The PM calls for making India an Atmanirbhar Bharat. The first tranche of the announcements under the Rs 20 lakh crore stimulus package hugely supports MSMEs. The stimulus provides credit lines to MSMEs to restart the business, loans to stressed MSMEs and capital support. The government also extends a 100% guarantee on loans given by banks and NBFCs to MSMEs.   
  1. The government sanctions a sum of Rs 3 lakh crore towards loans to MSMEs and businesses in need of additional working capital. The emergency credit lines are available for up to 20% of the total outstanding credit facility as on 29 February 2020. 
  2. Banks/NBFCs can lend to the existing borrowers having up to Rs 25 crore outstanding and up to Rs 100 crore turnover. The credit lines will be collateral-free automatic loans, with no charges of guarantee fee.
  3. The tenure of the loans is four years, with a moratorium on principal repayments for one year. Businesses/MSMEs can avail of emergency loans until 31 October 2020. The interest rate will have an upper limit.
  4. In the case of stressed MSMEs or MSMEs classified as NPAs by banks, the government sanctions Rs 20,000 crore to provide loans in the form of subordinated debt. Promoters can use the loans to infuse capital in their firms. The loans will be through the CGTSME Trust with support from the government. 
  5. To provide equity funding to MSMEs, the government will set up a fund of funds with a corpus of Rs 10,000 crore. The aim is to ensure a Rs 50,000 crore equity infusion through the fund of funds. The equity investment will provide capital support for the capacity expansion of MSMEs and future growth into a large corporate.
  6. The distinction between a manufacturing and service sector stands removed. As per the new definition, a micro-unit is one with an investment up to Rs 1 crore or turnover up to Rs 5 crore. A Small unit with an investment up to Rs 10 crore or turnover up to Rs 50 crore. A Medium unit with an investment limit up to Rs 50 crore or turnover up to Rs 250 crore. The government has made a further upward revision for medium enterprises from previous limits of Rs 20 crores for investment and Rs 100 crores for turnover.
  7. Other measures include disallowance of global tenders for Government procurement up to Rs 200 crores. MSMEs can bid for Government procurement tenders up to Rs 200 crores without foreign competition. 
  8. The government will provide e-market linkage for MSMEs in the absence of trade fairs and exhibitions due to COVID-19. The government seeks to promote the use of fintech to enhance transaction-based lending through the e-marketplace. 
  9. Government and CPSEs will release all pending MSME dues in 45 days.
  The government’s guarantee on loans reduces the risk of credit defaults for the lending banks and NBFCs and hence allow free flow of credit to the borrowers. The measures focus on providing liquidity window for meeting working capital requirements, tapping growth opportunities and safeguarding against job-losses. We may expect the government to announce measures to address the demand side to boost the consumption of goods and services.