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India’s INR 20 Trillion Package: A Relief Or Bare Shell Package For Startups And MSMEs?

India’s INR 20 Trillion Package: A Relief Or Bare Shell Package For Startups And MSMEs?

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 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.

Even on the implementation side, MSMEs that can qualify for the incentives do not have adequate clarity around schemes such as credit guarantee, collateral-free loans or a fund of funds. An MSME ministry official told Inc42 on the condition of anonymity that a notification is in the making and expected to be out within the next week, which would remove this hurdle for startups and MSMEs.

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.”