The government may soon clear a relief package of Rs 20,000 crore to help Micro Small and Medium Enterprises (MSMEs) as the sector braves the fallout of the coronavirus pandemic. This fund will be divided into two separate funds -- Distressed Asset Fund and Fund of Funds, as per government sources.
The Expenditure Finance Committee of EFC, headed by Finance Minister Nirmala Sitharaman has cleared and forwarded the two proposals. The proposals are likely to get the green signal in the next Cabinet meeting. Both the funds will get Rs 10,000 crore once approved.
DISTRESSED ASSET FUNDS
A lot of MSMEs are struggling but are "economically viable" with a potential to scale up, a ministry official said. This fund will aim for such enterprises. The government will provide "turnaround capital" to MSMEs to restart their business efficiently once the lockdown comes to an end.
The proposal states that if 10 per cent of the fund is invested as seed money, then banks -- that are currently unwilling to provide equity -- can restructure the way forward. Export-oriented viable entities that have the potential to manufacture goods and are globally competitive could be assisted with this fund.
FUND OF FUNDS
The second proposal advocates utilising a facility that is already available. The second fund is for entities that have a capacity to scale up production in terms of quality and quantity.
"The idea is to get them doing better, not just turn bigger. MSMEs have a unique opportunity right now to move to the next level as there are question marks over manufacturing in China. These entities can be provided with seed money as well as expertise," said a senior official.
Officials said that the model will be somewhat like OYO Rooms. They said the idea is to bring in private sector efficiency and more foreign funding.
In this category, the identified beneficiaries would get assistance in the form of even foreign funding, managed by professionals who can take the business to the next level, and list them in the stock market.
MSMEs minister Nitin Gadkari recently said, "Industrial units which have a good turnover and pay GST regularly will get benefit from this fund."
Industry insiders believe that such funds would help turnaround the fortunes of the MSME sector in the medium and long run. As production units are shut, MSMEs are struggling to pay their workforce.
"They don't have the margins to pay their workforce for even a month during lockdown. That's why the sector has been witnessing large scale layoffs and pay cuts. They need direct immediate help," said an official.
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