E-market linkage will be provided for all MSMEs (Micro, Small and Medium Enterprises) as a replacement for trade fairs and exhibitions during this period, Finance Minister Nirmala Sitharaman announced in her first press conference on the COVID-19 fiscal package today. It is not clear if this means linking all MSMEs to the Government e-Marketplace (GeM) or to private platforms such as Amazon and Flipkart, or how this linkage will work. In addition, over the next 45 days, Central Public Sector Enterprises (CPSEs) and the government of India will honour every MSME receivable.

As Prime Minister Narendra Modi said during his address to the nation on May 12, details of the ₹20,000 lakh crore COVID-19 fiscal package (Atmanirbhar Bharat Abhiyan) will be released over a series of press conferences. Today’s conference largely focussed on MSMEs, direct taxation, employee provident fund, NBFCs/HFCs/MFIs (Micro finance institutions), contractors, DISCOMs and real estate.

Sitharaman said that details of other “tranches” will be released in the coming days, and source of financing this package at the end of it. She did say that the government now had an “altered borrowing schedule” but refused to give more details. In response to a question by a journalist, Revenue Secretary Ajay Bhushan Pandey revealed that ₹11,000 crore had been refunded as GST refunds in April 2020.

MSMEs redefined, emergency credit line, collateral loan and other measures for MSMEs

1. MSMEs redefined

  • Distinction between manufacturing and service sector has been removed.
  • Turnover has been introduced as an additional criteria.

New definitions of MSMEs. Source: Presentation shown during the press conference

2. Global tenders for government procurement up to ₹200 crore will be disallowed. General Financial Rules will be amended to that effect.

3. For stressed MSMEs: ₹20,000 crore subordinate debt

  • Eligibility: NPA or stressed MSMEs
  • Government will provide ₹4,000 crore to CGTSME which will provide credit guarantee support to banks.
  • Banks will give debt to promoters of the MSME, which will then be infused by the promoter as equity in the unit.
  • Expected to benefit 2 lakh units

4. ₹3 lakh crore emergency ‘automatic’ collateral free loans

  • Eligibility: up to ₹25 crore outstanding and ₹100 crore turnover
  • Can only be availed until October 31, 2020.
  • These will be disbursed through banks and NBFCs for up to 20% of the entire outstanding credit as on February 29, 2020.
  • 100% credit guarantee cover to banks and NBFCs on principal and interest.
  • 4 year tenor with 12 month moratorium on principal repayment
  • No fresh collaterals, no guarantee fees; interest will be caped
  • Expected to benefit 45 lakh units

5. ₹50,000 crore equity through Fund of Funds for MSMEs with potential and viability

  • Eligibility: MSMEs with “growth potential and viability”
  • Corpus of funds will be ₹10,000 crore
  • Fund of funds operate though mother fund and fees daughter funds. ₹50,000 crore will be leveraged at daughter funds level.

25% lower TDS for non-salaried employees

TDS (tax deducted at source) for non-salaried specified payments and TCS (tax collected at source) to be reduced by 25% of existing rates. However, at the end of the press conference, in response to questions by journalists, Sitharaman seems to say that this 25% cut in TDS rate will also be applicable for salaried employees. We have reached out to the Finance Ministry for clarification.

  • Goes into effect on May 14 and active until March 31, 2021.
  • Contract, professional fees, interest, rent, dividend, commission, brokerage, etc. eligible for this.
  • Will release ₹50,000 crore for tax payers