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ECLGS: Govt extends emergency credit scheme till March 31 next year; here’s what MSMEs want

Credit and Finance for MSMEs: As of September 24, 2021, over Rs. 2.86 lakh crore worth of loans were sanctioned under the scheme while out of total guarantees issued, around 95 per cent were for loans sanctioned to MSMEs, the government said on Wednesday.

Credit and Finance for MSMEs: The Modi government?s flagship credit scheme for Covid-hit MSMEs and others Emergency Credit Line Guarantee Scheme (ECLGS) has been given its fifth extension since its launch last year. The Finance Ministry on Wednesday extended the scheme by six more months till March 31, 2022, or till guarantees for the overall ceiling of Rs 4.5 lakh crore are issued, whichever is earlier. The scheme launched in May last year was extended from October last year to November and then to March 2021 followed by June and then September along with subsequent expansion in scope as well to include more sectors and markets.

As of September 24, 2021, loans sanctioned had crossed Rs 2.86 lakh crore under the ECLGS scheme, and out of total guarantees issued, about 95 per cent were for loans sanctioned to MSMEs, the ministry said in its statement. The last date of disbursement under the scheme has also been extended to June 30, 2022. The ministry added that adding that since its launch, ECLGS has extended relief to over 1.15 crore MSMEs and businesses. However, the MSME ecosystem this time with the extension had sought more focus on sectors that are witnessing slower recovery and/or those with high potential.
“I would suggest the extension should be till the time the amount is finished. 52 sectors have been identified that are almost wiped off with the second Covid attack and are predominantly run by micro and small entrepreneurs. These sectors include salons, gyms, cinema theatres, construction contractors, sheet metal manufacturers, paper manufacturers, street vendors, auto ancillaries, freight forwarding, exhibition and event management firms, and more. In spite of our several requests for relaxation of eligibility instead of just special mention accounts (SMA) 0 accounts, the amount paid to be 20 per cent of loan sanctioned instead of loan outstanding, etc., the government has never considered them. There has been an utter failure of the very objective of the scheme to save MSME from Covid impact,” KE Raghunathan, Convenor, Consortium of Indian Associations told Financial Express Online.

On Wednesday, the government also announced modifications to the scheme. First, existing borrowers under ECLGS 1.0 and 2.0 would be eligible for additional credit support of up to 10 per cent of total credit outstanding as of February 29, 2020, or March 31, 2021, whichever is higher. Second, businesses who have not availed assistance under ECLGS can avail credit support of up to 30 per cent of their credit outstanding as of March 31, 2021. Third, Businesses in sectors specified under ECLGS 3.0, who have previously not availed ECLGS, can avail credit support up to 40 per cent of their credit outstanding as of March 31 to the maximum of Rs 200 crore per borrower.
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Importantly, the government also said that the incremental credit can be availed within these limits by existing ECLGS borrowers whose eligibility increased because of change in cut-off date to March 31, 2021, from February 29, 2020. Accordingly, borrowers who have availed assistance under ECLGS and whose credit outstanding as of March 31, 2021 (excluding support under ECLGS) is higher than that on February 29, 2020, will be eligible for incremental support within the cap stipulated under ECLGS 1.0, 2.0 or 3.0.
“Mainly the focus should have been on businesses involved in travel and tourism including tour operators. Restaurants should particularly have been given importance because while the recovery is there but they generate an enormous amount of business and employment. In its entire supply chain, a lot of people are involved apart from a very large number of delivery boys in the last mile network. There are many that are still closed and haven?t been able to pay rent or clear loans. So something for them should have been there for increasing their speed of revival,” Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME) told Financial Express Online.

All India Association of Industries, which as per its website has over 1,500 members and through its affiliates represents over 50,000 SMEs across India, was among the MSME bodies that had earlier requested the government recently for further extension of ECLGS till at least March next year to help revive some key sectors.

“Looking at the present situation in China wherein some steel, textiles, and aluminum industries have been closing there, the continuation of ECLGS scheme is very important. There is hope among MSMEs for demand recovery in the market and hence they were looking for an extension of the scheme while earlier there was perhaps a lack of interest among them due to lack of demand. Engineering, pharma, textiles, and auto components should have been in more focus. The engineering industry has suffered because of poor demand while the auto sector needs more focus to enhance production. Small textile units, which are complementary to larger units, must be supported while some pharma units have been struggling to recover even as healthcare has been one of the top sectors benefitting from the pandemic,” Vijay Kalantri, President, AIAI told Financial Express Online.

“If there was a lack of interest among MSMEs for this scheme or there were no takers, then the realisation among the government would have been that even if we extend the scheme, nothing would happen. However, the government extended the scheme with emphasis on different areas and sectors as the demand was there,” a banker told Financial Express Online requesting anonymity.