Finance Minister Nirmal Sitharaman’s first tranche of announcements were mainly for micro, small and medium enterprises, with some bits thrown in for NBFCs as well. On the face of it, the Rs 3.75 lakh crore package for small businesses sounds grand. Yet, it won’t hurt the government’s pockets much as nearly all of the help is in the form of loan guarantees.

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There will be Rs 3 lakh crore of collateral free automatic loans for businesses including MSMEs, and Rs 20,000 crore subordinate debt for stressed MSMEs. The FM also announced Rs 50,000 crore of equity infusion for MSMEs through a fund of funds.

The collateral-free loans will be given to MSMEs who have overdue loans, but are not NPAs. Both principal and interest on these loans will be guaranteed by the government. Most bankers say they are happy to lend to small businesses under this arrangement.

These are four-year loans and the principal need not be repaid in the first year. So any possibility of the government having to honour the guarantee for unpaid loans will come only after 18 months. Further, since these are four-year loans, bulk of the NPAs, if any, will show up in the term of the next government.

There is also a scheme to provide equity funding through a Fund of Funds. Bankers, though are not clear about the working and are awaiting operational circulars.

There are indirect policy support as well for MSMEs. Global companies cannot bid for sub-Rs 200 crore tenders, so that means less competition for local firms. Also, outstanding dues to MSMEs from governments and state-owned firms will be immediately cleared. How is that even a sop, you may wonder?. In India, it certainly is, considering that governments routinely delay rightful payments to vendors. There are some genuine sops as well. Like the government offering to pay the Provident Fund contribution for three more years for companies with less than 100 employees and of which 90 percent earn less than Rs 15,000 a month. This will cost the govt 2500 cr.

Banks will get support from the government when they buy investment-grade bonds issued by NBFCs. While details are unclear, it appears that the government will create a special purpose vehicle with an equity of around Rs 3000 crore, which will take on debt backed by a government guarantee, to make a pool of Rs 30000 crore. This will be used to buy investment-grade NBFC paper. Further another Rs 45,000 crore invested by banks in NBFC paper below AA will be protected for the first loss of 20 percent.

There was a feeling in industry and market circles that this could be the Modi government’s moment for its version of the 1991 reforms. So far there have been little signs of that. The only consolation for many is the Finance Minister’s remark that this is the first of several such announcements. Die-hard supporters of the PM are betting that he may have saved the best for the last.