MSMEs are suffering the most due to the loan repayments, interest payments and taxation.
By Rajat Prakash
Ease of doing business for MSMEs: The Covid-19 pandemic has caused an economic slowdown on a global scale as the markets and businesses are unable to operate under these circumstances. Companies, especially the MSMEs, are struggling to keep afloat as their business activities collapse over time. The subsequent lockdowns have virtually shut down the businesses. The situation is seen to be worsening day after day, and economists have stated that it will be tough for small businesses to tide over this pandemic/ crisis without any assistance from the government. The economic problems for such small companies began well in the second quarter of this fiscal year and due to COVID-19, it has only become worse.
The government has, of course, launched various programs over the years to help boost the economy but during such a crucial time, it is naturally a tough call to make. On one hand, the government needs to increase its revenue collection for the necessary boost to the economy and to reach the set goals, whereas on the other hand, the industries could suffer heavy losses without any relaxations or waivers.
MSMEs are suffering the most due to the loan repayments, interest payments and taxation. These can be curtailed by providing industry-specific relaxations. Recently Prime Minister Modi had set up an Economic Task Force to assess the impact of COVID-19 on the economy. Apart from that the banks through Indian Banks Association have also approached RBI for relief regarding non-performing asset (NPA) classification in the MSME sector.
As the nation’s Covid-19 patient count keeps increasing, many districts and some states have come under complete lockdown. It has become extremely difficult for the MSMEs to pay salary to their workers. Apart from that, MSMEs were already struggling to repay their loans as the banks are declaring them as NPAs. The business activities are also hindered as the global operations have suspended for many companies and various business deals have been postponed or cancelled due to the pandemic. This overall affects the health of the MSMEs as they are at the bottom of the barrel but, considering that they are a significant player in the industry, their needs should be protected.
Some of the organizations have taken initiatives to help the MSMEs themselves in India. SBI has opened an emergency credit facility focused at MSME borrowers affected by the Covid-19. Under the scheme the lenders can provide up to Rs 200 crore or 10 per cent of the existing fund-based working capital and such loans will be given at a flat 7.25 per cent interest.
Other countries have already taken initiatives and started to release funds for providing relief to all sectors in their country. Countries like Canada, Singapore, and even UAE, have announced plans to release billions of dollars that would ease the burden of MSMEs and salaried individuals. They have proposed extended tax filing, loan default relaxation, and a bailout for certain sectors as well.
The Indian government has also provided some reliefs to the country as the Finance Minister Nirmala Sitharaman announced the following measures, which may be particularly beneficial for the MSMEs:
- Default threshold limit for triggering insolvency proceedings under the Insolvency and Bankruptcy Code 2016 (IBC) for MSME has been increased from the previous Rs 1 lakh to Rs 1 crore.
- Relaxation on norms for holding board meeting to 60 days, this relaxation shall remain for the next two quarters.
- The due date for completing pending payments of central and excise duties has been increased to June 30, 2020, without any interest or late fee.
- The due date for filing GST extended till June 30, 2020, and no late fee or penalty will be charged for companies with turnover less than Rs 5 crore for late filing. For those with turnover more than Rs 5 crore, only interest of 9 per cent will be charged.
- All last dated with respect to income tax returns and filings have been moved to June 30.
It was also announced that the ministry may consider suspending Section 7, 9 and 10 of the IBC which relate to insolvency proceedings, for a period of 10 months. These measures do ease the burden of the MSMEs to some extent but the government could consider:
- Special provisions for MSMEs under the GST Act to ease their burden.
- Reduction of tariffs of facilities such as electricity, water, etc.
- Interest subvention on the working capital to a percentage in order to decrease the burden on working capital of the companies.
- A different tax slab for MSMEs under special circumstances.
- Freeze loan accounts in such extreme conditions for a period of two months so that the accounts are not declared as NPAs.
If the government can provide these relaxations and grants, it would turn out to be a saviour for the MSMEs, as it would help them survive the economic slowdown being caused by the pandemic. A considerable factor in the implementation of such provisions would be the circumstances of the economy or the nation itself. The government must consider some of these steps to save the MSME sector.
Rajat Prakash is the Managing Partner at Athena Legal. Views expressed are the author’s own.