COVID-19 PACKAGE: Govt offers Rs 3 lakh cr worth of MSME loans

New definitions of MSMEs

The central government has started giving out the details of its 20 lakh crore ($250 bln) stimulus-cum-rehabilitation package announced in the wake of the COVID-19 pandemic.

Prime Minister Narendra Modi had announced the program yesterday, and said that Finance Minister Nirmala Sitharaman will announce the details in coming days.

Sitharaman said she would announce plans and schemes under the broader program everyday, focusing on one industrial sector per day.

Sitharaman said the government will finance the Rs 20,000 lakh crore stimulus and rehabilitiation package partially through extended borrowings.

She said further details of how the schemes will be financed will be revealed in coming days.


The key highlight of her announcement today is a program to give easy loans totaling Rs 3 lakh cr to small and medium industries across the country.

These loans would have tenures of up to four years and will be 100% guaranteed against default by the central government. In other words, the banks and non-banking finance companies that offer these loans do not have to worry about whether the industrial unit will pay it back or not, as the taxpayer will pay if the industrialist will not.

She said banks and NBFCs should not try to get any extra collateral before offering these loans. An estimated 45 lakh (4.5 million) industries and companies are expected to benefit from this scheme.

“This will help them restart their operations,” she said, referring to the slowdown that the small and medium industrial sector finds itself in due to the COVID-19 lockdown.

Most of India’s organized labor works in small and medium enterprises, and the move is aimed at guaranteeing the job security of people working in such units.

The loans will be available until the end of October.


She also announced a Fund of Fund for investing up to Rs 50,000 cr as equity into MSMEs.

Government officials will search for and invest in small and medium enterprises that they believe are ‘viable’ and promising, but are facing a touch situation because of COVID-19.

The fund will have an initial corpus of Rs 10,000 cr.


The investment limit for MSMEs is also being revised upward, the minister said, without specifying what the new limit is.

In addition to investment size, revenue-linked criteria is also being introduced, and the differences in the definition between manufacturing and service sector are being removed, she added.

Any unit with investment of up to 1 cr will be called micro unit or turnover of up to 5 cr.


The government also announced liquidity relief related to statutory provident fund for all companies.

While the government of India had paid the employees’ and employers’ shares of EPF for March to May, Sitharaman said the facility will be extended for another three months.

“This shall provide 2,500 cr of liquidity support and 72.22 lakh employees will benefit from it,” she said.


The finance minister also announced a special liquidity scheme of Rs 30,000 cr for buying investment-grade debt papers of NBFCs, housing finance corporations and micro-finance companies.

“They need not be high quality debt papers, but can be investment grade papers also,” she said.

This will ensure credit flow to small and micro industrial units.

“This will ease the flow of liquidity to these NBFCs who have not-so-good debt papers,” she said.

Rs 45,000 cr liquidity infusion will be given to NBFCs through an expansion of an existing, Rs 30,000 cr scheme for credit guarantee.

“The scheme will now cover borrowings such as primary bonds, commercial papers.. all these will constitute the liability side of the balance sheet, but we are getting into that area also. But in this case, only the first 20% loss will be borne by the guarantor, which is the government of India,” the minister said, adding that even unrated papers can be brought under this scheme.

“This, we believe, will bring money into the hands of microfinance institutions,” she said.


Central government will infuse emergency liquidity of up to Rs 90,000 cr against receivables.

The payment will be routed via Power Finance Corporation and rural electrification corporations.

She said discoms, or the state power distribution companies, are sitting without having liquidity because of high receivables.

The money that is being to discoms will be guaranteed by the respective states, she added.


All central government agencies, including CPW, Railways and Ministry of Highways, will give an extension of up to six-months in the currently awarded contracts.

“They can take an additional six months to comply with the contract conditions,” she said.

The extension will cover both construction and contracts for the provision of goods and services.

Concessional periods will also be extended by up to 6 months, she added.

Government agencies will also release bank guarantees partially to account for partially completed contracts, she added.


COVID-19 period will be treated as a force majeure and regulatory agencies can extend the completion deadlines and so on for real estate projects by up to six months.


The TDS and TCS rates have been reduced by 25% of the existing rates. This shall apply to all contracts and payments, including commission, contract payments and so on.

This will come into force from tomorrow and be applicable for the rest of the current financial year.

“This will release Rs 50,000 cr to the people,” she said.

TDS and TCS are source-based tax deductions meant to recover tax at source at the time of payment.

As for income tax payers, the pending refunds of all non-corporate tax payers will be processed immediately, Sitharaman said.

The return filing dates for the last financial year has been extended to 31 October.