Further to Prime Minister Shri Narendra Modi’s announcement that the Government will be unveiling a host of economic reforms aggregating INR 20 lakh crores to help the economy recover from the debilitating impact of Covid 19 (and the consequent lockdown), the Finance Minister on May 13, 2020 released the first set of such reforms with special focus on improving the health of MSMEs and the financial lending sector. Two further sets of reforms (focusing on other sectors) are expected to be unveiled in the next couple of days. True to Prime Minister’s speech, ‘Self Dependent India’ is the essence behind most of these reforms.

Whilst the exact blueprint of the proposed reforms will be known only once the text of the proposed amendments to the specific laws is made available, we have summarized below the crux of what these reforms entail. We will be running similar updates for parts II and III of the reforms over the next two days, so keep your eyes peeled for these.

  1. MSMEs

Undoubtedly, the biggest slice of the pie from the first set of reforms has been reserved for MSMEs with at least six key measures announced.

  • The definitions of MSMEs will be modified as follows:
Existing MSME Classification
Investment in Plant & Machinery or Equipment
Classification Micro Small Medium
Mfg. Enterprises Investment < Rs. 25 lac Investment < Rs. 5 cr. Investment < Rs. 10 cr.
Services Enterprise Investment < Rs. 10 lac Investment < Rs. 2 cr. Investment < Rs. 5 cr.
Revised MSME Classification
Composite I Investment and Annual Turnover
Classification Micro Small Medium
Manufacturing & Services Investment< Rs. 1 cr. and

Turnover < Rs.5 cr.

Investment< Rs. 10 cr. and

Turnover < Rs.50 cr.

Investment< Rs. 20 cr. and

Turnover < Rs.100 cr.

  • Each MSME having INR 25 crores outstanding debt and a turnover of at least INR 100 crores would be entitled to receive an emergency credit line of up to 20% of its outstanding debt (to be calculated as of February 29, 2020). The credit line will come with a tenor of 4 years along with a 12 month moratorium on principal repayment. This scheme shall be available until October 31, 2020 with the Government providing 100% guarantee cover to lenders over the principal and interest amount.

It is interesting to note that the qualifying criteria for MSMEs set out in the presentation released by the Government (and reproduced above) is different from the one mentioned in the speech by the finance minister (the finance minister had stated that each MSME having INR 25 crores outstanding debt or a turnover of at least INR 100 crores would be entitled to receive an emergency credit line). Perhaps, more clarity will emerge when the final blueprint of the proposal is available?

  • Each MSME which is ‘stressed’ or ‘NPA’ would be entitled to a ‘subordinated debt’, where essentially the Government will provide funding support to credit guarantee fund trust for micro and small enterprises (“CGTMSE”) and CGTMSE, in turn, will provide partial credit guarantee to the lending banks so that they are incentivized to lend to the promoters / founders of an MSME, who will in turn be required infuse the same in the form of equity capital in the MSME.
  • A new Fund of Funds (“FoF”) with a corpus of INR 10,000 crores is proposed to be set aside for MSMEs with growth potential. The FOF will be operated through a structure with a mother fund and few daughter funds under it.
  • Government procurement tenders up to INR 200 crores would exclusively be offered to Indian parties only, i.e. no bidding will be allowed at a global level. Further, given that MSMEs would not be able to showcase their offerings in trade fairs and exhibitions, an e-marketplace will be set up for them. It is further envisaged that Fintech will be used to enhance transaction-based lending using the data generated by such e-marketplace.,
  1. Real Estate

 The finance minister has stated that the Ministry of Urban Development will send advisory to the States and Union Territories to consider Covid 19 as an event of ‘force majeure’ under the provisions of the Real Estate (Regulation and Development) Act, 2016 (“RERA”). Essentially, under Section 6 of the RERA, registration granted to a promoter/developer (for the declared period of project or phase) can be extended on account of ‘force majeure’. The RERA binds a promoter/developer to the stated timelines for project delivery and prescribes strict action in case of delays. The clarification to the definition of ‘force majeure’ (which as presently drafted, does not include a pandemic or epidemic) would ensure sufficient time for a promoter/ developer to complete its project.

It has also been stated that the RERA authority may suo moto extend registration and completion dates for projects by 6 months if such projects are registered on or after March 25, 2020.

  1. Construction Sector- Relief to Public Works Contractors

All central government departments (such as railways, road ministry, central public works department, etc) will provide extension of up to 6 months, without costs, to various contractors who have been contracted to undertake work for such departments. This would also include extension of concession periods in PPP contracts, which forms the core of such contracts.

Government agencies will also partially release bank guarantees they have standing in their favour from the contractors, to the extent such contracts are partially completed.

  1. Non-banking Finance Companies (“NBFCs”) / Housing Finance Companies (“HFCs”) / Micro Finance Institutions (“MFIs”) 

Given that NBFCs/HFCs/MFIs are finding it difficult to raise money in the debt markets, the Government will launch a Rs 30,000 crore Special Liquidity Scheme. Under this scheme investments will be made both in primary and secondary market transactions in investment grade debt papers of NBFCs/HFCs/MFIs. Such securities will be fully guaranteed by the Government.

Further, the existing portfolio credit guarantee scheme (“PCGS”) will be extended to cover borrowings such as primary issuance of bonds/ commercial papers and the initial loss amounting to a maximum of 20% will be borne by the Guarantor i.e., the Government. Papers rated AA or below (including unrated papers) shall also be eligible for investments under this scheme.

  1. Employee Provident Fund

The Government will be extending the benefits under Pradhan Mantri Garib Kalyan Package (“PMGKP”) – whereby the Government is already making payment of 12% of the employer’s and 12% of the employee’s contributions to provident fund for certain class of companies – for three additional months (in addition to contributions already being made by the Government from the month of March to May this year).

For other companies (not falling in the aforesaid para), the employer and employee contributions for next 3 months will be reduced to 10% (as opposed to present requirement of 12%). For public sector undertakings (both at center and state levels), the Government will continue to contribute 12% and employees will have an option to contribute 10%.

  1. Direct Tax 
  • Reduction in the Tax deduction at source (TDS) and Tax collection at source (TCS) rates by 25% (would cover contractual payments, professional fee, interest, rent, dividend, commission, brokerage) – to be applicable from May 14, 2020 to March 31, 2021.
  • Due date for income-tax return for FY 2019-20 has been extended from July 31, 2020 and October 31, 2020 to November 30, 2020.
  • Due date for tax audit for FY 2019-20 has been extended from September 30, 2020 to October 31, 2020.
  • Due date for assessment proceedings – the due date for assessment proceedings getting time barred on September 30, 2020 has been extended to December 31, 2020 and those getting time barred on March 31, 2021 have been extended to September 30, 2021.
  • The due date for ‘Vivad se Vishwas’ scheme for settlement of tax matters and reducing litigation has been extended from June 30, 2020 to December 31, 2020.
  • All pending refunds to charitable trusts and non-corporate business and professions to be issued immediately.


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