3 lakhs per person who owns a small business, an initiative that government is far developing in between the economic momentum. India to guarantee as much as a 3 trillion rupees ($39 billion) of loans to small businesses as a part of better start Asia’s third-largest economy. Experts say the 40-day lockdown will form a dent on the economy.
Apart from small vendors, small firms are eligible t borrow an additional 20% of their credit limit coming from confidential discussions. The debt will be fully guaranteed by Prime Minister Narendra Modi’s Administration, the experts said. The government will set up a special fund for repayment in case of default.
India’s government and regulators are slowly coming out with programs as everyone, from companies to fund managers, struggle under the world’s biggest lockdown, which has halted manufacturing and wiped out consumption.
With the economy set to contract for the first time in four decades, Modi’s endorsement is the only way to make it attractive for banks, which are concerned about rising delinquencies, to lend to small businesses.
“A large part of the fiscal package of developed countries such as the U.S. and U.K. have involved loan guarantees,” said Teresa John, an economist at Nirmal Bang Pvt. “If targets are set for banks and shadow banks for availing refinancing under such a scheme, along with credit guarantees this will, to an extent, ensure credit flow to MSMEs and ultimately help in reviving growth,” she said, referring to micro, small and medium enterprises.
Backing up mutual funds!
Earlier on Monday, the country’s central bank offered 500 billion rupees credit line to mutual funds to avoid distress sale of assets. Also, calm investor concerns after Franklin Templeton shut six of them last week citing a lack of liquidity.
Small businesses, which form the bedrock of the $2.7 trillion economies, have been the worst hit by the lockdown with their activity coming to a halt. An estimated 100 million workers in mining, construction, manufacturing and services sectors have been rendered jobless due to the lockdown. As Subhash Chandra Gar, a former top bureaucrat in the finance ministry wrote in a blog.
Not only India, but governments across the world are rushing to help small businesses while the U.S. is considering to provide $320 billion for new loans under PAYCHECK PROTECTION PROGRAM. The Philippines plans to give 35 billion pesos ($690 million) to workers od shuttered small businesses.
The forgivable loans to such companies keep employees on the payroll for eight weeks.