The government is considering several measures such as liquidity support, easier compliance norms and tax relief on online transactions for micro, small and medium enterprises (MSMEs) that are facing severe business disruptions due to the second wave of Covid-19 pandemic, two government officials aware of development said on condition of anonymity.
It is clear the second wave has hit the MSME sector hard even as it was recovering from the devastating impact of the first wave, the people added. Details of a support package for it are being worked out, they said.
Small firms are suffering because their working capital is stuck, the officials said. Providing liquidity support by further expanding the scope of Emergency Credit Line Guarantee Scheme (ECLGS) and releasing their pending payments (those worth at least ₹15,000 crore are pending) are two measures under consideration, they added. “About 50% of the pending amount is with public sector firms under the Centre and states, and that could be released immediately,” one of them said.
The ₹3-lakh-crore ECLGS is one of the key components of the ₹20-lakh-crore economic stimulus package announced last May that offered additional working capital finance in the form of an easy term loan to small firms. The Centre on March 31 extended it till June 30, but industry wants it to be extended till March 31, 2022, with an additional corpus of ₹3 lakh crore. The matter is under consideration, the first official said.
Most of the country remains under a lockdown to slow the second wave. In this situation, MSMEs should be encouraged to go online, the second official said. “The distinction between essential and non-essential goods and services sold online could be revisited with focus on the safe delivery to provide a wider online marketplace to MSMEs. Besides, TCS [tax collected at source] and TDS [tax deducted at source] provisions on e-commerce can be amended to facilitate small firms.”
“Various measures, including reduction of rates or expeditious refunds, are under consideration for MSMEs on TDS and TCS matters,” the official said. Such TCS and TDS provisions are not applicable for offline sales.
Nilaya Varma, co-founder and CEO of consulting firm Primus Partners, said: “MSMEs are among the worst-hit by Covid. They have had to deal with periodic lockdowns across states, impacting supply chains. While e-commerce could have allowed continuity of operations, policies discourage online sales in many regions. It is time for decision makers to evaluate the rationale for the distinction between essential and non-essential. We could club an electricity switch as a non-essential item, but it may be essential for a person using an oxygen concentrator.”