MSMEs have also sought clarity on interest rates for collateral-free loans and payment of salaries.

MSMEs say government relief is welcome but inadequate
Money Finance Thursday, May 14, 2020 - 16:54

The Finance Minister on Wednesday announced several measures for the Micro, Small and Medium Enterprises (MSMEs) including collateral-free loans, and also a revised definition of what would constitute an MSME.

While several MSMEs and associations have welcomed the move by the government, they are of the opinion that a lot more support is required if MSMEs are to survive the pandemic and emerge on the other side.

Some have also raised doubts and sought clarity on the implementation of the measures.

Anil Bhardwaj, Secretary General of the Federation of Indian Micro and Small & Medium Enterprises (FISME), said that while the measures announced will benefit the industry, more details are required of how quickly loans will be disbursed, how the credit guarantee trust will be set up.

“If it takes six months, then it won’t be of much use. So, the credit guarantee fund has to be created very quickly, at least within 10-15 days,” he added.  

Chandrakant Salunkhe, President of SME Chamber of India, says that there is no information on when banks take a decision on implementing the proposals immediately, and what criteria will be put in place to avail loans.

“We expect that it’s feasible criteria, which will give MSMEs proper support to avail this facility and compete,” he added.  

N Srinivas, president of the Kapra Small Scale Industries Owners Association in Telangana, too says that while grand announcements have been made, there are no guidelines on how it will be implemented at the ground level and what the process to obtain these benefits would be.

“How will they recognise loss making units and who should benefit how? The government has said banks will give loans, but banks only give if they trust the entrepreneur. They always ask for collateral. How will this be implemented? So far private banks were giving us loans with slightly higher interest rates. But what will PSUs offer? What will the interest rate be? We don’t know,” he asks.

Interest rates

The interest rate is also a point raised by the MSMEs that TNM spoke to.

The FM announced collateral-free automatic loan worth Rs 3 lakh crore on Wednesday for MSMEs, which have loans outstanding worth Rs 25 crore or a turnover of Rs 100 crore. The tenure for the loan is 4 years and the FM also announced a 12-month moratorium on principal payment.

Srinivas Asranna, President, Peenya Industries Association in Karnataka says that while the collateral-free loan is a good relief, the rate of interest should be cut down for at least three years. “We were expecting interest rates to be cut to 4-5%, but we haven't heard anything on this so far,” he said.

N Srinivas of the Kapra Small Scale Industries Owners Association says that the moratorium announced by the government is, in fact, what some private banks already offer.

“When you set up an industry and take a term loan, depending on the deal between the banker and the entrepreneur, a moratorium of anywhere between 6-12 months is usually given. That's not anything new. Because when you set up a unit, for production, machinery, etc to come and full-fledged operations to begin, it takes a year. Moreover, they may say no repayment for a year, but they will still charge us interest right?” he asks.

Srinivas also adds that input subsidies from the central government, which is 15% should be increased to at least 20-30% and released directly to companies.

Relief on existing loans

Going beyond this, even for EMI payments on existing loans, N Srinivas hoped that the government would offer some relief in the form of interest waivers.

“If interest is waived off for a year, the burden on MSMEs will be reduced and they can keep employees and keep the company from shutting down. This will help strengthen us at a time when there is no work,” he added.

In addition to this, Raja M Shanmugam, president of Tirupur Exporters Association says that for existing term loans and working capital, repayment could be extended for one year. While welcoming the measures offered by the government, especially with respect to the collateral-free loans, he said that the burden lies with existing term loan repayments and for that, what would help is a one-year moratorium and interest be lowered as much as possible “That way industry can be saved,” he added.

Chandrakant of SME Chamber of India has said that the relief package is indirect support to MSMEs, while they were expecting some form of direct relief, especially with respect to payment of salaries.

Salary payments

With several MSMEs having nearly no business and several operating costs, it has increasingly become difficult to pay salaries to employees.

“We were expecting direct support for companies who employ about 300-400 people. March salaries are OK, but for April-May salaries, the government should at least indicate how they will take care of it,” he says.

Peenya’s Srinivas Asranna says that they were expecting that at least 50% of salaries for employees should be paid from Employee State Insurance Corporation. “We expect that some relief will be given, direct benefit has not been given to root level industrial employers to pay salaries,” he added.

Other concerns

The government also revised the definition of MSMEs.

As per the revised MSME definition, an enterprise would be classified as micro if it has less than Rs 1 crore investment and a turnover of less than Rs 5 crore. Small would be those classified with investment of less than Rs 10 crore and turnover of less than Rs 50 crore. A medium enterprise would be that with an investment of less than Rs 20 crore, and turnover less than Rs 100 crore. 

However, Chandrakant says they were expecting the turnover limit for Micro to be Rs 5 crore, Rs 75 crore for small and Rs 250 crore for Medium.

“If we have to compete with global industries, at least we should have that level of turnover. If turnover limit for a medium size industry is Rs 100 crore, how can they compete with a Rs 200 crore tender? Instead, the government should secure interest of MSMEs by having exclusive tenders for the sector,” he adds.

Beyond what the government has announced, FISME’s Anil says that what MSMEs require is much more than what was announced. “MSMEs need assistance, protection from salaries of workers on which the government is silent. These are some of the disappointments,” he adds.

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