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COVID-19 Financial Relief Packages for MSMEs – All You Need to Know

COVID-19 Financial Relief Packages for MSMEs – All You Need to Know

by Sanjeev Archak

In the wake of the COVID-19 pandemic, the Indian Government initiated a multitude of incentives to be dispersed to the qualified Micro, Small, and Medium Enterprises (MSMEs) across the country. Announced by the Finance Minister Smt Nirmala Sitharaman on May 13th, these incentivized relief packages are targeted towards providing much-needed assistance to the businesses in surviving the repercussions that this pandemic has brought along with it.

MSMEs employ a major portion of the country’s working population, especially the economically weaker areas. These relief packages are meant to provide them with a solid ground to avoid bankruptcy, and the competency to still pay the salaries and wages to their employees. This was further assisted by the Ministry of Labour and Employment and Ministry of Home Affairs, who issued an advisory and order respectively to still pay the salaries of the employees during the lockdown.

Financial Relief Packages for MSMEs

Let’s take a closer look at what these relief packages are and how they are supposed to help MSMEs.

Loans

Automatic Loans for MSMEs were a major highlight of the relief packages. Under Automatic Loans, the MSMEs will have the following advantages:

  • Added relief for businesses in the form of additional working capital of 20% of the finance of outstanding credit. Term Loans will implement a concessional rate of interest for the same. Available to MSMEs with an outstanding credit of up to Rs 25 crores and a turnover capital of up to Rs 100 crores, without having to provide any collateral or guarantees of their own.
  • Of the loan balance that any MSME carries, a 20% loan extension would be provided under the same conditions as the last pointer.
  • These relief packages will be available to over 45 lakh MSMEs across India, with over 3 lakh crore rupees available for dispersion.

Taxes and Provident Funds

There were some major rollbacks provided by the Finance Ministry for employers and employees alike for 

  • The Finance Ministry has reduced the rate of provident funds issued between the employer and the employee from 12% to 10%. 
  • The Tax Deduction at Source (TDS) and Tax Collected at Source (TCS) deduction rates have been cut down by 25% on non-salary payments. Only residents will be able to claim this benefit, which has been implemented since 14th May.
  • For all businesses, the due date of filing for income tax returns has been officially extended till 30th November 2020. 
  • Finance Ministry has also aimed to increase liquidity across all domains in the market. Exact monetary relief announcements may or may not be announced by the Ministry. 

Glass Half Full or Empty?

Digging deeper into the relief packages offered by the Finance Ministry, it becomes clear that the idea is solid, but lost amidst the big numbers. There are over 5 crore MSMEs (registered or unregistered) in India, and the relief packages offer eligibility to only 45 lakh of them, which is a mere 6%. 

According to The Print, the government failed to provide payroll support to MSMEs. Moreover, the government also sanctioned loans instead of directly transferring money to MSMEs, which was the result of the government focusing on liquidity rather than direct transfer. There is a possibility that this might result in MSMEs being unwilling to return the loans taken under this scheme.

 

Conclusion

 

Regardless of the fact that the government’s actions for providing relief to MSMEs weren’t swift, it did deliver in coming up with schemes that can majorly assist in preventing an economic downfall due to the pandemic. It is reasonable for MSMEs to be less content with the structure/benefits of the relief packages, but these packages can prove to be a source of vital assistance to help keep their business running amidst the complications caused by the COVID-19 pandemic.

 

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