The economic package is likely to spur demand in the economy and in-turn for automobiles along with helping auto component supplies in resuming operations as over 80 per cent of them are MSMEs.
The ₹ 20 lakh crore economic package announced by Prime Minister Narendra Modi has been a source of optimism to the industry at a time when both sales and production have taken a severe hit due to the Coronavirus. The economic package is likely to spur demand in the economy and in-turn for automobiles. Now there are two aspects to it, first is improving the liquidity flow and credit availability in the nation which will help uplift customer buying sentiments which will eventually help when it comes to pushing the demand for automobiles. Then there are the benefits given to MSMEs which will encourage the business of auto component suppliers and help restore supply chain.
The definition of MSMEs itself has been revised in a bid to benefit more companies whose businesses have been affected despite they earlier had bigger turnover. As per the new guidelines, firms with an investment of less than ₹ 1 crore or turnover of less than ₹ 5 crore will be considered as micro units, those with an investment of less than ₹ 10 crore or turnover of less than ₹ 50 crore will be considered as small units and companies with an investment of less than ₹ 20 crore or turnover of less than ₹ 100 crore will be considered as medium enterprises.
Commenting on the announcement Deepak Jain, President- Auto Component Manufacturers Association (ACMA) said, “The announcement made by Honourable Finance Minister in context of ‘Aatma Nirbhar Bharat’ as envsioned by our Hon’ble Prime Minister, is indeed heartening and reassuring. Change in definition of MSMEs has been a long-standing demand of ACMA. With this new classification, a significant number of ACMA members stand to benefit as the sector is dominated by smaller enterprises. That apart, infusion of liquidity through the Collateral Free Automatic loans and the Subordinate debt scheme, will ease the severe challenge of Working Capital being faced by the sector. Further, enabling e-market linkage will also help MSMEs in their market outreach.”
Over 80 per cent of Auto Component manufacturers are MSMEs and the Finance Minister has announced a six step support for the entire MSME sector starting with a ₹ 3 lakh crore collateral fund which will help 45 lakh units to resume business. MSMEs including auto component manufacturers with ₹ 25 crore outstanding loan or ₹ 100 crore turnover will get a loan moratorium given for 12 months for principal amount payment without any guarantee freeze. Stressed MSMEs get an additional liquidity support of ₹ 20,000 crore benefiting around 2 lakh units while ₹ 50,000 crore liquidity provision has been made for those MSMEs who have potential to expand their business.
Though these may be substantial steps Jain added that ACMA is hopeful that the Government will soon announce a package for demand generation for the automotive sector. He said,, “A uniform GST rate of 18% on all vehicles and auto components, backed by an incentive-based scrappage policy would bring the automotive industry back on track. That apart, we look forward to support from the government for payment of salaries of workmen and contractual labour during the lockdown period.”
To improve the liquidity situation in the country, Finance Minister Nirmala Sitharaman has announced a ₹ 50,000 crore booster for tax payers along with a 25 per cent deduction in tax rates till March 2021. Tax Deducted at Source (TDS) rates and Tax Collected at Source (TCS) rates have been reduced by 25 per cent for non-salaried individuals. The government has already issued all the pending income-tax refunds up to ₹ 5 lakh, immediately benefiting around 14 lakh taxpayers. Employees Provident Fund (EPF) establishment has also been extended by three months till August 2020 and 12 per cent will be contributed by the government, benefiting over 72 lakh salary dependent employees. Firms with over 100 employees will now have to contribute 10 per cent to the provident fund instead of 12 per cent for the next three months giving more take home salary to employees, a liquidity support guarantee of an estimated ₹ 6750 crore.
Sharing his views on the announcement, Pawan Goenka, Managing Director and CEO- Mahindra tweeted, “Certainly a big boost for MSMEs, should go a long way in strengthening MSMEs beyond COVID19. Public procurement, receivable clearances are big steps.” The announcement comes as a big relief for component makers as around 15 per cent of the overall ₹ 20 lakh economic package has been given to MSMEs. The economic relief package itself accounts to almost 10 per cent of the nation’s GDP.