By Arush Saini
India is in a state of crisis with nation being locked down due to the new pandemic called COVID-19 OR CORONAVIRUS which experts believe is going to affect atleast 1 billion people in economic recession like situation including millions of job losses.
As Former RBI Chief ‘Raghuram Rajan’ said in his post that “India is a country which reforms only in crisis”, for eg. For the year 1991-92, when government liberalised the private sector from innumerable governmental controls, deregulated financial market sector and opened up the economy to more external investment to avoid a balance of payments crisis.
The government had already projected a budget deficit of 3.5% of GDP in the year through March 2021. According to KPMG, the lockdown in India will have a sizeable impact on the economy mainly on consumption which is the biggest component of GDP.
Post upliftment of lockdown, the opportunities related to Indian economic crisis will mainly depend on how quickly the economy bounce back on its feet at which the supply chain issues are addressed.
Effects of Covid-19 on MSME’s in relation to IBC
India has more than 5.22 crore MSMEs which are engaged in non-agricultural economic activities.
With the collapse of economic activities due to COVID-19 amid lockdown, it has raised some serious existential questions for millions of small and micro businesses.
The Hon’ble Prime Minister of India has announced the creation of an economic task force to suggest some steps to ease the situation but does it suffice the problems faced by the MSMEs which are currently on the verge of insolvency due to the combination of past years economic slowdown and this year’s novel pandemic.
MSMEs are the backbone of India’s GDP which contribute more or less 30% to it and responsible for half of the country’s total export.
In terms of ad-hoc relief measures,
· The SIDBI has announced a concessional interest rate of 5% for MSME loans u/d the SIDBI’s response against covid-19.
· Delayed GST payments until June 2020 without levy of interest, late fees or penalties are some other reliefs that government came up with.
The fate of MSMEs are under threat as the large business enterprises are undergoing insolvency and MSMEs are usually operational creditors to such large businesses and it would be highly unfortunate if we let MSMEs push themselves into liquidation due to this global pandemic and affect the livelihood of all who are associated with this industry.
The Hon’ble Finance Minister said that if the situation of covid-19 outbreak continued well beyond 30th April, then the ministry would consider suspending Section 7 , 9 & 10 of the Insolvency and Bankruptcy Code(IBC) for a period of 6 months so the companies can be stopped from being forced into insolvency proceedings.
· Section 7 : Initiation of CIRP by financial creditor
· Section 9 : Application for initiation of CIRP by operational creditor
· Section 10 : CIRP by corporate applicant
Modification through amendment in Section 4 (where the threshold of Rs. 1 lakh was raised to Rs. 1 crore) is also an appropriate measure in these high times.
But the actuals don’t always meet the standards and that’s why it is estimated that this pandemic will cause many MSMEs corporates to eventually see the d’entrée of NCLT despite the government’s help and measures as covid-19 pandemic affects the entire global fleet in every way and every possible sector that we can think of.
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