Govt Announcement for MSMEs and the Reactions from the IT World

The MSMEs were in focus in the Finance Minister’s announcement of the relief package in her press conference, which was a part of the Prime Minister’s earlier announcement of Rs 20 Lakhs Crores help to revive the economy that has come to a standstill because of Corona Virus related lockdown.

The announcement from the Finance Minister  Nirmala Sitharaman included a collateral-free automatic  loans, collectively amounting to Rs 3  Lakh Crores.  MSMEs with up to Rs 25 crore outstanding and Rs 100 crore turnover will be able to avail of the facility.  These loans will be for a maximum of 4 years and will come with a 100% credit guarantee cover. The deadline for this will be 31st of October 2020 . The government hopes to help upto 45 MSMEs through this loan. There will be a provision of a total of 20,000 Crores of subordinate  loan. This subordinate lon will come from the banks, which will then be open  for infusion into the MSMEs’ units. The subordinate loan will be available to 2 lakhs MSMEs. Further, the government will not procure global tenders upto  Rs 200 Crores.

“Indian MSMEs often faced unfair competition from foreign companies. This will be a step towards self-reliant India and support Make in India.”
–Nirmala Sitharaman, Finance Minister, Government of India


“Collateral free loans of up to 3 lakh Crores to MSME, expedited income tax refunds, no global tenders up to Rs 200 Cr projects and all the remaining initiatives will give a great boost to the economy. As the Chair for the Startup Council for IAMAI, I believe that investments should be done to also help start-ups compete with the world, the multiplier on these investments will be much more than the loans.

IAMAI welcomes the thrust to digitalisation through  the Finance Minister’s announcement of the promotion of E-market linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.  Enhancing transaction-based lending using the data generated by the e-marketplace Fintechs will help the liquidity reach the last mile through their innovative technologies and reach. IAMAI on behalf of the digital service sector extends full co-operation of its members in fructifying this initiative and requests for a level playing field for private services providers in this regard.”

–Vivek Varghava, CEO, DAN Performance Group & Chairman, IAMAI Startup Council


Although the mood in the IT sector is generally supportive of the Finance  Minister’s announcements, there are also some  words of caution being raised in certain quarters.   The IAMA while welcoming the announcements, also expressed concerns over limitations of certain measures announced which restrict the scope of their benefits. For instance, the waiver of TDS on non-salary component restricts the ease of burden for businesses for whom salaries are one of the biggest cash-flow concerns under lockdown. Pending Tax returns is a concern for all businesses and the relief offered to only charitable trusts and non-corporate businesses and professions is restrictive in its scope and reach. Moreover, there was no references to settlement/reconciliation of GST and Input Tax Credits which accounts for considerable cash lock-in for most businesses.

IAMAI also reflected that the presently announced ‘benefits’ in the form of liquidity infusion hinges on the presumption that economic activism and demand generation are realized; both of which are presently restricted under lockdown. The association expresses optimism that the rest of the announcements by the Finance Minister over the next few days will piece together that critical part of the jigsaw and a more holistic policy package will emerge.

The IT channel community, which forms a sizeable section of the MSMEs, were left asking what would be the rate of interest on the loan being provided to the MSMEs, which was not   immediately clear.

“In a nutshell, government is providing more loan.   They want you to use that loan, to absorb the losses which will come in on your books because of Covid. And continue paying every single expense even if your revenue is halved for the year.

This is a not stimulus package. Stimulus means government stepping in and providing disposable income to consumer, to go out and spend and to spur industrial production. Everybody can raise more money if needed provided they have orders to execute. The main problem is consumption not liquidity in the long run.”

–Anonymous comment from the channel community, communicated by a channel association representative
The large IT industry leaders showed their support to the government announcements, including to the Rs 20 Lakhs Crores support announced by Narendra Modi earlier.

“The 20 lakh crore economic package will definitely give the impetus to the economy, industry and society; however, as every business is thinking of re-inventing itself to be future-ready, it is our responsibility as a country to define that ‘re-invent India’ strategy, define the role of each of the pillars (economy, infrastructure, technology-driven system, vibrant demography and demand) laid down by the government, break down old policies and re-write collaboration between the private and public sector. The government is playing the role of an investor to create physical and digital infrastructure, create global standard academic institutions in Artificial Intelligence and data science, nurture local firms to create telecom infrastructure, cyber security global leaders. There was an independence in 1947; now that the fuel has been provided, let’s make 2020 the year when we get independence from a non-digital world to make India truly a global digital leader in every aspect, so that both, the common man and businesses from India come out resilient and self-sufficient.”

CP Gurnani, MD & CEO, Tech Mahindra

 The COAI supported the announcements and also hoped that similar concerns shall be shown towards the telecom sector.

“Finance Minister’s announcement is in line with the government’s aim to provide the necessary impetus to economic growth and build a ‘self-reliant’ India. We welcome the announcement of all pending payments within 45 days from PSEs to MSMEs sector. The telecom industry has unutilised GST input tax credit over INR 35,000 crore for which the sector has repeatedly demanded refund.

Moreover, the total outstanding from PSUs is amounting to approx. INR 20,000 crore since long. We hope the Finance Minister, Nirmala Sitharaman, in the course of next few announcements would give similar relief to the sector that has immensely contributed to keeping the country connected during last 25 years and has kept 1 Bn people connected  during the current lockdown situation.”

Rajan S Mathews, DG, COAI

Overall, these announcements  seem to show an attempt to help the MSMEs, but more needs to be done to chalk out the exact ground work to devise the exact ways to help the  MSMEs. Further, instead of loan if the  amount was given as investment in the MSMEs,  perhaps it would have helped them better. However, only future will show to what extent these measures will help the MSMEs.

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