THE GIST of Editorial for UPSC Exams : 14 May 2020 (Liquidity lifeline: On Nirmala’s MSME package (The Hindu))

Liquidity lifeline: On Nirmala’s MSME package (The Hindu)

Mains Paper 3: Economy
Prelims level: MSMEs packages
Mains level: Role of MSMEs in economic inclusion

Context:

• From an overall perspective, the first tranche of announcements made by Finance Minister Nirmala Sitharaman under the Atmanirbhar Bharat Abhiyan on Wednesday is impressive indeed.
• There are, and will be, many issues in the details but taken as a whole, the measures announced will go a long way in lifting the spirits of the two key and troubled sectors of MSMEs and non-banking finance companies. While for the former it is an existential crisis, for the latter it is one of liquidity.
  Rs. 3-lakh crore for MSMEs:
• The massive Rs. 3-lakh crore collateral free assistance handed out to MSMEs will help them crank up their operations. Ms. Sitharaman has done well in extending a sovereign credit guarantee for the ................................................

CLICK HERE FOR FULL EDITORIAL (Only for Course Members)

Rs. 30,000 cores scheme for NBFCs:

• NBFCs, housing finance firms and micro finance entities get a much required liquidity boost in the form of a Rs. 30,000 crore scheme wherein their debt paper will be fully guaranteed by the government.
• With this, and the partial credit guarantee scheme of Rs. 45,000 crore, the government has broken the logjam wherein banks were unwilling to extend credit despite the RBI’s strong push. This should largely attenuate the liquidity crisis in the non-banking space for now.

For power distribution companies:

• The Minister has also done well in addressing the liquidity issues of power distribution companies through a Rs. 90,000 crore infusion that will be securitised on their receivables and backed by a State government guarantee.
• The announcements are focused on the liquidity part of the crisis. While the headline numbers appear big, the reality is that the government will be called upon to bear the liability only if the economic situation becomes hopeless; it may not come to that.

Conclusion:

• What the announcements do is to break the confidence logjam in the credit market and give the assurance to lenders and borrowers that the government is willing to backstop their commitments.
• This is the signal that MSMEs and their lenders needed as liquidity was always there but only for the most credit worthy of borrowers. Here, the government has played its role to perfection.

Online Coaching for UPSC PRE Exam

General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q1. With reference to a report “Impact of energy efficiency measures for the year 2018-19”, consider the following statements:
1. It was published by NITI Aayog.
2. India has already reduced the energy intensity of economy by 20% compared to 2005 levels.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer:

CLICK HERE FOR FULL EDITORIAL (Only for Course Members)

Mains Questions:
Q1. How liquidity packages.................................?