Will Economic Relief Package Prove Relief to MSMEs?

The economic relief package of ₹20 Lakh crores includes the money to be spent through fiscal as well as monetary policy responses. However, the actual money that the government would directly be spending to boost economic activities would be around ₹6 Lakh crores; far less than the announced ₹20 Lakh crores. It does not mean that the amount of ₹20 Lakh crores is a token amount. The government through these measures wants to actually increase liquidity by ₹20 Lakh crores in the economy over time. Monetary policy response route is being taken because the government needs to manage fiscal deficit so that there are no significant negative consequences on the front of exchange rate and inflation.

Whatsoever has been announced in the first tranche of the economic relief package by the FM yesterday is mostly concerned with MSMEs along with some provisions for the banking and NBFC sector. In a nutshell, it is a major relief for the MSMEs. There was a very high possibility that large numbers of MSMEs would have been closed down once lockdown was over if there was no government support (however that risk still looms large). If the government is able to save most of the MSMEs it will be able to save around 60% of the whole economy and 70% of total jobs in the country. If this relief package is capable of addressing it, then the government has to focus on employment to unskilled or semi-skilled labours which can be taken care of through MGNREGA and other infrastructure projects.

However, at the same time, the already struggling banking sector will have to experience a lot of burn in this process of saving MSMEs. The moratorium period of 1 year on principal payment will certainly have its own grave consequences and will increase NPAs manifold along with the moratorium of three months provided to the existing debt. At least the experiences of Mudra scheme tell this. And whatever measures that have been announced today by FM wouldn’t be enough and at the end of day the government will be forced to recapitalize the banking sector. However, the infusion of new equity and Swadeshi and no global tender for the government procurement below ₹200 crores may provide some relief.

This package (as announced by PM) is basically focusing on two components; decentralization and Swadeshi (indigenous) model of growth. If implemented properly, it will change everything in the economy. Development of small business centres would basically make Indian economy more sustainable as far as the climate is concerned. The decentralization will bring the pressure down put on the civic life in metro and big cities leading to better supply of civic services as well as low level of pollution. But the problem with this government is that they mostly have very good ideas but when it comes to implementation, the government often fails to implement properly. Make in India is a living example. So time will tell whether this economic relief package will prove relief to MSMEs or not.

Rajeev Upadhyay


  1. It's not a economic relief package it is loan package to defaulters...

  2. https://www.moneycontrol.com/news/economy/policy/so-far-psbs-are-the-unsung-heroes-in-rs-20-lakh-crore-stimulus-package-but-who-will-rescue-them-5266811.html