, industries, etc. This provides the basic raison d’être of this extremely welcome package in driving the country’s inexorable self-reliance march and facilitating the transition from local to global products. br>
This package is widely expected to make a difference-a perceptible difference-to the ground realities to the India of today. It would, therefore, be of interest not only to all those engaged in the process and pattern of development but also the marginalised and the vulnerable sections of the population – what Mahatma Gandhi called “the teeming millions of India”. br>
Let me clarify at the outset that this package should not be seen as a one-off measure or in silo. It constitutes an important element of the series of ongoing measures initiated by the Government of India and the Reserve Bank of India in the last two months, viz., the economic stimulus package announced on March 26, 2020 and the unscheduled Monetary Policy on March 27, 2020 followed by another Monetary Policy on April 17, 2020. Last four day’s big bang Policy pronouncement may well be followed by other measures in facilitating a V shaped recovery of the Indian economy. br>
This wide-ranging Policy includes an important relaxation in EPF (Employees’ Provident Fund), Special Rs. 30,000 crore liquidity scheme for Non-Banking Financial Companies (NBFC), Housing Finance Companies (HFC) & Micro Finance Institutions (MFI) and partial Rs. 45,000 crore credit guarantee scheme for NBFC. There are also other serious measures like infusion of Rs. 90,000 crore in Discoms for improving liquidity, crucial relaxation to contractors and real estate, material moves in the realm of direct taxes and a renewed thrust on MSMEs. The package having 1.70 lakh crore for Pradhan Mantri Garib Kalyan Yojna, raising of Ways and Means Advances limits of states by 60%, liquidity enhancement of Rs 1,37,000 Crore by reducing CRR, Special refinance facilities to NABARD, SIDBI and the NHB. br>
In view of the constraints of space and my deep and enduring interest in MSMEs, let me here focus on MSMEs. br>
MSMEs have a vast network of about 6.3 crore units, a share of around 30 per cent in GDP, 45 per cent in total manufacturing output and employment of around 11 crore, next only to Indian agriculture. But MSMEs are quite vulnerable and lack the strength to withstand the vicissitudes of an increasingly inter-linked global economy- “vasudhaiva kutumbkam” (the world is a community), as we in India have said for thousands of years.
Definitional and Conceptual Changes
The definition of small and medium enterprises is not uniform with 60 definitions in about 75 countries. The main criteria relates to the size of employment and quantum of capital investment/fixed assets. While in European Union (EU) countries SMEs employ less than 500 employees, in East Asia SMEs employ 50-100 workers. To provide a level playing field and to foster an enabling environment, the limit for investment in plant and machinery has been significantly revised upward. br>
The turnover criteria, which provides a realistic measure for banks and financial institutions to evaluate credit worthiness, has also now been included to lead to cheaper and hassle-free credit access. Some startups which have taken off could also fulfill the proposed definition of MSME and thereby benefit from the liquidity provision as also fiscal and other benefits.
Important definitional changes are: br>
a. Micro: Limit revised upward Investment upto 1 crore (as against the earlier limit of Rs. 25 lakh) and Turnover upto 5 crore br>
b. Small: Limit revised upward Investment upto Rs. 10 crore (earlier Rs. 5 crore) and Turnover upto Rs. 50 crore.
c. Medium: Limit revised upward Investment upto Rs. 20 crore
(earlier Rs. 10 crore for manufacturing enterprises and Rs. 10 crore for services enterprise) and Turnover upto Rs. 100 crore. br>
d. No difference in manufacturing and service sector for MSMEs. br>
Renewed Thrust on Strategic Role of Banks
Banks account for 90 per cent of the total formal credit outstanding to MSMEs and NBFCs for the remaining 10 per cent. Of the Rs 15 lakh crore, about a third is in loans of less than Rs 1 crore each. This segment has also exhibited the lowest NPAs of 4-8 per cent, while at the upper end, NPAs are 15-18 per cent. But banks have not been sufficiently forthcoming in supporting MSMEs for various reasons. br>
In these difficult COVID 19 times, liquidity and cash crunch has increasingly emerged as a major concern for MSMEs. The manner in which the sector will evolve will have important implications for the sustenance and growth of MSMEs. br> Accordingly, the May 13 package launched major initiatives significantly boosting liquidity for the sector. These are: br>
1. Collateral Free Automatic Loan to MSME. The Rs 3 lakh crore collateral free automatic loan for businesses, including MSMEs will benefit 45 lakh small businesses. Those MSMEs with Rs. 25 crore outstanding in loans and Rs. 100 crore turnover will get credit guarantee-backed loans of four-year tenure. Interest will be capped. There will be a 12-month moratorium on principal repayment. The Scheme can be availed till Oct. 31.
2. Subordinate Debt for Stressed MSMEs
The government will also take burden of Rs 20,000 crore subordinate debt, benefitting 2 lakh such businesses. Government to provide Rs 4,000 crore towards partial credit guarantee support to banks.
Banks will lend money to promoters who can use it to infuse it as equity. In my view this facility can be provided to healthy MSMEs to save them from being stressed. The Revival and Rehabilitation of MSMEs can be implemented in more practical manner keeping in view the liquidity situation and refinance facilitates provided to Banks. RBI has already issued guidelines on this in the year 2015.
3. Fund of Funds (FoF) for MSMEs.
MSMEs face severe shortage of Equity. Hence the government will also create a fund of funds for MSME with a corpus of Rs 10,000 crore. This Fund is expected to infuse Rs 50,000 crore equity in MSMEs with growth potential and viability. FoF will be operated through a Mother Fund and few daughter funds. The Fund structure will help leverage Rs. 50,000 crore funds at daughter funds level. This will help MSMEs to expand size and capacity and also encourage them to get listed on main board of Stock Exchanges.
4. Government Tenders: Global tenders will be disallowed up to 200 crore to help MSMEs to compete and supply in government tenders.
5. E market linkage for MSME. All receivables of MSMEs from government and PSUs will be cleared in 45 days. This should be taken care of very diligently because the payment to MSMEs within 90 days is a major issue.
6. The MSMEs who are not using the Bank credit facilities can now be given MUDRA type of assistance in this COVID phase.
We are today faced with a huge crisis. But we have overcome trials of adversity in the past; with confidence, dedication and steadfast pursuit of well-defined goals, we would emerge unscathed in the trial of prosperity. As Ram Dhari Singh wrote powerfully decades ago: सेनानी! करो प्रयाण अभय, भावी इतिहास तुम्हारा है, ये नखत अमा के बुझते हैं,
सारा आकाश तुम्हारा है।
(Commander, march on-the future history is yours. The stars of the sky are fading; the entire sky is yours.)
Hence, while keeping faith in the innate dynamism and potential of the Indian people, we must look at all innovative out of box options to extricate ourselves from this vicious circle and to trigger a virtuous circle of regenerative growth and transformation to meet the challenges of today and the expectations of tomorrow. This would also widen the economic base of the country and sustain the innovative products and processes of small scale and cottage industries. The Policy would help to achieve sustainable growth both at the regional and the national level without increasing the fiscal deficit beyond manageable proportions.
As President Franklin D. Roosevelt stressed On March 4, 1933 in the wake of the Great Depression, “First of all, let me assert my firm belief that the only thing we have to fear is fear itself”. This Policy certainly goes some way ahead in removing this sense of fear. We shall overcome. This too will pass!