The extension of Emergency Credit Line Guarantee Scheme (ECLGS) till March 2023 and expansion of its guarantee cover by Rs 50,000 crore for MSMEs by the government will help meet the working capital requirement of small businesses, which have been hit the hardest during the pandemic, say experts.
Presenting the Union Budget 2022, Finance Minister Nirmala Sitharaman said ECLGS has provided much-needed additional credit to more than 1.3 crore MSMEs and helped them mitigate the adverse impact of the pandemic.
However, the hospitality and related services, especially those by micro and small enterprises, are yet to regain their pre-pandemic level of business.
"Considering these aspects, the ECLGS will be extended up to March 2023 and its guarantee cover will be expanded by Rs 50,000 crore to total cover of Rs 5 lakh crore,” the finance minister said.
The additional amount will be earmarked exclusively for the hospitality and related enterprises, she said.
Shardul Amarchand Mangaldas & Co Partner Veena Sivaramakrishnan said, “Extension of ECLGS till March 2023, with an increased guarantee cover Rs 50,000 crore and a specific focus on MSME sector will keep the banks and financial institutions busy in extending the benefits of this to the eligible borrowers in the impacted sectors."
An increase in coverage may also be demanded by certain class of borrowers as they continue to struggle in their path to recovery post the pandemic, she said.
DBS Bank India Head (Business Banking) Sudarshan Chari said allowing extension for loans under the ECLGS will assist businesses in overcoming the cash bottleneck caused by Covid-19 restrictions," Chari said.
Commenting on the announcement, Religare Enterprises Executive Chairperson Rashmi Saluja said one of the biggest issues plaguing the MSME sector was availability of finance and the finance minister has rightly addressed the issue.
"This extension will take care of the much-needed additional working capital finance in the form of a term loan to MSMEs and professionals," Saluja said.
The finance minister also said that the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme will be revamped with required infusion of funds.
This will facilitate additional credit of Rs 2 lakh crore for MSMEs and expand employment opportunities.
She also announced to interlink Udyam, e-Shram, NCS and ASEEM portals to widen their scope.
To help the MSME sector become more resilient and competitive, Sitharaman said a Raising and Accelerating MSME Performance (RAMP) programme with an outlay of Rs 6,000 crore over five years will be rolled out.
DBS Bank's Chari said the initiatives outlined by the finance minister will help the MSME sector by boosting demand, investment, exports, and job creation.
Shriram Transport Finance VC & MD Umesh Revankar noted that the widening of the ECLGS scheme and revamping of CGTMSE are steps taken to accelerate growth and reduce stress particularly in the MSME segment.
Progcap Co-founder and Director Pallavi Shrivastava said, "The budget cascade huge hope to the MSMEs sector with the extension of the ECGLS scheme and unification of the Udyam, E-Shram, NCS & Aseem portals, credit facilitation will become easier and the MSME sector will truly thrive through the medium of retail financing startups."