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1st tranche of Rs 20 lakh crore package doesn't hit government exchequer; here's why

The Rs 3 lakh crore collateral free loans to MSMEs would be disbursed by banks with a 100 per cent government gurantee. Since there would be a moratorium for 12 months, there will be no default in 2020-21

twitter-logo Anand Adhikari        Last Updated: May 13, 2020  | 18:26 IST
1st tranche of Rs 20 lakh crore package doesn't hit government exchequer; here's why
Rs 45,000 crore liquidity under the partial gurantee scheme for NBFCs has guarantee element of only 20 per cent , which would be borne by the government

The Rs 3 lakh crore collateral free loans to MSMEs would be disbursed by banks with a 100 per cent government gurantee. Since there would be a moratorium for 12 months, there will be no default in 2020-21. This Rs 3 lakh crore guarantee will crystalise only when there is a default, which cannot happen before next financial year. So there will be nil outgo from exchequer in current financial year.

Similarly, the Rs 20,000 crore subordinate debt provision for MSMEs is by way of a contribution of only Rs 4,000 crore to the fund. This guarantee will come from Credit Guarantee Fund Trust for micro and small enterprises (CGTMSE). This Rs 4,000 crore contribution by government would lead to banks offering credit upto Rs 20,000 crore.The outgo from exchequer would be only Rs 4,000 crore.

Also read: Nirmala Sitharaman Speech Live Updates: Govt extends deadline for filing income tax returns; cuts TDS by 25%

In addition, the Rs 90,000 crore infusion by Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) will come on the head of these insitutions. The guarantee is not by central government but by the state governments. Again the hit on exchequer will be nothing.

The Rs 30,000 crore special liquidity schemes for NBFCs, HFCs and MFIs are also fully guranteed by the government. Under this also, there is no outgo from the government exchequer.

Similarly, the Rs 45,000 crore liquidity under the partial gurantee scheme for NBFCs has guarantee element of only 20 per cent , which would be borne by the government. Here again gurantee would crystalise only later or next year.

Also read: What is the new definition of MSMEs?

Also read: FM Sitharaman announces Rs 3 lakh crore collateral-free automatic loans for MSMEs

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