Government May Come Up with a GST Loan to Benefit MSMEs

In his recent speech to the nation, the Prime Minister announced that the government will be sanctioning a special fund of whooping INR 20 lakh crore under the ‘Atmanirbhar Bharat’ scheme. The scheme is being launched with the primary aim to help the nation’s economy recover after the recent hit of the global COVID-19 pandemic.

It’s obvious that corona has hit the country’s economy badly, and the after-effects will only be noticed in the coming days, weeks, and months. So, it’s imperative that both the central and state governments provide as much support as possible to small and mid businesses get back on their feet once the COVID-19 situation is dealt with. The latest announcement by the PM seems to be the first step in that direction. However, how much of it will actually arrive at beneficiaries and how effective it will be in the recovery of the economy are yet to be seen. Even if we ignore the fact that it’s not going to be an easy job for the government to source such a humongous amount, which is almost 10% of the country’s Gross Domestic Product (GDP), from its regular revenue sources, how that money will be used is an entirely separate topic of discussion. Here are some possibilities:

Relief to MSME :

As the government has made clear time and again, the new ‘Atmanirbhar Bharat’ fund is primarily for the benefit of the MSME sector, which also happens to be the backbone of the Indian economy. Around 45 percent of India’s manufacturing produce comes from MSME. These businesses contribute about 30 percent of the country’s GDP.

It’s also clear that the MSME sector will be the worst hit by this ongoing coronavirus situation, which means it will be first in the line of sectors that need help from the government in the post-COVID-19 scenario. In the latest scheme, the Finance Minister has announced a number of plans aimed at helping the MSME sector recover from the situation. This includes an extension of the deadline to pay the dues, collateral-free loans backed by the government’s guarantee, among others.

The FM has also suggested few changes in the core definition of the business. Businesses with a turnover of up to 5 crores will be now classified as small, while those with a turnover of up to 10 crores will be micro-businesses, and the ones with a turnover of up to 100 crores will be regarded as medium enterprises. Under the loan scheme, all these businesses that come in the MSME sector can apply to get a loan for a tenure of four years, with no interest payment in the first 12 months.

Loan on GST :

Many experts have suggested a better alternative, where the government can consider providing MSMEs with a GST loan. It’s not hidden that GST, among other things, is creating an added burden on MSMEs, especially at this time. So, by giving relaxation in GST or by allowing MSMEs to take a loan on their GST dues, the government can effectively rescue most of such businesses.

Rather than having to pay GST dues immediately to the government, businesses can be allowed to use the fund for their recovery and growth for the time being. It’s not that they will not have to pay GST to the government, but they can be given a temporary relaxation from GST for around a year or so, after which they can pay the due amount.