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15th FC advisory council for support mechanism for MSMEs
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SME Times News Bureau | 24 Apr, 2020
Even before the government finalises next phase of economic package for
the small scale enterprises, the advisory council of the 15th Finance
Commission has strongly favoured a state-funded support mechanism for
the sector to restart activity and improve cash flows affected by
lockdown due to Covid-19 outbreak.
In its virtual meeting with
the chair and members of the Commission, the advisory council also
suggested institution of partial loan guarantee scheme to keep country's
NBFCs well capitalised while it also advocated new funding options to
finance deficits of the state that may rise because of additional
expenditure on Coronavirus relief measures.
"Small scale
enterprises were cash-starved even prior to the onset of Covid. As their
activity levels and cash flows are affected, it is important that a
support mechanism be devised to help them overcome this problem," a
government statement, highlighting suggestions of the council, said.
With
regard to NBFCs, the council said its suggestions were designed to
avoid bankruptcies and deepening of NPAs in the financial sector. The
Reserve Bank of India will have a key role in ensuring that financial
institutions are well-capitalised, it said.
The council met on
April 23-24 and also discussed various issues confronting the Commission
now. The meeting was attended among others by the 15th Finance
Commission Chairman N.K. Singh and all members and senior officials of
the Commission. From the Advisory Council, Sajjid Z. Chinoy, Prachi
Mishra, Neelkanth Mishra, Omkar Goswami, Arvind Virmani, Indira
Rajaraman, D.K. Srivastava, M. Govinda Rao, Sudipto Mundle and
Krishnamurthy Subramanian joined the meeting on different days.
These
were the second round of meetings with the Advisory Council, after the
submission of the Report of the Commission for the year 2020-21.
During
the meeting, members of the Advisory Council felt that the impact of
the Covid pandemic and the national lockdown on the Indian economy can
come through the slowdown in the domestic activity, its impact on the
cash flows of financial institutions and business enterprises and the
loss of global demand for Indian products because of a steep global
recession.
All of them were unanimous to suggest that the
projections of real GDP growth made before March 2020 need to be
relooked into entirely, and, revised downwards considerably.
Once
the lockdown of the economy is ended, the recovery can only be expected
to be gradual, depending on the ability of the workforce to get back to
work soon, restoration of supplies of intermediates and cash flows and,
of course, the demand for output. Therefore, the full magnitude of the
economic impact of Covid will only be clear only over a course of time.
The
Advisory Council also felt that the magnitude of the impact of these
developments on public finances is uncertain, but will certainly be
significant. Governments will have substantial expenditure burden on
account of health, support to poor and other economic agents.
The
Council Members felt that the shortfall in tax and other revenues will
be large due to subdued economic activity. Hence, fiscal response to the
crisis should be much more nuanced. It is important not just to look at
the size of fiscal response but also carefully at its design, it
suggested.
The Council also felt that it is likely that different
States may come out of the severity of the impact of the pandemic in
different stages. Hence, the revival of activity in different States
will be at varied pace.
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