MSME package: Silence from critics shows government has done well

The Indian economy needed a rescue package and it is getting one. As much as the package itself, we needed a big headline number. Because sentiment matters too. We got that : Rs 20 lakh crore.

Yesterday was the first tranche of the scheduled announcements from the Finance Minister, starting with a package for the reeling MSME sector. Not surprisingly, there are many technicalities here. And intimidating language like “subordinate debt,” which I cannot unpack.

Let me first mention at least the parts that I understood. The first is Rs 3 lakh crore of soft credit which I believe is for four years. The next is Rs 75000 crore for the NBFC sector, which has been living the worst kind of nightmare since late 2018 when IL&FS collapsed. Considering the condition of the NBFC sector, I think a special task force should be organized to look into their situation.

Then there are the tweaks that put more money into the hands of business. While making payments, they now have to deduct TDS of 7.5% and not 10%. The EPF contribution is reduced to 10% from 12%.

Then, there are the policy decisions, such as govt contracts below 200 crores will now go only to local firms. And the turnover limits on the definition of MSMEs have been raised, sometimes four times as high. So that firms can afford to grow big without having to worry about losing incentives for small business. I noticed others in the FM’s speech, such as the definition for MSME in services sector will now be the same as in the manufacturing sector. Just think about it: what big purpose was being served all these years by having different definition of “micro” in manufacturing vs services? This is exactly the kind of pesky regulation that hurts ease of business and makes babus richer than entrepreneurs. Good to see this go.

Obviously, I am not an expert. It is hard for me to comment on the details. As such, it is much more efficient for me to look at the ‘usual suspects’ : see what they are criticizing and take it from there.

Which is why I think govt has done a very good job here. Did you see the usual suspects? All silent.

Now, there is a simple objection here that must be addressed. Okay Abhishek, you say you cannot comment in detail because you’re not an expert. But neither are those usual suspects. Perhaps they are silent for the same reason.

To that, I say … LOL! When has not being an expert ever stopped those people? They were speaking like MIT engineers on power grids. And like Nobel winning chemists on Hydroxychloroquine. All this within the last month or so. If necessary, they will scour the skies and the depths of the ocean to find ‘experts’ to criticize the MSME package. If they cannot find such experts, govt must have done a really good job.

I noticed that the vacuum of criticism was filled by pure trolling. Memes and jibes. Cheap shots at PM’s watch or sunglasses or something. Sponsored trends on social media. Zero traction. Zero organic participation from real people.

Trolling will always be there. But it is after a long time that I didn’t see a single liberal even try to make a point. Perhaps there was a weak excuse for this on Tuesday night, because PM himself had not given much detail beyond “20 lakh crores.” But first batch of details came out yesterday. If critics had something to say, they would have.

I was able to find some voices. Such as Prashant Kishor saying something like : Why does PM say we can turn the crisis into opportunity? Is the world stupid that they cannot understand how to turn crisis into opportunity?

This is absurd, mindless criticism that requires no response. It says more about PK’s frustration and IQ level than anything else.

Meanwhile, Mamata Banerjee said the package was a “big zero.” And nothing else. Chief Minister sounding like a Class 5 kid who screams “no ball” after getting their stumps knocked over. And then will not hand over the bat no matter what… Sad.

The Congress response was no better. They said shame for not having anything for workers. Well, yeah. Because yesterday’s announcement was the first tranche of a package, meant only for MSMEs. This is like complaining that your local dairy has run out of apples.

All in all, a strong beginning to the economic rescue package. A lot of hard work seems to have gone into it. Let’s wait for the next tranche.



14 thoughts on “MSME package: Silence from critics shows government has done well

  1. If only Jihadi Momota had waited to ask someone who could count, she would know that it was not ‘a big zero’ – it was 13 big zero’s 🤓


  2. The main expectation seemed to be that the government would hand out freebies. NS wisely resisted from that temptation. Government revenues are taking a major hit – there is going to be no real money to hand out. Government can print money but inflation will eat away any benefits from such a step.The EPF reduction to 10%, the TDS reduction to 25% are again efforts to improve liquidity but these are not handouts.

    What the government has announced for MSME is liquidity measures (which are very important because small firms close when they run out of liquidity). There is a time gap between accounts payable(what a firm pays to its suppliers) and accounts receivable(what the firm receives for its products/services). If this gap is large, firms can run out of liquidity

    Has the government done well ? Maybe it has put off NPA’s for a few months but it is not going to solve the problem. The economic hit from China virus is still going to be huge. Governments have to reduce their salary burden commensurate with their tax earning (hearing rumors that this could be 30%)

    The only thing that can save the economy is voluntary redistribution of money. But no one is going to trust Government with their money knowing the corrupt and secular ways of the babus and politicians. One way perhaps is to free temples and let temples take over some of the government burden. That way people might donate more to temples.

    Liked by 1 person

  3. I really enjoyed looking at the face of RSardesai & RKanwal immediately after PM Modi’ s address to the nation.

    Both of them were shocked and were not able to hide their intolerance.


  4. The package for MSME from supply side perspective would help these firms to tide over the temporary liquidity issues that developed due to lock down measures. It will also help kick start operations in many MSMEs by infusing liquidity to revive operations. Not only in India but all over the world many MSMEs are either closed or on the verge of closure due to drying up of liquidity as their cash flows have been affected by abrupt disruption of their working model. Sad but true. MSMEs are the ones who do the heavy lifting in terms of generating employment but large firms garner all attention due to the size effect.

    However, if one notes carefully, there is a separate component for NBFCs which is targeted at supply side. NBFCs are instrumental in generating demand as they are the ones who offer financing options to end consumers. There is also a bit about only locally sourced bids for all government tenders upto 200 crores which again is demand side of the equation.

    The government can only do so much and not more. In the final analysis, some businesses will sadly have to close down and some will come out strong like the lyrics of a popular song “what doesn’t kill you makes you stronger”.

    I will end this on a cheery note by saying India is not just any other tiger economy with only exports to survive upon. Indian economy is a large economy with a sizeable domestic demand. So as I see it, India will emerge stronger from this crisis and economy will bounce back strongly just for the fact that millions in India are striving to better their lives and all their collective efforts will have to reflect in GDP.

    Liked by 1 person

    1. I would like to add a rider to the local sourcing upto 200 crores. Those of us who had lived through the pre-liberalisation India would know that in the name of local purchases the PSUs and local businesses dumped poor quality products at exorbitant prices. Some inventive businessmen imported the whole products and called it imported kits for assembly locally! Later they will say these are made in India as they were assembled in India and pass it off as locally sourced with exorbitant margins. I am afraid that without the necessary safeguards and clear implementation rules the bubus and inventive businessmen would join hands to bring back the seventies and eighties in India.

      Let me illustrate how things were back then in India with one ready example that I remember:
      Who can forget the infamous soda ash scandal in 1970s. A famous businessman had imported soda ash which was (currently also) in short supply in India. The ship arrived near Mumbai (then Bombay) but it was anchored at a little distance away from the territorial waters of India. The customs duty on soda ash imports was more than 300% at that time. As the ship anchored there, the businessman parked himself in New Delhi working his magic in getting exemption/reduction in duties. One can use their imagination to know how he managed it but it so happened that a G.O was issued reducing the customs duty to way less than 100%. Once the G.O was issued, the ship docked in Mumbai port and the cargo was expeditiously cleared by customs. Within a week / 10 days time ( I don’t exactly remember) miraculously, another G.O. was issued raising the customs duty back to 300%. Imagine the amount of money made in the bargain by all concerned except the actual users of the product by mere paper work.

      Liked by 2 people

      1. It was great learning how local producers dumped low grade products into the markets in the 1970s.

        But the rider of 200 crores in yesterday’s announcement of the stimulus is only on government tenders.


      2. Somewhat off topic, but there was a not so funny tale of a Chief Minister in the 1970s. AP maybe, but not sure.

        Those were the heydays of the license-permit-quota raj. A businessman wanted permission to set up a factory. The file worked its way up the food chain and landed on the CM’s desk. There it sat whilst the worthy waited for the lobbying to begin, well, lobbying. Nobody turned up and the CM wrote “Not Accepted” and signed it.

        The businessman, who had already invested a large amount of money buying land etc, learned about this disaster and hurried to the CM’s house. Something happened there and the next day the CM again summoned the file. He changed “Not Accepted” to “Note: Accepted”.

        It became famous as the most expensive letter “e” in the history of Independent India.


  5. I was wondering whether this is as good a time as any to have a complete look at all labour laws to bring it in line with current day expectations and requirements instead of hanging on the antiquated laws passed more than 50 years back. A consolidated act covering all labour laws of a modern current day India is the need of the hour. I am not suggesting throwing them all out. Instead reform them to meet the requirements of current day India. Many of the these Acts were passed by a Nehruvian Socialist mindset that viewed wealth generation as a sin.

    Here are a few antiquated laws that comes to mind:
    1. Factories Act 1948
    2. The Dock Workers (Regulation of Employment) Act, 1948
    3. The Payment of Wages Act 1936
    4. The Payment of Bonus act 1965
    5. Workmens Compensation Act 1923!!
    6. Trade Union Act 1926
    7. The Industrial Employment (Standing Orders) Act 1946
    8. The Industrial Disputes Act 1946
    9. The Contract Labour (Regulation and Abolition) Act 1970

    Just wanted to know everyone’s views.

    Liked by 1 person

    1. The payment of wages act 1936 and the payment of bonus act 1965 are now done away with.

      The Code Bill on Wages 2019 has done away with four labour laws on wages and became an act in August 2019.


    2. So many laws for labour. I bet most of them overlap or even contradict each other here and there. Multiple laws lead to excessive litigation.


  6. One of the major reasons for the silence of our Fiberals is they put all their eggs in the basket of the dialogue between Nobel Prize winner Banerjee and their turtle Rahul Gandhi whom they are trying to hoist on a totem pole. Mr. Banerjee expected that Modi will not dare to announce big enough package so he put a huge figure of 65000 Crores Rupees. He (and all Fiberals) had their gun ready against Modi when Modi announces a much smaller package. When Modi’s package was more than three times the package suggested by Mr. Banerjee, they were speechless. The only criticism they could muster was where the money will come from? And since they hung up on 65000 Crores Rupees package they can’t even criticize this package not doing enough for farmers, migrants, etc. because then the obvious question would be how they were planning to take care of farmers, migrants, etc. on much smaller package they were supporting. So Teri Bhi Chup, Meri Bhi Chup.

    Liked by 1 person

  7. On a different note, it appears an Indian Airforce surveillance aircraft went 100 kms into Pakistan territory. Pak has been running lots of CAP’s the last few days, looks like something interesting is unfurling on the Western border – maybe another Balakot type attack on Pakistani terror sanctuaries is coming


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s