The sudden outbreak of COVID-19 has brought economic activities across the world to a halt. Micro, Small, and Medium Enterprises (MSMEs) are the worst affected sectors. Presently, MSMEs employ 114 million people and contribute enormously to the total GDP (Gross Domestic Product) of India. According to reports, the TransUnion Cibil has stated that MSME loans worth Rs 2.3 lakh crores are at a significant risk of becoming non-performing.
In the wake of the pandemic, the government has undertaken several initiatives to brace Micro, Small, and Medium Enterprises, which are stated below.
A] Government Initiatives for MSMEs
Sanctioned 3 Lakh Crores Collateral-free Automatic Loans
On May 26, the Government notified 3 lakh crore Emergency Credit Line Guarantee Scheme which will provide support to the MSMEs under the Aatma Nirbhar Bharat Abhiyaan. The government offered an additional 20% of the outstanding loan from banks, NBFCs, and other financial institutions to the existing MSMEs borrowers with up to 25 crores of total borrowing and 100 crores turnover. There is a moratorium of 12 months on installment repayments of loans with a tenure of 4 years.
Approved 20,000 Crores Subordinate Debts
On 1st June 2020, the Government approved 20,000 crores subordinate debts to boost MSMEs. The objective of the scheme is to help 2 lakhs MSMEs to overcome these difficult times. This step will also ensure the revival of economic activity and protecting the jobs of millions of people dependent upon this sector. Under this scheme, the government has ensured to provide support of 4,000 crores to CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). MSMEs promoters will obtain the loan from the banks and transfer the funds as equity in the unit.
Rs 50,000 Crores Equity Infusion Through Fund of Funds
In addition to the above facilities, the cabinet also announced Rs 50,000 crores aid for stressed MSMEs. Under this scheme, FOF (fund of funds) with a corpus of Rs 10,000 crores will be set up. It will be operated through a Mother Fund and a few Daughter Funds.
In an interview with Economic Times, Mr. Nitin Gadkari, Minister of MSMEs said that the government is aware of the MSMEs problem under the COVID-19 scenario. During the lockdown, demand and supply were impacted. As a consequence, MSMEs businesses came to a standstill, and due to this reason, organizations had no funds to incur expenses and pay even salaries/wages. In the light of above, the relief provided by the government is appreciable.
Disallowed Government Tenders of up to Rs 200 Crores and Proposed Set-up of e-market Linkages
The government has decided not to allow global tenders of up to Rs. 200 crores to support MSMEs to increase their operations in India.
COVID-19 has been a testing time for all the business sectors including MSMEs, which are currently facing marketing and liquidity problems. According to Mr. Gadkari, the government is considering to set up an e-commerce platform for MSMEs. This platform will help MSMEs to connect with people from across the world.
Post the pandemic, Central Government along with CPSE (Central Public Sector Enterprises) will clear MSME receivables in 45 days.
MSMEs Definition is Revised
MSMEs threshold was due for revision for a long time. As a result, the Central Government has recently announced the revisions in MSMEs’ definition. The revised criteria for the classification of MSMEs is described below:
|Manufacturing Enterprises and Enterprises Rendering Services||Investment in Plant and Machinery or Equipment: |
Not more than Rs. 1 crore and Annual Turnover; not more than Rs. 5 crore
|Investment in Plant and Machinery or Equipment: |
Not more than Rs. 10 crore and Annual Turnover; not more than Rs. 50 crore
|Investment in Plant and Machinery or Equipment: |
Not more than Rs.50 crore and Annual Turnover; not more than Rs. 250 crore
The Outcome of the Initiatives on MSMEs
The above scheme will benefit 6 crore MSMEs and generate employment for 11 crore people. As Mr. Gadkari said in an interview, MSME is considered as the backbone of the economy and the initiatives taken by the government will prove to be a major contributor to help India become a 5 trillion economy.
Moreover, the new standard operating procedure for MSMEs – by cleaning and decontamination – will not only prevent the transmission of COVID 19 among the workers but also ensure the continuity of the business. Also, the mandatory medical insurance for the workers will ensure that they get proper healthcare facilities which will help them recover faster.
B] Role of Better Enterprise Software to Derive the Benefits From the New Government Policies
To get the maximum benefits from the new schemes, MSMEs must-have tools that can assist them in making critical decisions. Taking the right decision at the right time helps organizations to identify their goals, make strategies to achieve them, and evaluate the reasons for variances between actual and projections.
Therefore, it becomes imperative that MSMEs must-have an ERP system using which management could measure the health of finances on a real-time basis. There are many enterprise software available in the market which is useful for MSMEs. However, it is important that an ERP must have the following features.
Managing accounts is imperative in any entity. An ERP must have an accounting management system using which MSMEs can build detailed financial reports on a daily, weekly, monthly, or yearly basis, enabling businesses to track their performance on a real-time basis.
Statutory and Taxation Features
ERP software assist MSME in tax and statutory (PF, ESI, etc) calculations, filing returns, and generate the reports. It needs to be designed to handle GST transactions, ITC (input tax credit calculations), reverse-charge, etc.
Using the tool, MSMEs should be able to track the budget cost center wise and compare the same with the actual results. It should act as an efficient control mechanism by keeping a check on the expenses and reviewing the earnings against the projections.
Furthermore, to avoid any unauthorized access and safeguard the data, the tool must have security features. There are many ERP software available in the market, e.g. Tally.ERP 9, which is not only cost-effective but also offers planning, reporting, data security, and improved customer service.
To sum up;
Having an ERP system in MSMEs is the demand of today’s time. Undoubtedly, the benefits it offers to the MSME sector far outweigh the prices charged from the customers. It helps MSMEs in achieving their targets and as a result, boosts the Indian economy.
Lalit Sharma is a professional Chartered Accountant and Certified Information System Auditor from India having an experience of 15 years in Financial Planning, GAAP Accounting, Budgeting and Forecasting, Tax Consulting, Process documentation, Risk Management & SOX Compliance Engagements.