We should not allow liquidity crisis of industry to become solvency crisis, says Ms. Naik

MUMBAI, 25 MARCH, 2020 (GPN):  MVIRDC World Trade Center Mumbai welcomes the relaxation in tax and other regulatory compliance offered by Hon’ble Finance Minister Ms. Nirmala Sitharaman amidst the financial hardship being faced by the industry in recent days. In order to mitigate the economic fallout of COVID-19, the government should adopt a two-pronged approach – alleviating the liquidity stress of MSMEs and supporting consumption demand.

The Economic Response Task Force of Government of India is working on an economic stimulus package to provide relief to businesses and workers overcome the financial difficulties in this situation.

Commenting on the proposed economic stimulus package, Ms. Rupa Naik, Senior Director, MVIRDC World Trade Center Mumbaisaid, “The government should adopt a two-pronged approach to combat this crisis – on the one hand, the government should ease the liquidity stress being faced by MSMEs and financial institutions; on the other hand, the government should transfer cash directly in the hands of the public to enable them spend on their necessities.”

To address the liquidity stress of the industry, Ms. Naik suggested freezing all tax and non tax dues of MSMEs, enhancing the cash credit limit for enterprises, setting up a special fund for rollover of commercial papers of NBFCs and providing sovereign guarantee for fresh bank loans to GST-registered MSMEs.

Ms. Naik emphasized, “These are exceptional times and the government needs to show its commitment to spend by deviating temporarily from the fiscal deficit constraints. We should not allow liquidity crisis of MSMEs in the current situation to become a solvency crisis.”

Ms. Naik suggested the government and the Reserve Bank of India to relax norms on classification of non performing assets (NPAs) of banks as MSMEs may find it difficult to honour their loan dues in this challenging time.

Commenting on the compliance easing measures announced today, Ms. Naik said, “These measures will provide temporary respite by delaying cash outflows from the industry. However, the government could have done more by assuring expeditious clearance of all the pending tax refunds so that the cash position of companies can be improved. Also, the government should take steps to fast-track the disbursement of input tax credit that is already blocked with the tax administration,”

Ms. Naik further suggested that the government could have completely waived the interest rate on delayed deposit of TDS instead of reducing it to 9%. Also, the government could have extended the interest waiver for late filing of GST returns even for companies with turnover of more than Rs. 5 crore, Ms. Naik remarked.

She welcomed the move to raise the threshold for default under Insolvency and Bankruptcy Code (IBC) from Rs. 1 lakh to Rs. 1 crore as it will save many small companies from facing insolvency proceedings because of inability to honour statutory dues in this time of financial hardship. The Finance Minister has assured to provide immunity from the punitive provisions of Section 7, 9 and 10 of IBC for six months if the health crisis in the country does not improve by April 30, 2020. ENDS