Assessment of Financial Support to MSEs and Lower Income Individual

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Due to the Six Months COVID lockdown during the year 2020 and again next round of severe COVID lockdown during 2021 with just two to three months in between , Micro & Small Industries have lost almost 15 months of business. The payout by way of Factory Rent, Wages & Salaries to Employees and other Statutory requirements were paid without any income.

To support the Industry, particularly the Micro Industries and Small units, what could be done?

  1. For Individuals & MSEs, the locked Fixed Deposits for Income Tax exemption purpose may be released so that this segment can get some liquid cash.
  2. For both Individuals & MSEs, for all Insurance, where there is default in paying premium, the same may be readjusted. For examples 20% of the premium can be retained and the 80% of paid premium can be refunded as a special case. The retained 20% can be the new premium and the maturity value can be readjusted as per the retained portion without any break in the tenure.
  3. The Minimum balance maintenance charges, Folio charges, Debit Card charges for other banks can be waived until end of 2021. Whatever debited may be returned.
  4. For Personal Loans & Credit Cards and other loans where the Banks have charged exorbitant interest during the moratorium period last year, the interest may be kept at normal banking interest and the remaining may be refunded with immediate effect.
  5. For Micro & Small Units, the 20% increase in the working capital assistance [for units having such facility] is not sufficient enough considering the amount paid by them during the lockdown.
  6. Same time Banks cannot lend more without any return guarantee.
  7. So for MSE units, the cumulative GST paid by them during the last two years can be offered as Working Capital Loan subject to the following conditions.
    1. GST being the indicator for Sales performance for manufacturing and service units can be taken as the base.
    2. For example for Rs.100 sales per month with 18% GST, the unit might have paid Rs.432 as GST for a cumulative sales of Rs.2400 during the 24 months period. As per RBI norms to achieve Rs.1200 Sales p.a. the unit might need Rs.240 as the CC funds. This will change depending on the creditor / debtor ratio and depending on the segment. With present 20% increase in Working Capital the unit may get Rs.96 only. Whereas the unit might have paid at least 20% of the sales – say Rs.540/- – during the lock down for salaries & wages and rent. The 20% working capital increase may not be sufficient for the unit. That is the reason the units have not availed the 20% increase announced the FM.
    3. With two years GST as the new Working Capital allocation for the unit, they might get Rs.432/- which can help the unit to achieve a turn over of Rs.2160 per annum as against Rs.1200/- To ensure return of money only a portion of this amount – say 30% can be provided for cash expenses – and the rest based on the sales + GST return in future. This way the MSEs will get the necessary working capital funds at the same time banks can also get back their income through interest on working capital.
  8. Similarly Corporate Companies can be allowed to support their vendor by way of term loan & working capital support at a reasonable interest rate [lesser than banking interest]. In return IT benefit or other benefits can be provided to the Corporate Companies.
  9. Half the CSR funding to be allowed to be used for supporting MSEs – as a special case – for the next three years. This can be routed through Banks and the interest charged on this can be fixed at 4% which will help the MSEs. The approximate CSR amount generated could be minimum 10000 Crore.

We request feedback, comments and corrections, if any, from the enlightened readers and experts on this.

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