Measures under Atmanirbhar Bharat Abhiyan

Why in news?

The Minister of Finance made a set of announcements under the Atmanirbhar Bharat Abhiyan (Atmanirbhar meaning self-reliant).

What are the welcome measures?

• The measures announced will go a long way in lifting the spirits of the two key and troubled sectors:

1. micro, small and medium enterprises (MSMEs)
2. non-banking finance companies (NBFCs)

• While for the former, it is an existential crisis, for the latter, it is a liquidity issue.
• MSMEs - The massive Rs. 3-lakh crore collateral-free assistance handed out to MSMEs will help them revive their operations.
• Extending a sovereign credit guarantee for the complete amount is a welcome move.
• This is because banks may otherwise have been reluctant to support troubled borrowers.
• Two of the feature that would help boost the equity portion on MSME finances are:
  1. the Rs. 20,000 crore partially guaranteed subordinated debt programme
  2. the Rs. 50,000 crore fund of funds scheme
• NBFCs - NBFCs, housing finance firms and micro finance entities got a much-required liquidity boost.
• A Rs. 30,000 crore scheme is announced wherein their debt paper will be fully guaranteed by the government.
• This works along with the partial credit guarantee scheme of Rs. 45,000 crore.
• With these, the government has broken the logjam wherein banks were unwilling to extend credit despite the RBI’s strong push.
• This will largely address the liquidity crisis in the non-banking space for now.
• DISCOMS - The liquidity issues of power distribution companies were addressed through a Rs. 90,000 crore infusion.
• This will be securitised on their receivables and backed by a State government guarantee.

What are the shortfalls?

• The finer details of the debt programme and the funds scheme for MSMEs should be more clear.
• The government could have specified the interest cap on the loans without leaving it to individual lenders.
• Now each of them has its own rate structure.
• Again, the scheme could have been extended until the end of this financial year instead of until October 31, 2020.

What is the overall objective?

• The announcements are focused on the liquidity part of the crisis.
• The reality is that the government will be called upon to bear the liability of these big numbers only if the economic situation becomes hopeless.
• But, hopefully, it may not come to that point.
• So, the announcements have in effect addressed the issue of lack of confidence in the credit market.
• Notably, liquidity was always there but only for the most credit-worthy of borrowers.
• The government has now just given the assurance to lenders and borrowers that it is willing to support their commitments.
• This is the signal that MSMEs and their lenders needed and so, overall, the measures are welcoming.

Source: The Hindu