TC Bureau: While the Central and State governments deliberate on a viable Lockdown exit strategy with an apparent focus on the poor, marginalized and migrant workers and farmers. Though the government does talk about economic revival, it ought to into account of the problems of small and medium enterprises and address them sincerely. As the third phase of lockdown draws to an end, Prime Minister Narendra Modi got down holding a video conference with the chief ministers, the fifth such meeting.
As news strategies are being discussed, businessmen are watching the developments with crossed fingers. So far, they have got a raw deal. Businesses have been ordered not to lay off workers, pay salaries to their employees in full, pay interests on loans to the banks and also not to expect rent if they have properties. Though all government orders do not have legal sanctity and are certainly be up for scrutiny, businesses up in a tight corner. With no productions, no sales, the businesses are expected to survive the lockdown with the own resources. Hundreds and thousands of business houses, small entrepreneurs, shop keepers have to literally struggle on a daily basis to make two ends meet.
The Correspondent reaches out to small and medium businessmen to find out their stories. Nitin Agarwal is a small MSME promoter in the industrial hub of Ghaziabad district in Uttar Pradesh. He runs a forging factory and has a staff strength of 60 including engineering staff. With a turnover of approximately Rs 15 crore, the business has come to a grinding halt since the lockdown on March 24. Since then it has been only outgoing with no incoming, a virtual drain on the resources. The salary amount of Rs 10 lakh per month, electricity bill of approximately Rs 4-5 lakh reduced to approximately Rs 1 lakh (minimum amount), the security contractors, telephones etc are fixed monthly expenditures which he is bearing.
“The money in the market is all held up and no sales have taken place. And we are expected not to cut on any salaries etc. But on the other hand, there is no relief from the government,” Nitin says over phone. The government has instructed the banks to give a moratorium to the business houses. The banks have allowed the EMI or interests to be paid from June 1, 2020. However, banks have discreetly instructed business houses and those availing home loans that they will be required to pay EMIs from June with interest as applicable. Though some banks have said they will not charge any penalty for the duration of the EMI/interests are not paid but it remains to be seen what the banks will actually charge. However, banks Bajaj Finance have cautioned that customers “effective June 2, 2020, penal interest on unpaid installment/EMI will be 4%pm from default date till receipt of the payment”.
In additions, the licenses that have lapsed during this lockdown periods, businesses have got notices to get licenses renewed, post the lockdown. But there is no relief in license fees. “The government should shoulder the losses,” Nitin adds. The government has given approximately Rs 2.5 lakh crores to the banks to be released or given to the overall industry including MSME sector or shopkeepers. “But how much of that will be passed on to the business, remains to be seen,” Nitin says adding that these are cosmetic in nature. Few suggestions to revive the economy/businesses:
- Like our industry, Banking is also a service industry which sells products and earns by selling services. We are incurring losses while supporting our employees/business. Since not one MSME can survive without banking support, the banking industry should come ahead and provide unconditional support to the industry to come out of the woods.
a. For all corporates reduce interest rate being charged by banks to the extent of 20/25 percent from the rate existing on all facilities for atleast 3/4 months from 15/03/20, to let them overcome the losses they have suffered and so that they can atleast pay to their employees basic salaries/cover basis losses to restart again.
b. For all MSME companies, reduce the rate of interest by 40/50 percent on all existing facilities for atleast 6 months to let them cover their losses.
It is better for the government to provide this cushion than to create another wave of NPA (non-performing assets) and it is better also to forego some income today than to lose income completely. It will take a lot of time before positive sentiments return in the economy. No business needs extra money nor can it sustain more debt burden. Instead, give the business a helping hand to in terms of reduced interest burden of a period of 6 months to tide over the crisis.
All banks must also be directed to charge a maximum rate of a spread of 4 percent (to cover their operations cost) over and above the RBI repo rate.
The repayment of balance term loans be automatically spread over a period of extra three years to tide over the reduced economic activity and revenue generation.
- There is basic flaw in GST that the refund on exports is very cumbersome and totally in the hands of individuals. Refund of GST should be auto-processed within 15 days of loading of invoice. A separate system for loading of export invoice should be created not be related to monthly GST filing system. As soon as export happens and documents are available, the refund should be filed and processed. These invoices can always be auto loaded into GST return system.
- For existing running NPA companies: The businesses which are already NPA and where financial institutions are already in any kind of ‘recovery action’, create a separate SPV in which all existing NPA be taken over in following way:
a. For all big corporates analyse their NPRV (or liquidation value plus 10%) and be given an opportunity to buy back their companies at that price as follows:
i . 5% on request received
ii . 5% within 2 months of sanction (sanction to be on automatic basis as per policy)
iii . Balance 90% within 2 years at nominal rate of interest
b. For MSME should get fresh valuation of the assets and should be settled at 40/50% of principle outstanding or assets value whichever is higher ( for asset value it should avg of distress plus fair value) as per same scheme above .
c. For companies which are already closed which have no chance of starting again give their promoter an honorable exit and allow them to settle at liquidation value. We have to remember one thing that it is the promoter which can get best valuation of the asset, this can be seen thru historic data available.
A letter to the Prime Minster
Sir, Please understand that you have to trust that all promoters are not cheaters and they are in a situation beyond their control. We are in crisis. So stop legal action against all promoters and give them a chance to survive. At present lakhs of factories are closed, majority due to lack of timely and adequate bank support and government regulations. Instead of attracting new enterprises to set up base in India (an activity which will take at least three years to become operational) the best way forward will be to arrange restart of these units. They will provide jobs to lakhs of workers.
As you provide amnesty schemes for defaulters in taxation consider this as an amnesty scheme for businessmen too. Sir, instead of creating a new breed of entrepreneurs, trust the old ones. Creating new ones will take years to establish and what is the guarantee that they will succeed. Create new ones for sure but support the old ones too. Here you are atleast giving an old horse an opportunity to run again.
Yours is a dynamic govt, which has not shied away from taking bold decisions and has always being looking for innovative solutions to problems. Let us go by your slogan, Restart And Get Up India.
Regards: Nitin Agarwal, Ghaziabad, A small MSME promoter