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MSMEs Credits for revival: Is ECLGS enough to insure MSMEs?

Jul 29, 2021

The Union Finance Minister, Nirmala Sitharaman, on July 28, 2021, launched Emergency Credit Line Guarantee Schemes (ECLGS) 3.0, which offers an additional ₹1.5 lakh crores to MSMEs and businesses in distress, in addition to the ₹3 lakh crores provided in May 2020. Sitharaman has established that the government’s focus is now on ‘lending’ and not ‘repayment’, but is increasing the loan limit and extending moratoriums enough, considering loans do have to be paid off if not sooner, later? The Viewpoint, with inputs from REHAU, Gautam Solar, Godrej & Boyce, PHD Chambers, Super Plastronics, Vinodrai Engineers, Walplast and World Trade Center Mumbai, analyses if only financial relief after relief is enough for a turnaround in manufacturing MSMEs. Does more need to be for the sake of the manufacturing future? If so, then what more?

Bhavana Bindra, Managing Director – South Asia, REHAU - It is imperative for the government to drive in partnership with the industry

The ECLGS is in the right direction providing requisite relief, especially with the extension as well as expansion of scope that the government has enabled. However, while short term support with such schemes is much needed, there is much still to be undertaken to move the needle for the manufacturing sector, which despite our demographic dividend in terms of a workforce, lags in its contribution to the GDP, especially when we compare it with some other significant economies.

Focusing on empowering MSMEs, whether in terms of providing innovative financing options in the long run or closing the requisite skill gap prevalent, it is imperative for the government to drive in partnership with the industry tirelessly. On its part, larger manufacturing brethren also need to ensure support provided to the MSMEs so that we, as a nation, make our mark on the global footprint. It’s a personal mandate each business leader needs to drive and not just because it is mandated by the powers that be.

Avneet Singh Marwah, CEO, Super Plastronics & India Licensee of Thomson - More capital should be infused to boost manufacturing in the pandemic

The pandemic posed some serious challenges for the manufacturing sector, affecting the whole ecosystem. The ECLGS initiative is great for increasing the limit because only if the capacity of the manufacturer increases will they be able to increase their revenue.

Another challenge is the increase in supply chain and print cost. There has been an exponential spike in freight due to the rise in fuel prices domestically and globally. Therefore, companies now need surplus capital to invest, which is the biggest problem MSMEs face right now. If the government infuses more capital into the manufacturing sector, it will boost manufacturing in the pandemic. The government should also look into taxes that are there, for example, GST; the government should consider lowering it from 28% to 18% on some electronics items as raw materials are getting expensive and affecting the consumer. We have witnessed that whenever a product gets expensive, its demand slows down, so this move can also help increase more manufacturing.

Divya Raithatha, Director, Vinodrai Engineers - The government should work on demand creation to drive health of MSMEs

We have opted for ECLGS, as post the first lockdown, we faced a severe cash crunch since there were no dispatches and payments. However, we still had a responsibility to give salaries to all our employees to build an environment of faith so that our team remains in high morale for the company’s future growth. With complete lockdown and disrupted cash flow, the scheme aided businesses’ survival to work their way back. The way ahead will depend on how the industry manages the challenging growing market. There is a lot of change in the business environment due to the pandemic, and the industry needs to adapt. The government must control the input prices of the base raw material and fuel prices like steel and petroleum. It should also work on demand creation, as only demand can drive the health of MSMEs. Industries today need to increase productivity and innovate the lean business models to take advantage of emerging technologies. The MSMEs must aim and work on becoming completely Aatmanirbhar.

Sanjay Aggarwal, President, PHD Chamber of Commerce and Industry - Repayment period should be extended to seven years with two years moratorium

The government’s ECLGS has proved to help mitigate the liquidity crisis. However, the scheme did not help MSMEs that were not availing the credit limits or were new enterprises and did not have any credit-line from the banking system. While the government has enhanced the size of ECLGS from ₹3.0 lakh crores to 4.5 lakh crores, it has not extended the benefit to those units which were not covered earlier as eligible borrowers. Therefore, now, MSMEs with sanctioned limits that had less utilised/unutilised the total limit until February 29, 2020 should be allowed to avail 20% of their sanctioned limit. Also, MSMEs with no outstanding or hadn't availed credit as of February 29, 2020 should be made eligible under the scheme. Plus, the repayment period of additional credit being granted should be extended to seven years with a moratorium of two years. The government should revive the manufacturing industry by improving the flow of funding to MSMEs by interesting the subvention scheme for them, reducing the margin requirement by banks, restructuring schemes for them approved by RBI & implementing a fund of funds scheme of ₹50,000 crores.

Milan Thakkar, CEO, Walplast - The real problem is on the demand side and not on the supply side

The MSME sector almost crash-landed in 2020, facing a strong revenue contraction, and with the pandemic, they were further challenged by severe liquidity crunch and dipping demand. The inflow of cash is a much-needed relief helping MSMEs boost their production and address the liquidity crunch problem. This, however, is not enough for the industry.

The sector faces several long-standing challenges, such as unavailability of timely working capital, complex licensing mechanism & regulatory challenges, stringent policies on loan disbursals, several compliance requirements and a complicated taxation system. While credit schemes help, the real problem is on the demand side and not on the supply side. Besides providing financial assistance, which is a short-term solution, the government should focus on increasing the demand by providing tax relief and other incentives. The industries should take maximum advantage of the schemes as interest rates are cheaper than banks and use the facility in the interest of their businesses. Companies need to bear in mind that these packages are loans that need to be repaid along with interest in due course of time.

Vijay Kalantri, Chairman, MVIRDC World Trade Center Mumbai - Waive taxes and statutory obligations by MSMEs for sustenance

India’s ECLGS scheme has benefitted many MSMEs with sound credit track records. At the same time, the prolonged pandemic led to poor market demands, rising inventories and long working capital cycles. We believe that the government can take five steps to support MSMEs and revive the economy. Firstly, waive taxes and other statutory obligations owed by MSMEs to help them preserve the limited liquidity for sustenance. Secondly, direct state-run companies to release the security deposit of MSME contractors in proportion to the completion of the contractual obligation. Thirdly, direct state-run companies to settle pending dues of MSME vendors on time. Lastly, the state & centre should ensure the availability of plastics, ferrous and non-ferrous raw materials at reasonable cost to MSMEs.

A majority of the micro-enterprises have not benefited from the ECLGS scheme as they are not borrowers from banks. The government should ensure that micro-enterprises, who are engaged in job work, can access collateral-free bank loans to upgrade their facilities, invest in modern machinery and thereby qualify for receiving orders from reputed companies.

Gautam Mohanka, MD, Gautam Solar - ECLGS can significantly help businesses and MSMEs to revive their business

Plagued with liquidity issues and lack of funding, many MSMEs were on the brink of permanent closure until the GoI launched the Emergency Credit Line Guarantee Scheme (ECLGS).

MSMEs and manufacturing businesses in the country have taken full advantage of ECLGS 2.0, 3.0 and 4.0. They have borrowed work capital term loans to meet their operational liabilities and continued business despite the adverse effects of the pandemic. Several MSMEs were staring down the barrel of the gun last year post-lockdown, as they ran out of funds and had no way to continue business without the government intervention. However, with the help of the ECLGS, they’ve been able to survive.

They’ve been able to pay the due amount to their vendors and employees and have managed other business costs as well. Since the policy is flexible and is being reformed according to the changing scenario, it can significantly help businesses and MSMEs to revive their business.

Zurvan Marolia, Senior Vice President, Godrej & Boyce - ECLGS, though helpful, is not enough for a turnaround

Undoubtedly, MSMEs are among the worst affected within the manufacturing sector, as financial resilience is the lowest. So, certainly, the ECLGS initiatives are a lifeline. A sizable number of our MSME suppliers have opted to benefit from the scheme, starting with its initial rollout. Their improved resilience, in turn, improves their reliability as our supplier partners. Schemes such as these, though helpful, are not enough for a turnaround, as it still creates liability. It may improve resilience in the short term but does not guarantee business. It could also end up as a significant number of bad loans over ten years. Along with the current ECLGS, a capital subsidy scheme based on a minimum business volume could help MSMEs grow and contribute to the national manufacturing GDP.

The industry needs to encourage MSMEs by providing them with business opportunities and partner them with industry forums, such as CII, to develop them and bring a structure to their work. This will help them grow into a professionally managed business and be recognised as responsible corporate citizens.

Image Gallery

  • Bhavana Bindra

    Managing Director – South Asia


  • Avneet Singh Marwah


    Super Plastronics & India Licensee of Thomson

  • Divya Raithatha


    Vinodrai Engineers

  • Sanjay Aggarwal


    PHD Chamber of Commerce and Industry

  • Milan Thakkar



  • Vijay Kalantri


    MVIRDC World Trade Center Mumbai

  • Gautam Mohanka

    Managing Director

    Gautam Solar

  • Zurvan Marolia

    Senior Vice President

    Godrej & Boyce

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