Without direct sops for IT and IT services companies, the burden on many startups hit by the Covid-19 crisis will not be eased
Investors say AIF-driven fund of funds could help MSMEs raise equity funding and plan for IPOs to solve working capital burden
It would take at least a decade to inject the INR 10K Cr fund of funds into MSMEs based on earlier government schemes
We have all seen the memes and the headlines — INR 20 Lakh Cr. India, like every other major economy in the world, allocated a significant part of its GDP to fight the recession caused by the Covid-19 pandemic. Initially announced by Prime Minister Narendra Modi, and detailed by the finance minister Nirmala Sitharaman over the course of the next six days, much of this relief package is yet to be rolled out.A former union finance ministry official told us, “It’s neither a relief package nor a long term roadmap which can help bring the Indian economy back to normalcy.”“The government has also included 25% reduction in the TDS rate as part of the entire package. The reduction in the TDS rate is not a revenue forgone by the government, but a shift in the cash flow. In the case of the fund of funds, the government is assuming that the INR 10K Cr would galvanise INR 50K Cr of investment.”“And in the long-term the idea is to push MSME towards liquidation in the stock market and reduce the dependence on debt.” — MoneyTap’s Kunal VarmaPai explained, “Yes, startups are recognised by the DPIIT, under the ministry of commerce and industry, however, MSMEs are registered under the separate MSME ministry.”
A large focus of this package has been to support the impacted micro, small and medium enterprises (MSMEs), which are often called the backbone of the Indian economy. The government is allocating over INR 3.7 Lakh Cr to bailout MSMEs. But in the days after Sitharaman’s announcements, there have been several questions raised about the effectiveness of the package. Speaking to Inc42, former SIDBI deputy general manager Bhawar Lal Chandak said that the announcements seem good on paper and can be considered to have generated some amount of goodwill, but it will only benefit around 10% of the MSME base.