The FM added that these loans will have a 4 year tenure and moratorium for 4 months. There will be a 100% credit guarantee cover and to Banks and on principal and interest and the scheme can be availed till October 31, 2020. This is expected to benefit 45 lakh units.
To provide stressed MSMEs with equity support, Government will also facilitate provision of Rs. 20,000 crore as subordinate debt. For the Subordinate debt for stressed MSMEs, promoters of the MSME will be given debt by banks, which will then be infused by promoter as equity in the Unit. Subordinated debt facility will aid 2 lakh stressed MSMEs.
There is also a Rs 50,000 crore equity infusion for MSMEs through Fund of Funds; to be operated through a Mother Fund and few daughter funds; this will help to expand MSME in size as well as capacity.
Today’s announcement comes after Union Minister Nitin Gadkari last week said that the MSME sector in the country was on the verge of collapse. He had urged major industries to release the outstanding dues to such companies within a month.
There has been a clamour for fiscal support for MSMEs ever since the first lockdown was announced. Industry body FICCI had recently sought Rs 4.5 lakh crore in fiscal support for the MSME sector and had written to the government to also release Rs 2.5 lakh crore stuck in refunds and dues to tide over the crisis.
The MSME sector contributes in a significant way to the growth of the Indian economy and its 6.3 crore units is often considered as the backbone of the nation. It had a share of around 30 percent in nominal GDP in 2016-17 and the share of the sector in total manufacturing output was even higher at 45 percent.
Gadkari, had earlier has stated that the MSME sector’s contribution needs to reach 50% of the country’s GDP in the next five years from the existing 29%. To ease the liquidity crunch in the segment, the Reserve Bank of India (RBI) on April 17 announced a targeted long-term repo operation (TLTRO) of Rs 50,000 crore so that small and medium-sized non-banking finance companies (NBFCs) and micro-finance institutions (MFIs) can better facilitate lending to the critical sector. However, industry insiders are of the view that any tangible benefit of the move is yet to trickle down to the businesses on the ground.