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What are some of the policy measures to uplift MSME sectors?

Ashish M. Shaji

| Updated: Jun 25, 2020 | Category: Digital Banking, MSME

MSME sectors

MSME sectors have played a crucial role in the overall economic development in India. It has resulted in the creation of employment opportunities and output growth. It is a widely accepted belief that Micro Small and Medium Enterprises (MSMEs) are the engines of economic development and for equitable development. The government has introduced various measures to uplift MSMEs, and that is exactly what this article cover.

What is MSME?

MSME stands for Micro, Small and Medium Enterprises. As per the MSMED (Micro, Small and Medium Enterprise Development) Act, 2006[1] the enterprises are classified into two-

  • Manufacturing Enterprises: Engaged in the manufacturing /production of goods in any industry.
  • Service Enterprises: Engaged in providing or rendering services.

Revised classification of MSME

ClassificationMicroSmallMedium
Manufacturing and Services  Investment less than 1 Crore rupees and Turnover less than 5 Crore rupeesInvestment less than 10 Crore rupees and Turnover less than 50 Crore rupeesInvestment less than 50 Crore rupees and Turnover less than 250 Crore rupees

Government Initiatives to uplift MSME sectors

CHAMPIONS Portal: A unified, robust, and technology-driven platform was envisaged for helping and promoting the MSMEs of the country. CHAMPIONS means Creation and Harmonious Application of Modern Processes for Increasing Output and National Strength. This is to make the smaller units big by helping and handholding.

Government Scheme to promote MSME sectors

Some of the government schemes are as follows:

  • Prime Minister Employment Generation Programme (PMEGP);
  • Credit Guarantee Trust Fund for Micro and Small Enterprises;
  • Interest Subvention Scheme;
  • Credit Linked Capital Subsidy Scheme (CLCS) for Technology Upgradation; and
  • Gram Udyog Vikas Yojna and many other schemes.

Who provides MSME or SME loans?

The entities that are registered under the MSME can get a loan from-

  • Small Industries Development Bank of India;
  • National Small Industries Corporation;
  • Regional Rural banks;
  • Scheduled Commercial Banks;
  • North Eastern Development Finance Corporation; and
  • Other banks and NBFCs (Non-Banking Financial Companies).

Measures by Government for businesses including MSME sectors

  • 3 lakh crore rupees collateral-free automatic loans for businesses including MSMEs
    • Borrowers with up to outstanding rupees of 25 crores and with 100 crore rupees turnover can avail the loan.
    • The loans shall have four-year tenor with a moratorium of 12 months on principal repayment.
    • Interest to be capped.
    • A credit guarantee cover of 100% to banks and NBFCs on principal and interest.
    • The scheme can be availed until October 31, 2020.
    • No guarantee fee and no fresh collateral.
  • A subordinate debt of 20,000 crore rupees for MSMEs
    • Functioning MSMEs that are NPA (non-Performing Assets) or are stressed shall be eligible.
    • Promoters of the MSME will be provided debt by banks which shall be infused by the promoter as equity.
    • Government support of 4000 crore rupees to CGTMSE (Credit Guarantee Trust Fund for MSME).
    • CGTMSE to provide partial credit guarantee support to banks.
  • Infusion of 50000 crore rupees equity through MSME fund of funds
    • Setting up of Fund of Funds with a corpus of 10000 crore rupees.
    • Equity funding for MSMEs with growth and potential viability.
    •  Fund of funds will be operated by Mother Fund and daughter funds.
    • Expansion of MSME size and capacity through it and will encourage MSME sectors to be listed on the main board of stock exchanges.
  • 45000 crore rupees partial credit guarantee scheme for NBFCs
    • NBFCs/HFCs/MFIs with low credit rating require liquidity to do fresh lending to MSMEs.
    • Existing PCGS (Partial Credit Guarantee Scheme) to be extended to cover borrowings like the primary issue of bonds/CPs of such entities.
    • The government of India shall bore the first 20% loss.
    • AA paper and below, including unrated paper, shall be eligible for investment.
  • Revised MSME definition
    • Upward revision of the investment limit.
    • Introduction of additional criteria of turnover.
    • Elimination of distinction between manufacturing and service sector.
  • Global tenders up to 200 crore rupees to be disallowed
    • Global tenders to be disallowed in government procurement tenders up to 200 crore rupees as Indian MSMEs and other companies have been subjected to unfair competition.
    • It shall help the MSMEs to increase their business, and it may help in achieving self-reliant India.
  • Other measures to uplift MSME sectors
    • E-market linkages for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.
    •  Use of fintech to enhance transaction-based lending with data generated by the e-market.
    • MSME receivables from government and Central Public Sector Undertakings to be released in 45 days.
    • Special liquidity schemes of 30000 crore rupees for NBFCs/HFCs/MFIs.

What are the benefits of MSME registration?

The following benefits can be enjoyed on MSME registration:

  • Enjoying various schemes by the government for MSME;
  • Protection from delay in payment by buyers;
  • Reduction of 50% fee for filing patents and trademarks;
  • Exemption while applying for government tenders;
  • Easier to get licenses, approvals and registration;
  • Loans without guarantee and low-interest rate on loans;
  • Concession on electricity bills; and
  • And various other benefits.

Conclusion

India being the fastest growing economy, shall create more awareness regarding the MSME sectors and emphasize on generating more employment, improving industrialization, decrease in imports and increase in imports, up-gradation of technology, competitive business environment, development of knowledge, wealth creation and economic growth. By registering and using the benefits and the scheme under MSME, it will help in achieving the growth and economies of scale.

Also, read: A Brief Insight into Digital Lending in MSME

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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