Cabinet Approves Stimulus Package, New Definition For MSMEs

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New Delhi- The Union Cabinet on Monday formally approved all announcements relating to MSMEs as part of the Rs. 20-lakh Covid stimulus package.

The Cabinet also approved changes in the definition of MSMEs which was further fine-tuned after being announced by Sitharaman on May 13.

“The Cabinet’s decisions will aid MSMEs to attract investments and create jobs,”’ said the Union Minister Nitin Gadkari at a joint press conference with his Cabinet colleagues Prakash Javadekar and Narendra Singh Tomar.

The Cabinet approved a Rs. 50,000 crore Distressed Assets’ Fund, with the Government’s share at Rs. 10,000 crore, in order to help two lakh MSMEs that have the potential but need a little hand-holding due to the Covid disruption. The government will backstop 85 per cent for loans up to Rs 5 lakh and 75 per cent for loans beyond Rs 5 lakh from financial institutions.

The Cabinet also approved government’s equity of Rs 4,000 crore in another fund of Rs. 20,000 crore to assist stressed or NPA-categorised MSMEs. The central government will put up Rs. 4,000 crore in a special trust and banks will make up the rest to help about two lakhs MSMEs in a trust called “fund of fund”.

The third and largest component of the Rs. 3.70 lakh crore MSME stimulus package—Rs 3 lakh crore collateral-free loans—has already been launched.  It is targeted at 45 lakh units that were shut and hard-pressed to pay for wages and raw materials. The eligibility is for companies with up to Rs. 25 crore in outstanding loan or turnover of Rs 100 crore.

These loans will have a four-year tenure and moratorium of one year with 100 per cent credit guarantee cover on principal and interest. The loan will be available till October 31 without charging guarantee fees or seeking fresh collateral.

It also approved a credit scheme for street vendors.

Under the new definition, micro, medium and small units will separately enjoy higher limits on turnover and capital without the fear of outgrowing their category. The Cabinet also decided not to count exports while calculating the turnover and scrapped the distinction between manufacturing and service based MSMEs.

The central government has already absolved MSMEs from fresh insolvency proceedings for a year, up from the present six months and announced plans for a MSME-specific special insolvency framework. The central government also plans to issue an Ordinance to raise the MSME insolvency limit from Rs 1 lakh to Rs 1 crore. Another Ordinance will decriminalise technical and procedural defaults under the Companies Act. Seven compoundable offences will be dropped and five will be dealt by an alternative framework.

 

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