#AtmanirbharBharat: Indian Govt’s Stimulus Package Decoded For Startups

“Friends, amidst the Corona crisis, I am announcing today a special economic package with a new resolution. This economic package will serve as an important link in the ‘AtmaNirbhar Bharat Abhiyan” (Self Reliant India Campaign)’.” – Honourable Prime Minister of India, Shri Narendra Modi Address to the Nation on 12th May, 2020.

The term “åtmanirbharatā” re-entered the popular lexicon after the Honourable Prime Minister, Shri Narendra Modi’s speech to the nation on May 12th, 2020 (link). He announced an INR 20 Tn package titled “Atmanirbhar Bharat” that would concentrate five pillars upon which self-reliant India will stand upon:

1. Economy
2. Infrastructure
3. System
4. Demography
5. Demand

The package was unveiled by the Honourable Finance Minister, Shri Nirmala Sitharaman through a series of five presentations that can be accessed here:

• Part 1: Businesses including MSMEs
• Part 2: Poor, including Migrants and Farmers
• Part 3: Agriculture
• Part 4: New Horizons of Growth
• Part 5: Government Reforms and Enablers

MSMEs Only; Startups May Apply

Startups were not specifically covered in the Atmanirbhar Bharat package. This is particularly curious as startups and new age businesses are slated to contribute $1 Tn in India’s quest to become a $5 Tn economy by 2025.

All the announcements in the package are geared towards MSMEs. But as per the changes made to the definition of the term MSME, there has been a broad alignment to the definition of a “startup”, thus opening the gateway for startups to register as MSMEs.

Procedure for registering as an MSME:

• Log onto the Udyog Aadhar portal – (Link)
• Fill in the details in the form mentioned therein. Details include:
• Identification details of the business – name, address, etc
• Activity classification -based on the business model. The site is equipped with a dropdown menu for the same.
• Details of investments into plant and machinery and number of employees
• Other details
• Save the certificate that gets generated after all the details have been filled
• Please intimate all your business clients and customers of the same so that they can record the same for their statutory reporting purposes.

Ambiguity as per definition:

• Clarity is awaited on whether the new definition requires investment and turnover or will only satisfying either criterion suffice.
• Clarity on whether exceeding one criterion and not the other will result in termination of coverage as an MSME is awaited.

Differences in the definitions of a Startup and MSME

As per the revised definitions it is evident that startups are a subset of the universe of MSMEs. Thus, the enterprises who meet the definition of a “startup” as per “Startup India” will mainly qualify as an MSME and can avail of the registration as the same. Registrations will be required in order to be considered as an MSME.

INR 3 Lakh Cr Collateral Free Automatic Loans For Businesses, Including MSMEs

Applicable to:

Businesses who have loans outstanding from Banks or NBFCs as of February 29, 2020

Not applicable to:

• Businesses with credit/loans from non-bank or non-NBFC sources. Venture Debt funding or shareholder loans will not be covered under this.
• Businesses who have taken loans after February 29th, 2020 or who don’t have any credit facilities as of February 29th, 2020.

Coverage:

• Applicable on the 20% enhancement to the available credit facilities as of February 29 2020.
• Not applicable on the remaining, existing facility.

Effect:

• Immediate effect to businesses who manage to secure additional enhancement and guarantee from CGTMSE.

Other Matters:

• Guarantee given by the CGTMSE (Link).
• Details of banks covered by CGTMSE are available on their website.
• Please speak to your bankers on the applicability of this announcement to your existing credit facilities.

INR 20,000 Cr Subordinate Debt For Stressed MSMEs

Applicable to:

• Operational MSMEs that are either declared as NPAs or are stressed≥

Procedure:

• Not fresh loans, but credit guarantee by CGTMSE.
• Loans will be given by the bankers to the Promoters of the MSMEs, who will then invest it as equity into the business.
• This is a partial guarantee only.
• Discretion of disbursement left up to the individual banks.

Effect:

• Immediate effect to businesses who manage to secure additional enhancement and guarantee from CGTMSE.

INR 50,000 Cr Equity Infusion For MSMEs Through Fund of Funds

Applicable to:

• Funds investing into MSMEs

Fund of Funds Details:

• Size: INR 10,000 crore
• Maximum percentage of daughter Fund: 20%
• Exit route: MSME listing on the stock exchanges

Details Awaited:

• Launch date and fund manager
• Criteria for Daughter Funds and types of investments said Daughter Funds can make

Effect:

• Medium to long term effect depending on the operationalisation of the FoF, selection of Daughter Funds, subsequent drawdowns and investments thereafter

Tax-Related Matters

TDS/TCS rates for non-salary payments reduced by 25%

• The new slab of rates for TDS/TCS payments are available here
• This applies to TDS payments except those pertaining to salary
• This will be applicable from May 14th, 2020 to March 31st, 2020

Expedited Refunds to non-corporate businesses

Covered:

• All businesses not covered under the Company’s Act, 2013 (or erstwhile Company’s Act, 1956 or any such earlier act) will have their pending income tax refunds expedited
• This will include individuals who file their returns under “Profit and Gains from Business and Profession” will also be covered

Not covered:

• Individuals with income from salaries, house property, capital gains, other sources or some combination of the same
• Private limited companies, public limited companies, producer companies or One Person Companies

Tax Filing Dates for FY19-20 extended:

Listing Related Changes:

Direct Listing abroad to be permitted for public companies:

• Indian public limited companies will be permitted to list in bourses abroad directly without having to first list in India
• Startups, which are traditionally private limited companies, will need to convert to a public limited company prior to listing
• Jurisdictions, norms and criteria are awaited from SEBI and the Ministry of Finance

Private Companies with listed debentures not to be considered as listed companies:

• Norms exist under the Company’s Act, 2013 for private companies to list their non-convertible debentures (NCDs) on the public markets
• Doing so would require them to adhere with the norms for listed companies.
• This will no longer be the case as per the proposed changes

Other Company’s Act Matters:

• EGMs, AGMs and board meetings to be allowed via video conference
• Launch of the Company’s Fresh Start Scheme for any pending penalties and dues as stated in the scheme

Provident Fund Matters

• EPF support for firms having less than 100 workers and who have salaries less than INR 15,000 per month extended for an additional three months as per PM Garib Kalyan Package
• Statutory PF contribution from employees and employers not covered under the PM Garib Kalyan Package reduced from 12% to 10%

Other Matters

• Government tenders below INR 200 Cr will only be applicable to Indian businesses
• MSME dues from Government and CPSEs to be released in 45 days

Conclusion

The Atmanirbhar Bharat Package is a monumental effort to help Indians and the Indian economy tackle the COVID-19 scourge and lays the groundwork for India to become a $5 Tn economy by 2025.

“Friends, In our culture, it is said ‘सर्वम् आत्म र्शं सुखम्’ i.e. what is in our control, is happiness. Self-reliance leads to happiness, satisfaction and empowerment. Our responsibility to make the 21st century, the century of India, will be fulfilled by the pledge of self-reliant India. This responsibility will only get energy from the life force of 130 crore citizens. This era of self-reliant India will be a new vow for every Indian as well as a new festival. Now we have to move forward with a new resolve and determination. When ethics are filled with duty, the culmination of diligence, the capital of skills, then who can stop India from becoming self-reliant? We can make India a self-reliant nation. We will make India self-reliant. With this resolve, with this belief, I wish you the very best.” – Honourable Prime Minister of India, Shri Narendra Modi.

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The scope of this note is limited to general areas of business and for measures that would be directly applicable to a majority of the portfolio companies. For specific measures for certain industries (agriculture, NBFCs, etc), kindly consult the presentation or reach out to the 3one4 Capital team. All founders are encouraged to go through the presentations for additional details. If you have any queries, do reach out to us at [email protected]