<keyword id="20190045" type="General" weightage="20" keywordseo="Industry-body" source="keywords">Industry body</keyword> <keyword id="21568150" type="General" weightage="20" keywordseo="SME-Chamber-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="SME Chamber of India" meta.hostid="261" meta.entityid="SME Chamber of India">SME Chamber of India</keyword> has urged <keyword id="19956758" type="General" weightage="20" keywordseo="Finance-Minister" source="keywords">Finance Minister</keyword> <keyword id="19916618" type="General" weightage="20" keywordseo="Nirmala-Sitharaman" source="keywords">Nirmala Sitharaman</keyword> to continue the 45-day <keyword id="21233021" type="General" weightage="100" keywordseo="MSME-payment-rule" source="keywords">MSME payment rule</keyword> for <keyword id="20008810" type="General" weightage="20" keywordseo="corporates" source="keywords">corporates</keyword> and other buyers. According to Section 43B(h) of the <keyword id="19936187" type="General" weightage="20" keywordseo="Income-Tax-Act" source="keywords">Income Tax Act</keyword>, introduced through the <keyword id="19955404" type="General" weightage="20" keywordseo="finance" source="keywords">Finance</keyword> Act 2023, if a larger company does not pay an MSME on time -- within 45 days in case of written agreements -- it cannot deduct that expense from its taxable income, leading to potentially higher taxes. The government in last year's Budget added a new clause under Section 43B of the Income Tax Act to address the challenge of delayed payments faced by MSMEs in the country. "We are pursuing not to change the 45-day MSME payment rules imposed by the Department under the pressure of corporates or multinational companies to save the life span of the MSME sector. Section 43B(h) of the Income Tax Act reinforces the importance of timely payments by mandating that companies settle payments to MSME vendors within 45 days to qualify for deductions," SME Chamber said in a statement addressed to Sitharaman. The industry body argued that this provision serves as a powerful incentive for companies to adhere to payment timelines, thereby supporting the financial health of MSMEs. "Many MSMEs are NPA victims of corporates, who are buying from them and not dealing through the TReDs platform. Most of the corporates and multinational companies are forcefully insisting to deregister from the Udyam Portal and insisting not to deal through the TReDs platform," SME Chamber stated. The industry body also urged the finance minister to consider providing Rs 5 crore loans under the "Differential Rate of Interest" scheme for micro and <keyword id="20569966" type="General" weightage="20" keywordseo="small-enterprises" source="keywords">small enterprises</keyword>. It suggested changing the NPA definition from 90 days to 180 days for the MSME sector. The chamber also sought the setting up of a task force to review various issues, hurdles, grievances and difficulties faced by MSMEs for availing credit facilities and the lack of approach by the financial institutions towards enhancement of credit flow to the MSME sector.

Continue 45-day MSME payment rule: Industry body to Finance Minister Nirmala Sitharaman

The <keyword id="19900449" type="General" weightage="20" keywordseo="government" source="keywords">government</keyword> may relax the requirement of making payments to <keyword id="19910977" type="General" weightage="100" keywordseo="MSMEs" source="keywords">MSMEs</keyword> within 45 days of buying goods and services, to prevent large corporates from looking at other sourcing avenues, sources have noted. An announcement to this effect could be made in the Budget likely to be presented on July 23. The government is considering suggestions regarding changes to Section 43B(h) of the <keyword id="19936187" type="General" weightage="20" keywordseo="Income-Tax-Act" source="keywords">Income Tax Act</keyword> made by MSMEs during pre-budget consultations, sources said. The government, in last year's budget added a new clause under Section 43B of the Income Tax Act to address the challenge of delayed payments faced by MSMEs in the country. According to Section 43B(h) of the Income Tax Act, introduced through the Finance Act 2023, if a larger company does not pay an <keyword id="19990810" type="General" weightage="20" keywordseo="MSME" source="keywords" meta.keywordsubtype="org" meta.entityname="MSME" meta.hostid="261" meta.entityid="MSME">MSME</keyword> on time -- within 45 days in case of written agreement -- it cannot deduct that expense from its taxable income, leading to potentially higher taxes. MSMEs fear that due to this provision, large buyers could cold-shoulder MSME suppliers and start buying either from those MSMEs that are not registered with Udyam or from non-MSMEs. The amendment was brought in for MSMEs to get timely payment, but a lot of concerns were raised by them, sources said, adding that they feared that large corporate, in bid to safeguard their interest, can shift their sourcing requirement to bigger firms or ask their vendors to give up their MSME registration to do business with them. Earlier in May, Finance Minister <keyword id="19916618" type="General" weightage="20" keywordseo="nirmala-sitharaman" source="keywords">Nirmala Sitharaman</keyword> had said the changes, if any, to the rule will have to be done in the full Budget in July under the new government as per the representations submitted by MSMEs. The MSME sector accounts for 30% of the country's gross domestic product (GDP) and the second largest employer after agriculture. The share of <keyword id="35090" type="General" weightage="20" keywordseo="Exports" source="Orion">exports</keyword> from products specified for MSMEs constituted 45.56 % of the country's total exports.

Govt may relax 45-day payment rule for MSMEs in Budget 2024

<ul><li>The lot size for the IPO is at a minimum of 260 shares and in multiples of 260 shares thereafter.</li><li>The issue comprises fresh of ₹600 crore and an offer for sale of ₹425 crore.</li><li>The company primarily caters to customers in tier II and tier III cities. </li></ul>SBFC Finance’s ₹1,025 crore initial public offer (IPO) is all set to open on August 3 and close on August 7. The price band for the issue has been fixed at ₹54-57 per share. Investors can bid for a minimum of 260 shares and in multiples thereafter. The issue of face value of ₹10 per equity share comprises fresh issuance of equity shares worth ₹600 crore and an offer for sale of ₹425 crore. The floor price is 5.4 times the face value of the equity share and the cap price is 5.7 times the face value of the share, the company said. The company is a non-deposit-taking non-banking finance company (NBFC) offering secured MSME loans, and loans against gold. A majority of its borrowers are entrepreneurs, small business owners, self-employed individuals, salaried and working class individuals. The company primarily caters to customers in tier II and tier III cities, and focuses on serving customers who have a strong credit history but may lack formal proof of income documents. It has a footprint in 120 cities across 16 Indian states and two union territories, operating through a network of 152 branches. ICICI Securities Limited, Axis Capital, and Kotak Mahindra Capital Company are the book running lead managers to the Offer. KFin Technologies is the registrar to the offer. The shares are proposed to be listed on BSE and NSE. Financials &amp; risk factors The company’s consolidated revenues and net profit has grown consistently in the last few years, while its gross NPA ratio has been going down. <table style="border-width: initial; border-style: none; table-layout: fixed; width: 468pt;"><colgroup></colgroup><col /><col /><col /><col /><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Particulars </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">FY23 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">FY22 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">FY21 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Income </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹654 crore </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹473 crore </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹463 crore </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Net Profit </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹149.7 crore </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹64.5 crore </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹85 crore </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Gross NPA Ratio </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2.43% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2.74% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">3.16% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Provision coverage ratio </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">42.04% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">40.44% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">38.25% </td></tr></tbody></table>Source: DRHP &amp; press release The NBFC is subject to periodic inspections by the Reserve Bank of India (RBI) and non-compliance with its observations can expose it to penalties and restrictions. “We are subject to laws and regulations governing the financial services industry and our operations in India, including laws in relation to capital adequacy ratios. Changes in regulations governing us could adversely affect our business, results of operations and prospects,” the company said in its risk factors. Its non-convertible debentures are listed on the BSE, and there have been instances of non-compliances in the past with rules and regulations. “If we fail to comply with such rules and regulations, we may be subject to certain penal actions, which may have an adverse effect on our business, results of operations, financial condition and cash flows,” it adds. It also lists business risks like non-payment or default by our borrowers may adversely affect our business, results of operations and financial condition. The quality of its portfolio may be impacted due to large non-performing assets (NPAs) as its business can be adversely affected if they are unable to provide it.

SBFC Finance IPO to open on Aug 3 - Price band at ₹54-57; check out details

<ul><li>Regardless of whether it's a Sunday, Holi or Mahashivratri, <keyword id="6355548" type="UNKNOWN" weightage="20" keywordseo="Public-sector-banks">public sector banks</keyword> employees in certain parts of the country may be working all 31 days of March. </li><li>The <keyword id="156153" type="ORGANIZATION" weightage="20" keywordseo="Ministry-of-Finance">Ministry of Finance</keyword> and the Ministry of Housing and Urban Affairs (MOHUA) have sent orders to work two extra Saturdays in March to double the disbursement of loans under the <keyword id="9329217" type="UNKNOWN" weightage="20" keywordseo="pm-svanidhi-scheme">PM SVANidhi Scheme</keyword> before the end of March.</li><li>In order for public sector banks to meet their internal targets as the financial year comes to a close, some are calling their employees to work on Sundays and holidays as well.</li></ul>Public sector banks are always anxious in March as the financial year draws to a close. It's not uncommon for the management to ask employees to pull a few extra hours at work. However, this year, some public sector bank employees may be working all 31 days of the month. On the one hand, the Indian government has issued an order asking banks to double the disbursements given out under the PM SVANidhi scheme. And, on the other, the banks have their own internal targets to meet when it comes to agricultural loans, MSME credit and other aspects. Banks are on the lookout for more street vendors in need of credit Orders from the Ministry of Finance and the Ministry of Housing and Urban Affairs (MOHUA) have asked these banks to step on the gas and work two extra Saturdays before the end of March. According to official documents reviewed by Business Insider, the Indian government has set itself a goal to dole out 3 million loans under the <a href="https://www.businessinsider.in/india/news/heres-all-you-need-to-know-about-pm-svanidhi-yojana-and-how-to-apply-for-a-street-vendor-loan/articleshow/77139104.cms">PM SVANidhi Scheme</a>. The programme was introduced in June 2020 by Finance Minister <keyword id="129243" type="PERSON" weightage="20" keywordseo="Nirmala-Sitharaman">Nirmala Sitharaman</keyword> to provide street vendors with collateral-free loans of up to ₹10,000 at low rates of interest for a period of one year. However, at the time of writing this article, only 1.5 million loans have been doled out so far — which is only half of the target. <table style="border-width: initial; border-style: none; width: 468pt; table-layout: fixed;"><colgroup></colgroup><col /><col /><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Status of applications </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Number of applications </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Received </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">3.8 million </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Sanctioned </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2.1 million </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Disbursed </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">1.6 million </td></tr></tbody></table>Source: MOHUA Dashboard as of February 25 at 7:38pm In order to meet the deficit, the MOHUA has instructed all banks to organise camps on February 27, March 6 and March 13 — two of which are non-working Saturdays for bankers. “The camps would be organised at central locations across the city, where every lending institution would put a desk and ULBs [Urban Local Bodies] would be responsible to mobilise the street vendors to these camps,” said the document sent out to banks. The ‘high priority’ document sent out by MOHUA secretary Durga Shanker Mishra also notes that the rejection of loans application based on low CIBIL scores is not advisable unless the borrower has defaulted on payments in the past. A similar document, also seen by Business Insider, has been sent out by the Ministry of Finance “in order to speed up the sanction and disbursement of applications.” No overtime compensation, no weekends off Some banks — like the <keyword id="6354731" type="UNKNOWN" weightage="20" keywordseo="state-bank-of-india">State Bank of India</keyword> (SBI), <keyword id="6357132" type="COMPANY" weightage="20" keywordseo="Canara-Bank">Canara Bank</keyword>, and <keyword id="49007" type="CITY" weightage="20" keywordseo="Uco-Bank">UCO Bank</keyword> — have taken it a step further and made all Saturdays working, including March 27. In some regions, like Punjab and Assam, bankers from Canara and SBI have been asked to come in on all Sundays and holidays of March as well due to impetus on agricultural loans, which also includes Holi and Maha Shivratri. Not only do public sector banks have to meet the mandate of the government, but they have their own target to complete before the end of the year. “He [circle head] has advised to form exclusive teams to recover all proforma NPA in all branches and RO [regional office] officials will be in the field on every Sunday and holiday till March 2021 end,” said one of the communications to a public sector bank branch manager, who wished to remain anonymous. This means public sector bank employees in specific regions will be working the entire 31 days of March without a single day off — without any overtime compensation of any kind. Sources at multiple banks also told Business Insider that non-compliance with these instructions could lead to a ‘non-performance’ letter in an employee's file.This has bearance on future promotions and their career progression at the bank. The move to call off holidays and weekends comes at a time when public sector bank unions are planning a <a href="https://www.businessinsider.in/finance/banks/news/bank-of-india-central-bank-of-india-indian-overseas-bank-and-bank-of-maharashtra-rally-by-over-10-on-hopes-of-privatisation/articleshow/80971254.cms">two-day strike</a> to protest the government's privatisation initiatives in March. SEE ALSO: <a href="https://www.businessinsider.in/india/news/bharat-bandh-over-eight-crore-traders-across-india-shut-shop-in-protest-against-rising-fuel-prices-and-changes-in-gst-rules/articleshow/81223361.cms">Bharat Bandh – over eight crore traders across India shut shop in protest against rising fuel prices and changes in GST rules</a> <a href="https://www.businessinsider.in/finance/banks/news/rbi-wants-you-to-memorise-all-your-debit-and-credit-card-numbers/articleshow/81186570.cms">RBI wants you to memorise all your debit and credit card numbers — Amazon, Zomato, Netflix and others argue this will make online payments more tedious</a>

EXCLUSIVE: Bankers may be working all 31 days of March with the government looking to double the loans doled out under the PM SVANidhi scheme

New Delhi, Apr 17 () Finance Minister Nirmala Sitharaman on Friday said the RBI has taken a slew of steps to maintain adequate liquidity in the system, incentivise bank credit flows, ease financial stress and enable normal functioning of markets, following difficulties being faced due to COVID-19.Announcing a second stimulus in less than a month, the RBI eased bad-loan rules, froze dividend payment by lenders and pushed banks to lend more by cutting the reverse repo rate by 25 basis points to help mitigate risk to the economy posed by the pandemic."In view of the difficulties being faced due to #COVID19, the @RBI has taken a slew of steps aimed at maintaining adequate liquidity in the system, incentivising bank credit flows, easing financial stress, and enabling the normal functioning of markets," Sitharaman said in a tweet.In order to increase credit to farmers, MSMEs and housing sector, RBI announced a special refinance facility totalling Rs 50,000 crore for NABARD, SIDBI and the National Housing Bank, she said.Of this, Rs 25,000 crore goes to NABARD, Rs 15,000 crore to SIDBI, and Rs 10,000 crore to NHB for improving long-term funding requirements of agriculture and the rural sector, small industries, housing finance companies, NBFCs and MFIs, the minister said."To increase MSME liquidity, @RBI announced a targeted long-term repo operation totalling Rs 50,000 crore aimed at mid and small NBFCs and MFIs. This amount can be revised upwards if needed in the future. RBI also cut the reverse repo rate by 25 bps to 3.75%," Sitharaman said.The reverse repo rate is the rate banks earn by parking deposits with the Reserve Bank of India."In order to encourage banks to deploy these surplus funds in nvestments and loans in productive sectors of the economy, it has been decided to reduce the fixed rate reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 4 per cent to 3.75 per cent with immediate effect," the RBI said.However, the RBI retained the policy repo rate at 4.40 per cent, and the marginal standing facility rate and the Bank Rate at 4.65 per cent.She further said that to ease the worries of MSMEs that are in danger of becoming NPA accounts, it has now been decided that the NPA classification norms will exclude the 3-month moratorium window that banks are allowed to give on loan repayments.This effectively means that bad loans or non-performing asset (NPA) classification will now happen after 180 days instead of the current policy of 90 days of payment default.This would cover the borrowers of both banks and NBFCs but lenders will have to make an additional provision of 10 per cent for those exposures under moratorium."The @RBI has increased the ways and means advance limit for states to 60 per cent over and above the level as on March 31 to help state governments tide over cash flow problems due to a temporary dip in revenue collections," she said.The RBI earlier this month had announced an increase in the ways and means advances (WMA) limit of states by 30 per cent.It has now been decided to increase the WMA limit of states by 60 per cent over and above the level as on March 31, 2020 to provide greater comfort to the states for undertaking COVID-19 containment and mitigation efforts, and to plan their market borrowing programmes better. The increased limit will be available till September 30, 2020.The RBI had announced its first stimulus on March 27 to help the economy deal with the impact of COVID-19 pandemic. DP BALBAL

RBI measures to boost liquidity, incentivise banks to lend more to boost economy: FM

New Delhi, May 19 () The government's Rs 20.97 lakh crore COVID-19 package lacks in addressing immediate concerns of the economy as the actual fiscal impact of the additional stimulus is only about 1 per cent of GDP as opposed to the claim of 10 per cent, Fitch Solutions said on Tuesday. Prime Minister Narendra Modi on May 12 announced a stimulus package of Rs 20 lakh crore, or nearly 10 per cent of GDP, to deal with the economic fallout of COVID-19. The contents of the package were broad-based and announced in five tranches. "About half of the package amount covers fiscal measures that had previously been announced and also include the estimated economic impact of monetary stimulus from the Reserve Bank of India (RBI)," Fitch Solutions said in a note. The rating agency said a seeming reluctance for fiscal expansion by the central government amid the COVID-19 crisis in India also poses a significant downside risk to its 1.8 per cent growth forecast for 2020-21 fiscal. "India's economic crisis is growing increasingly dire due to surging COVID-19 infections and weak demand both domestically and externally. We believe that every delay to effective government stimulus will only deepen the downturn, which will eventually require even more spending to lift the economy out of the doldrums, which could see the deficit come in wider," it said. The new fiscal stimulus announced between May 13 and May 17 is "made up of the government loan guarantees, credit extensions to be led by banks, and regulatory amendments," it said. The new spending will only amount to about 1 per cent of GDP, which would take India's total central government COVID-19 fiscal response to-date to only 1.8 per cent of GDP, it said. "We see the package as being lacking in addressing the immediate concerns of the economy and have revised our central and combined deficit forecasts for FY2020/21 (April–March) to 7 per cent and 11 per cent of GDP respectively, from 6.2 per cent and 9 per cent previously," the rating agency said. The package, it said, will not have a major fiscal and economic impact, despite the government's claim of its '10 per cent of GDP' size. Of the host of new stimulus measures, only about six -- pension fund support, temporary tax cuts, farm infrastructure upgrades (if funds are quickly disbursed and projects rapidly executed), free food provision for migrant workers, funds to safeguard rural employment and an emergency fund for post-harvest activities -- can be quantified as a fiscal stimulus with a near-term impact. "Loan guarantees have been excluded as they will not have an immediate fiscal impact and will depend on other factors such as loan demand and bank propensity to lend," it said. Stating that it is skeptical of the efficacy of the announced measures despite the broad-based package, Fitch Solutions said the Government loan guarantees should technically aid credit flow to MSMEs through non-bank lenders. However, this will only aid to stem business closures in the economy rather than support an expansion at this point. Moreover, confounding new rules on MSME definition which have both an investment and a newly introduced turnover limit will also hamper credit flow as businesses may fail to meet one or the other, rendering them ineligible for the MSME stimulus credit. "Many of the announced schemes such as regulatory changes and vague reform plans also only target medium-term supply-side issues but fail to address immediate demand-side issues. As such, we expect further fiscal spending to be announced over the coming months, especially after India extended its nationwide lockdown by another two weeks to May 31, which would further impact economic activity," it said. The rating agency said central government revenues are likely to contract by 18.1 per cent in FY2020/21 due to repeated extensions to nationwide lockdowns amid a worsening COVID-19 outbreak domestically, and weak appetite for fiscal stimulus by the central government to lift the economic activity. With the unemployment rate at over 20 per cent and a weak economic outlook both domestically and externally, both personal income and corporate income tax revenues will remain under severe stress over the coming quarters, it said. While India is pushing to reopen its economy, Fitch said this is motivated by an urgent need to limit further economic hardship rather than an easing outbreak situation and infections could well accelerate after lockdowns are lifted, which would hamper the pace of economic recovery going forward. Also, India's debt-to-GDP will almost certainly surge as a result of this crisis as the government will have to fund its expenditures with increased domestic borrowing amid a revenue shortfall. India's combined government debt stands at about 70 per cent of GDP as of December 2019, of which central government debt is at 47 per cent of GDP. An increased debt load will entail higher interest payments and this would divert even more resources away from more productive economic spending, and thus constrain India's long-term growth potential, Fitch said. "As opposed to other fiscal stimulus packages in the region, India's package includes previously announced measures and also monetary stimulus, making the actual fiscal impact of the additional stimulus only about 1 per cent of GDP," according to Fitch estimates. The stimulus includes positive reform efforts, loan guarantees, and other measures that will be somewhat supportive of the Indian economy during the crisis and over the medium term. "The frugal fiscal crisis intervention will likely impede a rapid economic recovery and accordingly, tax revenues, and we are revising our FY2020/21 (April-March) central fiscal deficit forecast to 7.0 per cent of GDP and overall fiscal deficit forecast to 11.0 per cent of GDP," it added. ANZ ANU BAL

India's 'mammoth' COVID-19 package much smaller than it seems, says Fitch Solutions

<img class="gwt-Image" src="/photo/45729105.cms" /> The Prime Minister’s <keyword id="6354869" type="UNKNOWN" weightage="100" keywordseo="make-in-India">Make in India</keyword> pitch has garnered a lot of attention for its bold declaration of intent. There have been many takers for the proposal with many companies across the world hoping that the bugle has sounded on a policy shift that aims at ease of doing business, a truly open and competitive environment and an enabling policy architecture. 
 
Closer home, there are green shoots of optimism emerging from the unlikeliest of places. At a time when economic growth in India has struggled in almost every sector, Small and Medium Enterprises (SMEs) have grown at 23% per annum and outstripped the 15% growth figures of the industrial sector in India. SMEs in India employ close to 100 million people and account for 8% of GDP. Almost half of the manufacturing sector in India is comprised by such SMEs and close to 40% of India’s exports are credited to such enterprises. 
 
Naturally, the Make in India campaign has great resonance for the Micro Small and Medium Enterprises [MSME] sector, for it opens up huge new possibilities for existing and new enterprises. However, All India MSME Association’s (AIMA) apex micro, small and medium enterprises body has pointed out that in all the euphoria what needs to be understood, analysed and thereafter strengthened, are the factors that are fuelling the growth of SMEs and MSMEs today. 
 
A study carried out by FICCI-Nathan in 2013 put a perspective on this situation. Analysing the Internet’s role in the performance of India’s small and medium enterprises, the report concludes that “In the last 15 years, the Internet has turned out to be one of the most promising tools which SMEs can leverage for their growth.” According to the report, a survey of 951 small and medium enterprises in various industrial and geographical clusters across India shows that of those who do use the Internet, 64% have seen an increase in sales and 69% an increase in customers. 
 
The burgeoning eCommerce business has in fact become the carrier for growth of MSMEs thanks to a re-oriented selling environment where investments in logistics, manpower, marketing and distribution channel costs have all reduced drastically. Above all, the attention to production, the improving bottom lines and the customer satisfaction have all contributed to the success of such enterprises which are focussing on improving quality, yield and production values without having to negotiate for wafer-thin margins, deferred payments and stock gluts. 
 
eCommerce is giving MSMEs access to markets producers could not reach or afford to reach hitherto. The IAMA-IMRB (2013) report on digital-commerce suggests that the eCommerce industry in India is expected to reach approximately 13 billion USD, showing a year-on-year growth of 34% since 2009. Availability of broadband services, increasing Internet penetration and growing purchasing power are supporting the growth of online retailing in India. 
 
It is by now well established that eCommerce has powered MSME growth over the last few years with an intensity that was not known before and that eCommerce has the potential of transforming the MSME sector, unleashing its true potential, converting to greater scope for businesses and higher efficiencies as well as profits. 
 
However, in spite of this spurt there are roadblocks for the growth of these online platforms that are being used by MSMEs. This needs urgent attention. The eCommerce industry is beset with policy confusion and obstructionist rules that constrict and control rather than allow unhindered growth. This is in turn directly limiting the growth potential of the MSME sector in the country. Disallowing foreign investment into the sector for direct operations by eCommerce companies are not only hobbling their operations, but also straitjacketing MSMEs. 
 
India has now overtaken Japan to become the world's third-largest online market in terms of Internet user base, growing at 31%, after China and the US, according to research firm comScore. The number of online shoppers in the country is currently estimated at 14% of the total 74 million Internet users and has been growing at 35% over the last three years, according to an American Express study. The number of online shoppers in India is likely to reach 38 million by 2015. So, once again, while the Indian market is maturing fast, the policy framework is way behind schedule. 
 When India with its restrictive policies does not allow <keyword id="44528" type="ORGANIZATION" weightage="80" keywordseo="FDI">FDI</keyword> in <keyword id="2667031" type="UNKNOWN" weightage="60" keywordseo="B2C-eCommerce">B2C eCommerce</keyword>, in effect it means that the eCommerce player is only a transit entity, barred from securing volumes to sell directly to consumers. Naturally, economies of scale do not come into play in such an equation and the result is that neither the consumer nor the producer benefits, leaving the eCommerce player to survive on transitory, wafer-thin commissions. One needs to only look at our neighbour China to see how it has fuelled the <keyword id="2295926" type="UNKNOWN" weightage="60" keywordseo="ecommerce-boom">eCommerce boom</keyword> with an enabling policy framework, occupying the global top slots both in the B2B and B2C spaces. Its MSMEs are able to use the power of the Internet to further their potential in exports. 
 
AIMA has time and again indicated that most of India’s manufacturing activity, especially in apparel and shoes is carried out by MSMEs in tier-2 and tier-3 cities. eCommerce is giving a much needed fillip to local sourcing, where even a small manufacturer or aggregator in a mofussil town can sell his wares easily and without attendant business development and distribution costs at the click of a few buttons. Research suggests that eCommerce is growing at a faster rate in tier-2 and tier-3 cities clocking an average of 40% growth year-on-year. eCommerce is pushing warehousing and logistics to smaller towns for efficiency and generating employments for lakhs of youth across the country. It is freeing manufacturers of agencies and allowing them to talk and deal directly with sellers bringing down costs, improving efficiencies, benefiting both consumer and seller. 
 
It stands to reason that FDI in B2C eCommerce will boost infrastructure development and spur manufacturing facility besides bringing in much-needed investments. MSMEs can harvest the potential of this new growth engine if allowed to operate freely. It is only then that the Make in India theme will gain currency. 
 
About the author: The article is written by Anupam Gupta, who is Convenor IT, All India MSME Association [AIMA] and Head, Strategy and Operations Dragonfly Education.

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