17th May – Editorials/Opinions Analyses

Contents

1. How will the COVID-19 relief for MSMEs help?
2. Measures to deal with the farm crisis?

HOW WILL THE COVID-19 RELIEF FOR MSMES HELP?

Focus: GS-III Indian Economy

Why in news?

The first tranche of the Aatmanirbhar Bharat Abhiyan that was aimed at micro, small and medium enterprises (MSMEs), non-banking financial companies (NBFCs) was announced on 13^th May 2020.

What are the proposals aimed at offering relief to MSMEs?

• The government has proposed to offer collateral-free loans to MSMEs which will be fully guaranteed by the Centre.
• There will be a principal repayment moratorium for 12 months and the interest rate will be capped and there will be no guarantee fee.
• All MSMEs with a turnover of up to ₹100 crore and with outstanding credit of up to ₹25 crore will be eligible to borrow up to 20% of their total outstanding credit as on February 29, 2020.
• These loans will have a four-year tenure and the scheme will be open until October 31.
• A total of ₹3-lakh crore has been allocated for this.

How will this benefit MSMEs?

• This will act as initial seed money for these small enterprises hit by zero cash flow due to the national lockdown.
• This loan will help them buy raw materials, pay initial bills and daily wages to employees.
• In short, this will be like working capital for cranking up their businesses again.
• It is to break this logjam that the government has said that it will backstop banks up to ₹3-lakh crore and said that these loans do not need collaterals.
• Banks are now expected to be more comfortable in assisting this category of borrowers because the risk is zero (since the loans are guaranteed by the central government).
• About 45 lakh MSMEs are expected to gain from this proposal.
• A total of ₹20,000 crore will be funnelled through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) whereby banks will lend money to promoters which can be infused as equity in their businesses. About two lakhs stressed MSMEs with non-performing assets (NPAs) are projected to benefit from this.

Why is there a change in the definition of MSMEs?

• Henceforth, MSMEs will be defined not based on their investment alone but also on their turnover. The definition has been tweaked and the existing distinction between manufacturing and services units has been eliminated.
• It has been a long-standing demand from industry to hike the investment limits, as with inflation, units often cross the threshold that will bring them benefits.
• To prevent this, they either run their operations at a reduced level or incorporate multiple units so that turnover is distributed in a way that they remain within the threshold that will give them the benefits.
• The decision to add turnover criteria to investment is seen as a good decision as there are units that leverage a small capital to post large revenues.

What are the proposals for NBFCs?

• NBFCs, housing finance companies and micro finance institutions are finding it difficult to raise debt capital due to a confidence crisis in the debt markets.
• The government has, therefore, announced a special liquidity scheme of ₹30,000 crore to pick up investment grade debt paper from both primary and secondary markets.
• Such paper will be fully guaranteed by the government.
• This is expected to break the low confidence cycle in the market for lending to the above category of borrowers.

What are the measures for the common man?

• The government has offered to pay the 24% provident fund contribution (employer+employee) for those earning up to ₹15,000 a month as salary and working in units that employ less than 100 workers up to August.
• The statutory PF contribution for those employed in the private sector (and not in the category of establishments above) has been reduced to 10% (from 12% now) for 3 months.
• This is expected to benefit 4.3 crore people and 6.5 lakh establishments and release a total of ₹6,750 crore liquidity.
• This is expected to benefit 4.3 crore people and 6.5 lakh establishments and release a total of ₹6,750 crore liquidity.

-Source: The Hindu

MEASURES TO DEAL WITH THE FARM CRISIS?

Focus: GS-III Agriculture, Indian Economy

Introduction

• With mandi closures and supply chain disruptions causing havoc in agricultural marketing, the COVID-19 pandemic has put a spotlight on some of the critical infrastructure gaps and long-pending governance issues that plague the farm sector.
• The third tranche of the Atmanirbhar Bharat Abhiyan listed measures to deal with those gaps, though there has been no announcement on an immediate economic stimulus for the sector.

What are the reforms announced in the farm sector?

The third tranche announced focused on long-term issues in the agricultural sector, by promising financing to strengthen infrastructure, build better logistics and ramp up storage capacities, as well as proposing three major governance and administrative reforms that have been in the pipeline for many years.

Changing the agriculture sector

• The Essential Commodities Act, 1955 allows the government to control price rise and inflation by imposing stock limits and movement restrictions on commodities, giving States the power to regulate dealer licensing, confiscate stock and even jail traders who fail to comply with restrictions.
• Traders have long complained of harassment under the Act on the suspicion of hoarding, black marketing and speculation.
• The Act has disincentivised construction of storage capacity and hindered farm exports.
• It was announced during the Release of Third tranche that the Act would be amended to deregulate six categories of agricultural foodstuffs: cereals, pulses, edible oils, oilseeds, potato and onion.
• It is hoped that the amendment will bring more private investment into warehouses and post-harvest agricultural infrastructure, including processors, mills and cold chain storage.
• It could help farmers sell their produce at more competitive rates if there is no fear of government intervention to artificially suppress market prices, and is likely to give a boost to farm exports.

Changing APMC Monopoly

• The Centre plans to bring in a new federal law to break the nearly half-century long monopoly of the Agricultural Produce Market Committee (APMC) mandis.
• It has already tried the route of trying to coax State governments into adopting its Model APMC Amendment Act.
• Now, the Centre proposes to bypass States altogether by bringing in a federal law to abolish inter-State trade barriers.
• The hope is that these reforms will bring in more options for the farmer, offering more competitive prices if there is a wider choice of buyers.

How are infrastructure investments expected to help?

• A ₹1-lakh crore agriculture infrastructure fund run by the National Bank for Agriculture and Rural Development will help create affordable and financially viable post-harvest management infrastructure at the farm gate and aggregation points.
• These announcements would also bring better infrastructure and logistics support to fish workers, dairy and other livestock farmers, beekeepers and vegetable and medicinal plant growers.

-Source: The Hindu