15 measures to revive economy, big takeaways for MSMEs, NBFCs – Key Takeaways

Union Finance Minister Nirmala Sitharaman has come out with 15 new and some enhanced measures to revive businesses, and support workers via fiscal incentives and regulatory easing under the mega stimulus package – Self-Reliant India Movement – which was announced by Prime Minister Narendra Modi on May 12.

Accordingly on May 13, Nirmala Sitharaman announced the slew of fiscal and regulatory measures for MSMEs, real estate, NBFCs, power distribution and general businesses and workers. She attempted to decrease the regulatory burden on companies, while increasing the take-home pay of employees via these measures.

In terms of takeaways, the biggest were for the MSME sector which is considered to be the backbone of economic activity. As a major reform measure for the sector, the Centre has decided to give a new definition to MSMEs. This will denote the type of companies that will be included in the sector.

Specifications wise, the investment limit for defining MSMEs has been revised upwards. Besides, she highlighted that additional criteria such as turnover has been considered for defining MSMEs.

In terms of fiscal measures, the Minister announced that Rs. 3 lakh crore “Collateral-free Automatic Loans” for businesses, including MSMEs, will be provided to meet operational liabilities built up, buy raw material and restart business.

She announced another scheme worth Rs. 20,000 crore for “Subordinate Debt for Stressed MSMEs”.

She also announced Rs. 50,000 crore “Fund of Funds” for MEMEs which face severe shortage of equity.

The Centre has also decided not to go in for global bidding for government procurement for tenders up to Rs 200 crore, thereby, promoting the participation of MSMEs, she said.

Furthermore, e-market linkage for MSMEs will be provided and that the CPSEs will pay all receivables to MSMEs within 45 days.

Besides MSMEs, a package of Rs. 30,000 crore special liquidity scheme for non-banking finance companies (NBFCs), housing finance companies (HFCs) and micro-finance institutions (MFIs) was announced. This scheme will provide investments in both primary and secondary market transactions in “investment grade debt paper of these institutions”. The Finance Minister said that the scheme will support the previous initiatives of the government and the central bank to boost liquidity. The securities under the scheme will be fully guaranteed by the Central government.

Further, she has also announced Rs. 45,000 crore partial credit guarantee scheme for NBFCs. Under this measure, first 20% loss will be borne by the Centre, and even unrated papers will be eligible for investment, enabling NBFCs to reach out even to MSMEs in far-flung areas.

Additionally, a plan of Rs. 90,000 crore liquidity injection was announced for the financially stressed power distribution companies. This plan will allow these entities to clear their dues towards power generation companies. As per the plan, the liquidity window for discoms was essential as its revenue has plummeted and they are in the midst of unprecedented cash flow problem accentuated by demand reduction during the current lockdown. The scheme will allow power sector financiers – Power Finance Corporation (PFC) and REC – to infuse liquidity of Rs. 90,000 crore to discoms against receivables. Loans will be extended against State guarantees for exclusive purpose of discharging liabilities of discoms to gencos.

Apart from discoms, relief steps for the real estate industry was also announced.

The Minister stated that Union Ministry for Housing and Urban Affairs will issue advisory to States And Union Territories to declare the Covid-19 situation as a ‘force majeure’ under the Real Estate (Regulation and Development) Act (RERA). With this move, the government has allowed suo-moto extension of the registration and completion date by six months for all registered project expiring on or after March 25, 2020 without individual applications.

Simultaneously, to give regulatory relief to businesses Sitharaman announced a six month extension of contracts for contractors by all central agencies and departments including railways, the Central Public Works Department, and Ministry of Road Transport & Highways. The extension would not come with any cost for the contractors, she said. This scheme covers construction works and goods and services contracts. It also applies on obligations like completion of work, intermediate milestones and extension of concession period in public private partnership contracts.

The Finance Minister also announced that government agencies will partially release bank guarantees, to the extent contracts are partially completed, to ease cash flows.

Finally to provide more money into the taxpayers’ hands, Centre decided to reduce the TDS (tax deduction at source) rates for non-salaried specified payments made to residents, and the TCS (tax collection at source) rates by 25 per cent for the specified receipts. Sitharaman said the move would release Rs. 50,000 crore liquidity.

As per the announcement, the reduced TDS rate will be applicable to the payment for contract, professional fees, interest, rent, dividend, commission and brokerage. It will be applicable for the remaining part of FY21 -- from May 14 to March 31, 2021.

The Finance Minister pointed out the due date of all income tax returns for FY 2019-20 will be extended from July 31, 2020, October 31, 2020 to November 30, 2020 and tax audit from September 30, 2020 to October 31, 2020.

The government has also extended the date of assessments getting barred on September 30, 2020 to December 31, 2020 and those getting barred on March 31, 2021 to September 30, 2021.

In another major move for businesses and charitable trusts, Sitharaman announced that all pending refunds to charitable trusts and non-corporate businesses and professions, including proprietorship, partnership, LLP and co-operatives, shall be issued immediately. In addition, she announced further extension of the deadline for settling tax disputes under the Vivad se Vishwaas scheme without paying any interest and penalty to December 31, 2020 from June 30, 2020.