As per the definition of MSME at the time of announcement of the package, it covered the enterprises investing less than Rs 10 crore. Now it has been increased to Rs 50 crore. It means five time bigger companies have been included in the MSMEs. If we look at this issue as existing smaller MSMEs vs newly included bigger enterprises, the maximum amount for relief will be bagged by the new entrants having upper turnover limit of Rs 250 crore. It is simply because their liabilities in terms of loan repayment, payment to employees, tax liabilities, etc are larger than the MSMEs worth less than Rs 10 crore of investment. As per the new policy for revival of the economy after lockdown, the money to be given by the government of India, banks, and the RBI, will be channelized for preventing bankruptcy. Therefore, the money will be taken and liabilities will be paid by them only to defer bankruptcy.

The Union government has said that the definition has been widened in line with industry suggestions and will help a wider section of companies to avail various sops announced for the sector. But the question is, who has prevented the government from increasing the amount of relief corresponding to the increase in numbers of enterprises and the real requirement? The beneficiary enterprises hailed the government’s new definition and believe that the enhanced turnover limit will bring huge relief to many companies that were worried for their survival. But they forget the insufficiency of the amount to overcome their crisis.

The MSMEs under old definition, and MSMEs included under new definition deserved more than shrewd division in the mere Rs 3 lakh crore for both. It may be noted that the Rs 20.97 lakh crore Atmanirbhar Bharat package to counter the economic and social impact of the COVID-19 pandemic and the resulted lockdown had pegged the investment limit for medium companies at only Rs 20 crore and turnover at only Rs 100 crore. The Atmanirbhar Bharat package had provided this Rs 3 lakh crore collateral-free loans for MSMEs. One additional point is that the MSMEs export turnover will not be factored in.

What triggered this sudden change in definition within two weeks of the announcement of the package? Several reasons can be enumerated. However, the most important reason was the inability and unwillingness of the bank officials to put the money into the hands of MSMEs. Due to lockdown, all the economic activities were stopped. There was no consumption, and no demand in the domestic market. Export oriented MSMEs also suffered because of lockdowns in every country. In this situation there was little demand for loans. Smaller MSMEs had fewer requirements of loans because they did not want to take loans only to pay interests on it from 9.5 to 14 per cent, especially when they were unable to produce and supply their goods.

However, the bigger enterprises required loans to pay their liabilities on account of their loans, taxes, wages etc to avoid bankruptcy. The government has included those bigger companies into MSMEs hoping that they will take loans because of their immediate requirements, and the government would be able to tell the country that they had given such an amount as relief to the MSMEs. However, this will not solve the problem, because the loans will be taken only for immediate requirement not connected with production, consumption, and demand. Reviving exports is also not in India’s control because of COVID-19 and lockdown crises in other countries too.

Apart from crowding out the existing real small-scale manufacturers by the newly entered bigger enterprises into the MSME category, the approval of the Union Cabinet for Rs 20,000 crore to provide as equity support to stressed entities in the sector, and equity infusion of Rs 50,000 crore into MSMEs, is too small to fulfill their actual requirement. According to the MSMEs Ministry's FY19 annual report, India had 6.33 crore MSMEs out of which 99.4 per cent were micro-enterprises while 0.52 per cent — 3.31 lakh were medium and 0.007 per cent — 5,000 were medium enterprises. The new definition has added few thousand bigger enterprises that will snatch major share from the most needy 96 per cent of the smaller MSMEs.

The whole package must be seen in the context of worsening condition of the MSMEs in the country since demonetization in November 2016 which underwent further distress under ill planned GST regime. Even before announcement of the lock down millions of MSMEs were shut down, million others were forced to lower their production level, and millions more struggling for survival. With the sudden lockdown all of them shut down, and almost 11 crore people working in these enterprises became jobless. Almost one third of the MSMEs are expected to shut down permanently.

Had the Madi government really wanted to help the MSMEs, they would have come out with Wage Protection Schemes along with Credit Guarantee Scheme on lower interest rates than it has been announced. It must also be noted that MSMEs are both in formal and informal sector. The micro sector with 630.52 lakh estimated enterprises provides employment to 1,076.19 lakh persons, which accounts for around 97 per cent of total employment in the unorganised sector. It is this sector which is undergoing a devastation after lockdown.

Under the present schemes only about 45 lakh units which are around 7 per cent of the total MSMEs are in a position to take benefit of the package. As of May 24, 2019, there were less than 300 listed SMEs in stock exchanges, and therefore, in an emergency like now, the equity provisions does not make much sense. Provisions for stressed assets are also a little because the bank crises have already indicated very high level of NPA due to inadequate demand. The government is yet to refund even the GST to them putting them in great financial crisis. On the other hand the government wanted to earn money even from distressed enterprises in terms of interest on loans, and even in moratorium of EMIs announced. The whole package to MSMEs is thus needs to be increased in amount, and modified to save the most distressed MSMEs. (IPA Service)