Top 5 Key Takeaways on the Special Economic Package Announced for Industrial Sector

msme benefits from government

The lockdown has wavered Indian Economy and GDP growth has plummeted abysmally. The lockdown in India has affected the daily wage workers and small businesses so severely that businesses were in doldrums. Their reserves being used up, they had an operational fund deficit. For the small business to survive, to get back on their feet and to be able to re-start their business, remuneration was necessary to help them cope up with the damage and support from the government, in the form of economic package, was imperative for the revival.

This package therefore is to help the poor and MSME to get back on their feet. Measures taken are to remediate the MSMEs for the loss occurred as well as an initiative to restart them. The break in supply chain had affected the market severely. In order to overcome this, Government of India(GoI) has released economic packages which can see a survival & growth of MSMEs in India. This will further ensure continuity in the supply chain and encourage businesses to evolve and hence transform Indian market into a global market.

The SME Sector

MSMEs makes up for 45% of the country’s total Manufacturing output, 40% export and contributes 30% to the national GDP. The prolonged lockdown has acutely disrupted the operations of MSMEs and are much in need of operational liability. In order to help the MSME rehabilitate further encourage increased initiative towards starting MSME, numerous liquidity measures have been announced by the government. Up to 3 lakh crores collateral-free automatic loans are to be disbursed for Businesses. Banks and NBFC to provide emergency credit lines to MSMEs up to 20% of their outstanding credit. Interests being capped, tenure of 4 years and moratorium on principal up to 12 months. Apart from fund availability, GoI has also ensured debt and equity facilities for stressed MSMEs.

The definition of MSMEs has always held-back businesses from growing. Businesses fear that increasing their business will cause them to grow out of their defined business size. This will ultimately result in loss of their entitled benefits. Hence, the businesses have always made sure to stay within their business size to avail benefits. To be able to help them grow out of fear, GoI has revised the definition of MSMEs. The new definition would eradicate the fear and would give enough space for the business size to expand as well as enjoy the benefits entitled to them. This way, there would be no hesitation for business owners to increase their business, to cross the line to achieve higher targets.

Finally, the government has also taken a stern step to disallow global tenders up to 200crore. This enables MSMEs to have abundant opportunities as they have always faced unfair competition due to the global market. Government will now seek their procurement from MSMEs as they can now actively participate in government purchases. This would further facilitate the mission ‘vocal for local’. With available liquidity, revised definition of MSME as well as opened business opportunities, MSME can look forward to expanding and increasing their business. Ultimately enabling India to be a self-sufficient market as well as a global market.

Some of the sectors’ benefits are briefly elaborated

 Agriculture & Food processing sector:

  • For the development of Dairy sector and infrastructure Rs. 15000Cr has been announced. In addition to this, the Corporate sector can now avail 0.2% rebate.
  • One country, one market will allow farmers to sell their produce at any market. This would not only eliminate the unfair prices to farmers due to multiple levels of brokerage but will also improve raw material availability for MSMEs.
  • The Micro Food Processing Sector has received an allocated fund of Rs.10000Cr. This scheme will enable several micro and small industries to be set up. The micro enterprises whose investment was less than Rs.1Cr can avail the credit linked subsidy at 35% of the project cost. These opportunities will also entitle increase in their business size.
  • There is also a big boost for cold storage plants as transportation and cold storage logistics get up to 50% in subsidy.
  • ESMA to be amended, this will entitle the District Magistrate to have the power to ensure uninterrupted production of essential services. The opportunity will give more freedom to farmers to grow onion, potato, oilseeds, cereals, edible crops and other essential commodities.

Aerospace & Defense sector:

Defense

  • The Foreign Direct Investment (FDI) limit in the defense manufacturing sector has been raised from 49% to 74% under the automatic route.
  • Imports to be reduced: The government will ban import of certain weapons. A notification will be released announcing the list of weapons and platforms that will be disallowed.
  • A push for Make in India in the defense sector has been implemented, wherein, India will build its capacity to manufacture the necessary weapons within the country making it a self-reliant one.

Aviation 

  • Ease on restrictions on utilization of airspace as currently only 60% of airspace is being used. Shorter flight paths will save fuel and also reduce travel time bringing in a positive environmental impact.
  • Six more airports to be auctioned for private participation in second round bidding.

Space & MRO

  • Policy trust for encouraging Maintenance Repair and Overhaul (MRO) in India. GST for MRO significantly reduced from 18% to a nominal 5%. Further, there will be a convergence of Defense and Civil MROs to establish economies of scale. Major engine manufacturers in the world would set up engine repair facilities in India which will ultimately reduce the airline cost.
  • A Level Playing field will be established for the Private sector in Indian Space industry to facilitate satellite launches and space services. Predictable Policy and regulatory framework will be likewise provided for private players. The private sector will be allowed to use ISRO infrastructure and other space industry assets to improve capacity.
  • Participation will be allowed for private sectors in futuristic programs like planetary exploration and outer space travels. Thus, enabling liberal geo-spatial data policy for providing remote-sensing data to tech-entrepreneurs subject to various checks.

Power Sector

  • The power departments and utilities in all the centrally administered territories would be privatized. The GoI believes this move will lead to offering better service and improvement in efficiency.
  • Distribution companies (DisComs) now will have to maintain a certain standard and unscheduled load shedding would be penalized by the government. MSMEs don’t have to worry about the power shedding.
  • There would be a revision in the tariff policy which will now be focusing on consumer rights, promotion of industry and sustainability of the power sector.
  • Since DisComs are facing unprecedented cash flow problems, government has provided Rs.90000 crore liquidity injection for the fund-starved electricity distribution companies

Although the economic package has been released as a commissioning or survival package for the industries, the intention is however to see higher returns in the future. The government should however ensure the policies and schemes are being monitored and executed efficiently. Hence, measures must be taken to support financial sectors. The government might have to step in again to revive the growth through demand stimulus. The upcoming quarters would show growth to be negative but from the fourth quarter the recovery might be expected. The economic package is likely to be advantageous and would help the MSME grow. Businesses might have to take the initiatives to make optimum use of the available schemes and benefits to overcome the incurred loss and to achieve growth rate in the coming quarters.

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About the Author: Vikas Manral

Mr. Manral is a senior management professional with 18+ years of experience in global Aerospace industry. He specialises in Business strategy and International marketing for A&D sector.

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