FM's measures to bring liquidity, long term benefits to MSMEs, say experts

The first tranche of announcements made by Union Finance Minister Nirmala Sitharaman, mainly in favour of small, micro and medium scale industries, can spur growth in the long term and can bring liquidity to the sector, which is now in doldrums due to the natiowide lockdown, feel industry experts.

"MSMEs contribute about 29 per cent of the GDP and should be able to redefine their businesses with value added and quality Made in India products, especially from the rural sector. Further, the measures should help the MSMEs flourish as ancillary suppliers to the corporate sector," said Avinash K Dalal Nallawala, founder and president of All India MSME Association.

A major announcement today was to limit government tenders up to Rs 200 crore only for the MSME sector. Earlier, only 20 per cent was reserved for domestic MSMEs, including 3 per cent for SC/ST entrepreneurs and another 3 per cent for women entrepreneurs, he noted.

"Restricting tenders less than Rs 200 crores only to Indian entities provides a great opportunity for MSMEs to get incremental work orders, especially when demand may slump in the near future," said Mehernosh Tata, Head, SME Lending, Edelweiss.

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"The announcements have far reaching potential and are in proper direction for revival and growth of MSMEs. It should be implemented properly to benefit various sectors of the industry," said Alok Goswami, past president, Federation of Small and Medium Industries (FSMI).

Vishesh C Chandiok, CEO, Grant Thornton India said measures like TDS reduction, tax refunds to all non-corporates, and MSME credit guarantee will unleash significant liquidity support. "Also, various deadline extensions will ease the compliance burden," he added.

The measures are more of supply side and there is very little that is on the demand side and probably, the future announcements may contain a more balanced coverage of demand and supply side factors, said Joseph Thomas, Head of Research - Emkay Wealth Management. "Demand side factors generally tend to work faster as it is oriented towards the consuming unit directly," he said.

"The package announced by the Finance Minister is effectively designed to be impactful, yet not burden government finances. The policy has been crafted largely around liquidity needs of employees, MSME and NBFCs," said Amar Ambani, Senior President and Head of Research - Institutional Equities, YES Securities.

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He said impact of Rs 20,000 crore subordinate debt will be lukewarm though, since it only comes with a partial guarantee from the government. Clearing dues to MSMEs within 45 days is a bigger relief and by changing the definition itself, brings a lot more micro-institutions into the scheme. Banks will be wary of lending to AA and below rated NBFCs, a scheme that comes with only a partial guarantee. In this case, government should form an alternative investment fund (AIF) and invest through such a vehicle, said Ambani.

The announcement of payment of receivables within 45 days to all MSMEs, by the government of India and CPSEs, will provide requisite liquidity in the hands of entrepreneurs, said Tata of Edelweiss.

"Provision of Rs 3 lakh crore collateral-free automatic loans for MSMEs will provide much needed line of credit to the sector that is currently under strain due to the COVID-19 lockdown. Additionally, the Rs 20,000 crore subordinate debt for stressed MSMEs will help these companies get back on their feet," said Kishan Jain, Director at Goldmedal Electricals.

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