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The Hollow Promises of Atma Nirbhar Bharat
A provisional assessment of the relevance of Atma Nirbhar Bharat Package for Micro, Small & Medium Enterprises
The Covid-19 pandemic and ensuing lockdown has wreaked severe financial and socio-economic distress upon India’s 63.4 million Micro, Small & Medium Enterprises (“MSMEs”) - responsible for 37% of India’s gross domestic product (“GDP”), 40-45% of exports, and employing c. 110 million people i.e. 40% of workforce.
The Ministry of Finance recently announced a five part stimulus package labelled as Atma Nirbhar Bharat (“ANBP”), which along with prior measures taken by various Government of India (“GoI”) agencies and the Reserve Bank of India (“RBI”) add up to a headline and may we add, much cited figure, of INR21Lcr ($280bn) of government support, of which INR3.9Lcr ($52bn) is allocated to MSMEs.
ANBP also plans to accelerate several medium-to-long term reforms of a more structural variety, partly building upon policy actions announced during Budget 2020-21 and other prior measures.
Key Features & Implications relevant for MSMEs
INR3Lcr ($40bn) of Unsecured Loans for MSMEs: Initially positioned as an impressive “emergency credit line” scheme for business and MSMEs; promising attractiveness for lenders owing to a 100% credit guarantee; and borrowers thanks to capped interest, 12 month moratorium on principal repayment and no requirement for collateral (four year tenure). The fine print of the scheme, as it unraveled, has put in specific eligibility criteria which in general makes it underwhelming:
Only MSMEs with existing loans are eligible: MSMEs can opt for additional borrowing up to 20% of their loan outstanding as at Feb 29, 2020, subject to a INR25cr cap i.e. if they have INR10cr of outstanding credit, they can borrow up to INR2cr
Only regular, SMA 0, SMA 1 accounts are eligible: Ones with no delays or at max which are upto 60 days past due
MSME eligibility criteria itself is more complicated than before:
New criteria to be classified as MSMEs require both Investment AND Annual Turnover thresholds as below:
Credit guarantee: 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited (NCGTC). Bankers may have prefered a direct guarantee from GoI, but NCGTC being a GoI promoted trustee company is a near proxy.
INR20,000cr ($2.7bn) of Subordinated Debt for Stressed MSMEs:
Only valid for stressed MSMEs (SMA 0, SMA 1, SMA 2 or NPA)
Banks to disburse debt to stressed MSME promoters, who in turn will inject the funds in the MSME as equity
20% credit guarantee
Preliminary reports indicate debt amounting to 15% of the promoter, subject to a INR75L cap per disbursement i.e. is subscale
Details on precise terms and operationalization are yet to come out - hence shouldn’t have any significant impact in the near term
INR50,000cr ($6.7bn) of Equity infusion for MSMEs:
Govt to setup Fund of Funds with INR10,000cr contribution, with remainder INR40,000cr to be raised from private institutions
Details on precise terms and operationalization are yet to come out but should be kept under watch, especially for growth-oriented and capital light MSMEs
Only Domestic Companies Eligible for Bidding in Government Tenders upto INR200cr ($27m): Only domestic participation allowed for tenders below INR200cr linked to government procurement. Exceptions can be made on a case-by-case basis. Details on precise terms and operationalization are yet to come out but should be kept under watch.
Incentive schemes for Promotion of New Champion Sectors: to be launched in specific manufacturing sectors. Solar PV manufacturing and advanced cell battery storage identified within the mix. Fast track investment clearance through Empowered Group of Secretaries (EGoS) to be instituted, with a project development cell in each Ministry to prepare investable projects proposed. Details on precise policy actions awaited. Should be kept under watch.
This email is prepared by Arkvega Advisory (or “AA”), the Institutional Advisory practice of Arkvega Partners LLP (https://arkvega.com) – an independent New Delhi based advisory and investment management firm.
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