ECLGS – Dutch Uncles

Reinstating Retail and Wholesale Trade under MSME

Aakash Sharma — Tue, 27 Jul 2021 07:25:08 +0000

Four years after excluding retail and wholesale businesses from the micro, small and medium enterprises (MSME) segment, the government has recently reinstated such trades in the category, making entities eligible for priority sector funding and a unique liquidity scheme from banks. As per the Ministry of Micro, Small and Medium Enterprises, the move is set to benefit 2.5 crore enterprises that function in retail and wholesale.

But, before getting into the current definition of MSMEs and what benefits will the businesses get now, let us first understand when and why wholesale and retail trades were removed as MSMEs.

When were retail and wholesale businesses excluded as MSMEs?

According to the current definition of MSMEs, only manufacturing and service sector businesses qualify as MSMEs. In 2017, the government announced that retailers and wholesalers would no longer be classified as MSMEs.

The Micro, Small & Medium Enterprises Development (MSMED) Act, passed by the government in 2006, defined small business businesses as function in the “manufacturing and service sectors”.

Why were these businesses excluded four years ago?

The MSMED Act included retail and wholesale companies in the definition of MSMEs under the 2006 Act. But the centre removed them from the list in 2017 because, according to the government, no retail and wholesale trade directly involves manufacturing or service aspects of the business. Now, after four years in 2021, the Union government has issued new guidelines to reinstate the retail and wholesale trades as MSMEs.

What does ‘reinstating retail and wholesale traders under MSME’ actually mean?

The inclusion of these trades as MSMEs means that businesses in this sector, left out from the benefits available for MSMEs, will now have access to them. Under the revised guidelines, the government will include retail and wholesale trades in MSME categorisation. This will extend the benefit of priority sector lending to them.

What benefits will the retail and wholesale businesses get as MSMEs?

Many government schemes support MSMEs to make it easier for them to access resources. The government even set up a unique loan programme for MSMEs to help tackle the effects of the COVID-19 pandemic. As a result of the recent inclusion plans, wholesalers and retailers will be able to benefit from these schemes.

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A great benefit that retail and wholesale traders can now reap is priority sector lending (PSL). Loans to the MSME sector are included in the priority sector lending. Retailers and wholesalers will now have access to this credit loan priority.

They can now also get access to the Udyam registration portal. Udyam was launched last July and is a free and paperless platform for self-promotion that enables new and existing MSMEs to register simply with Aadhaar numbers.

A move towards the sector’s formalisation

Businesses that gain the MSME status by registering on the government portal are entitled to several benefits, ranging from interest subsidies on bank loans to direct tax relief and credit relief. About 2.5 crore wholesalers and retailers are expected to benefit from the government’s decision to bring them back as MSMEs.

According to the National Sample Survey 73rd Round (2015-2016), there are approximately 2.5 crore MSMEs in India. Uttar Pradesh reportedly has the most SMEs with 90 lakh companies, followed by West Bengal with 88.7 lakh such enterprises.

With around 11 million employees, the MSME sector is the second-largest producer of jobs in India after agriculture. It contributes 30% to the national GDP and accounts for 48% of exports. The inclusion of retail and wholesale encourages the formalisation of this sector through policy-driven change led by small businesses, government assistance and funds access.

Suggested plan and next steps for MSMEs

The new members of the government-recognised MSME sector will now have access to numerous government schemes designed for such businesses. The disruption by COVID-19 has left all sorts of firms scrambling for resources. Now, companies from the retail and wholesale segments, including the small Kirana shops and micro-retail outlets from small towns, can apply for government aid in times of financial hardship.

Along with the existing MSME entities like manufacturers, service providers, exporters, ancillaries, retail and wholesale businesses can now have access to a new formal network in addition to the recent financial avenues. The government also recently increased the corpus of the Emergency Credit Line Guarantee Scheme (ECLGS) scheme to Rs. 4.5 lakh crore. Retail and wholesale businesses can apply to this credit scheme and avail some liquidity benefits to keep going in the uncertain times worsened by pandemic challenges.

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Emergency Credit Line Guarantee Scheme (ECLGS) Explained

DU Desk — Thu, 22 Jul 2021 10:35:08 +0000

To insulate the SMEs from losses and prevent them from falling into the jaws of closure, the government in May 2020 has launched Emergency Credit Line Guarantee Scheme (ECLGS), as part of the Atmanirbhar Bharat campaign to address the liquidity crisis of Covid-hit existing SME borrowers.

What is the Emergency Credit Line Guarantee Scheme (ECLGS)?

The Emergency Credit Line Guarantee Scheme promises 100 percent guaranteed coverage to the banks, NBFCs (non-banking financial institutions) and other lending institutions to enable them to provide financial assistance to small businesses and startups that have been impacted in the covid-19 pandemic to fulfill their working capital requirements.

The validity of the scheme was till October 2020 that has undergone four revisions owing to the emergence of a second covid wave that led to the imposition of state-wise lockdowns and curfew that has impeded their ability to repay loans.

As of July 2, 2021, Rs 2.73 lakh crore loans have been sanctioned, of which Rs 2.14 lakh crore was disbursed by partner banks and NBFCs.

In May 2021, the government raised the overall cap of admissible guarantee by Rs 1.5 lakh crore from Rs 3 lakh crore at the time of the scheme’s launch last year to Rs 4.5 lakh crore.

Here in the story, we will clear the ambiguities of our readers regarding the old and the latest ECLGS scheme revisions brought by the government.

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The Emergency Credit Line Guarantee Scheme promises 100 percent guaranteed coverage to the banks, NBFCs and other lending institutions to enable them to provide financial assistance to small businesses and startups impacted in the covid-19 pandemic to fulfill their working capital requirements.

The ECLGS Scheme 1.0

The first version of the scheme aimed to provide Rs 3 lakh crore collateral-free, government-guaranteed loans to micro, small and medium enterprises across India that had outstanding credit of up to Rs 25 crore as of February 29, 2020, with an annual turnover cap of Rs 100 crore for the financial year 2019-2020.

The first version had a 1-year moratorium period and a 4-year repayment period. Borrowers can avail of additional credit up to 20 percent of their overall outstanding credit as of February 29, 2020.

The scheme was valid till October 2020 but was later extended till November 2020.

New Revision

In May 2021, the government announced that those business enterprises are also eligible for scheme 1.0 that have a loan outstanding up to Rs 50 crore and days past due up to 60 days as of February 29, 2020.

The ECLGS Scheme 2.0

In November 2020, version 2.0 was initiated by expanding the Rs 3 lakh crore scheme’s gambit to include 27 stressed sectors. In this, the limit of outstanding credit was increased from Rs 25 crore to Rs 50 crore.

Those stressed sectors included:

Power
Construction
Iron and steel manufacturing,
Roads
Real estate
Textiles
Chemicals
Consumer durables
Non-ferrous metals
Pharma manufacturing
Logistics
Gems and jewellery
Cement
Auto components
Hotels-restaurants-tourism
Mining
Plastic product manufacturing
Automobile manufacturing
Auto dealerships
Aviation
Sugar
Ports and port services
Shipping, building materials
Corporate retail outlets
Healthcare

The ECGLS scheme 2.0 has a repayment period of 5 years including a one-year moratorium. The eligibility criteria of companies for this scheme should have dues of Rs 50-500 crore as of February 29, 2020.

This scheme’s validity was increased till 31st March 2021.

The ECLGS Scheme 3.0

We are no stranger to the fact that the brunt of lower out-of-home consumption has largely impacted the hospitality, travel and tourism, leisure, and sports sectors. On March 31st, 2021, expanded the gambit of Rs 3 lakh crore scheme to include businesses in hospitality, travel and tourism, leisure, and sporting sectors.

The repayment period in scheme 3.0 is six years, and a moratorium period of 2 years. The scheme will only consider loans less than 60 days overdue as of February 29, 2020, with total credit outstanding not exceeding Rs 500 crore.

Version 3 of the ECGLS scheme was extended till 30th June 2021 and the first two versions were extended by another 3 months.

New Revision

- ECGLS 3.0 scheme will now also cover the civil aviation sector.
- The government has removed the current limit of Rs 500 crore loan outstanding for eligibility under ECLGS 3.0 subject to maximum additional ECLGS assistance to each borrower is limited to 40 percent or Rs 200 crore, whichever is lower.

The ECLGS Scheme 4.0

Under the 4th revised scheme, the government has announced a 100 percent guarantee to cover loans worth Rs 2 crore of hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants with the interest rate capped at 7.5 percent.

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