The next set of stimulus measures from the government will have a clear focus on concerns of SME segments that have been hit hard due to Covid-19 outbreak and resultant nationwide lockdown. Sources in the government said that the Finance Ministry has suggested the PMO to set up a dedicated fund for micro, small and medium enterprises that could be used to provide both interest-free loans to identified industries as well as capital support required to bring enterprises back in business after the lockdown.
The MSME fund may also be used to provide interest subvention on loans taken by the sector to reduce their burden and allow some of these labour-intensive segments to operate smoothly. One of the biggest challenge facing the MSMEs due to the lockdown is of eroding cash flow. Longer duration of lockdown will only add to their problems with few enterprises facing an imminent shutdown.
Sources said that the size and funding of the proposed MSME fund is yet to be worked out pending approval from the PMO, but it would substantially big to accommodate large number of enterprise that operate in the segment.
Other non-fiscal measures in the SME package may focus more on compliance related issues and easing some of the operational conditions including making norms for sourcing from the MSME segment stringent and increasing sourcing the limit of mandatory procurement from the sector. Also to ease the cash flow, the segments dues from state government and PSUs would be asked to be cleared within a specified period of time.
Though the next set of package from the government to fight disruptions caused Covid-19 is expected to be much wider that would cover the concerns India Inc., particularly the worst-hit travel and tourism, hospitality and aviation sectors, sources said that government will adopt a phased approach to see that only such measures that immediately benefits a sector during the lockdown are announced first before looking at measures to bring the economy back on track after the lockdown.
While talks with stakeholders have taken place in different sectors and needs of various has been analysed by the Finance Ministry, it is felt that MSME has been hit hard at different levels and needs support immediately.
As part of the phased approach, the government is set open certain industries from April 20 while adhering to the social distancing norms.
There is wide speculation about the next economic stimulus package that could be bigger than the Rs 1,70,000 crore worth of schemes announced by Finance Minister Nirmala Sitharaman last month focusing on providing food security to the poor and providing money in their hands to fight the Covid-19.
"The Finance Ministry is regularly interacting with various economic ministries and getting inputs from them over measures that would be required to give stimulus to the economy in this difficult period. These could be further discussed to finalise a concrete plan once the situation of lockdown becomes a bit clearer. In a lockdown, many of the measures that the governments announced may not yield desired results," the officials quoted earlier said.
There is also a suggestion to involve five to six big corporate houses in the production of key items of consumption for the masses so that the country did not face shortages once demand picked up. This could be done by providing direct linkages of farmers with corporate entities so that key food produce reaches the factories for processing and production.
"While lockdown measures seem to be working in reducing the spread of the Covid-19 pandemic globally, the associated loss of income for a large section of the society in India could hurt consumer spends. There is a broad-based expectation from the Indian government to look at additional fiscal measures to counter the effect of the likely slowdown in the economy," Kotak institutional equities said in report on consumer spend.
While announcing the last package, Sitharaman had indicated that concerns of India Inc. and SME segments and other segments of the economy impacted by the present lockdown may be looked at and government will come up with a plan later.
"Our first priority is to reach food to the poor and reach money in their hand. We will think about other things later," Sitharaman had said then.
There was meeting of officials early this month where the possibility of redesigning some welfare and other government schemes was discussed. The plan is to tailor-made schemes to suit the post-lockdown situation.