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FM Nirmala Sitharaman announces measures to address MSMEs’ liquidity woes

FE Bureau

The Centre on Friday announced a clutch of measures for the liquidity-starved micro, small and medium enterprises (MSMEs) including immediate release of Rs 30,000 crore or half of the Rs 60,000 crore dues held up by PSUs, 75% of the arbitration awards and pending GST refunds within 30 days.

Long delays in settlement of dues by the government departments/PSUs and lack of credit disbursal by banks even after sanctions have undermined the MSMEs' ability to sustain their business cycles, their representatives had told finance minister Nirmala Sitharaman on August 6.

Among other measures, the government announced that TReDS (Trade Receivables Discounting System) would be allowed to use the GSTN system in medium term to enhance market for bill discounting for MSMEs to improve their cash flows.

Under the TreDS, banks could release 90% of these firms' receivables on the basis of receipts of purchases from their clientele among CPSE/state-run undertakings.

MSMEs are the backbone of the Indian economy, contributing nearly 30% of the gross domestic product and 49% of country's exports. MSMEs are also the largest employers, next only to agriculture. Over 6 crore such units provided employment to about 11 crore people (NSSO, 2016).

Decision would be taken in 30 days on the UK Sinha Committee recommendations such as on ease of credit, marketing, technology and delayed payments, Sitharaman said. The committee, which submitted its report in June, suggested forming a government-sponsored

Fund of Funds of Rs 10,000 crore to support venture capital and private equity firms investing in MSMEs and a Rs 5,000 crore stressed asset fund to give relief to small businesses hurt by demonetisation, the goods and services tax and an ongoing liquidity crunch.

To ensure that the government decisions are implemented in the right earnest, the department of expenditure would monitor release of delayed payments from government departments/PSUs, such as NHAI, and the performance would be reviewed by Cabinet Secretariat.

Similarly, the Cabinet Secretariat would implement and monitor the execution of arbitration awards in contractual disputes by government/PSUs. Besides the delayed payment from PSUs, delay in payment of another Rs 13,000 crore on procurement through the government e-Marketplace (GeM) was also being addressed.

Sitharaman said the Cabinet will soon consider an amendment to the MSME Act to adopt a single definition of MSME to replace the multiple definitions for ease of doing businesses.

In November last year, the government had made a series of announcements including an interest subvention, online loan approvals, mandatory procurement and technology centres. Subsequently, RBI had also announced a loan restructuring scheme.