To support the gradually falling economy, Prime Minister Narendra Modi announced the “Atmanirbhar Bharat Abhiyan” To encourage growth and to develop a self-reliant India. Supporting this abhiyan Finance Minister Nirmala Sitharaman stressed on the five pillars of growth: Infrastructure, economy, technology driven systems, demand and demography. The Prime Minister had announced an economic relief package of Rs. 20 Lakh Crore under the scheme Atmanirbhar Bharat Abhiyan, the details of which was unveiled by Finance Minister Nirmala Sitharaman.

Under the relief package due important was placed on MSMEs as the MSME sector was on the verge of collapse. To improve the conditions under the economic relief scheme the announcements made for MSME are: –

  1. MSME definition amended: –
  • No distinction between manufacturing and services units.
  • Micro: Investment < Rs 1 crore; Turnover < Rs 5 crore
  • Small: Investment < Rs 10 crore; Turnover < Rs 50 crore
  • Medium: Investment < Rs 20 crore; Turnover < Rs 100 crore
  1. Collateral free automatic loans: –
  • Outlay of Rs. 3 lakh crore, to benefit 45 lakh MSMEs.
  • All MSMEs having 25 crore outstanding in loans and 100 crore turnover are eligible for credit guarantee-backed loans of four-year tenure.
  • Interests to be capped
  • 12-month moratorium on principal repayment
  • Can be availed till 31stOctober
  1. Subordinate debt for stressed MSMEs: –
  • Rs 20,000 crore outlay, 2 lakh MSMEs to benefit
  • Government to provide Rs 4,000 crore towards partial credit guarantee support to banks
  • Banks will lend money to promoters who can use it to infuse it as equity
  1. Fund of Funds: –
  • Corpus of Rs 10,000 crore
  • Will operate through primary and secondary funds
  • Will help leverage Rs 50,000 crore at the secondary fund level
  • Will help MSMEs to expand size and get listed on main board
  1. Local Bids for Government tenders of up to Rs. 200 crore: –
  • Foreign tenders will be disallowed for government procurement up to Rs 200 crore
  • This is to help MSMEs fight unfair competition from foreign competitors
  1. MSME dues and Market access: –
  • E-market linkage for MSMEs, as there will be no trade fairs and exhibitions anytime soon due to COVID-19
  • All receivables of MSMEs from government and PSUs will be cleared in a period of 45 days

In the previous definition, MSMEs were defined on the basis of investments put in; now the definition also includes the turnover of the company. The Finance Minister also announced that there will be no more distinction between Manufacturing and Service MSMEs. They will now be defined similarly. They definition of MSME is:-

Micro Units: – MSMEs which have an investment of up to Rs. 1 crore and turnover of less than Rs. 5 crore will now be called Micro units.

Small Units: – The investment limit for Small unit MSMEs has been raised from Rs. 5 Crore to Rs. 10 Crore with a turnover of less than 50 crore.

Medium Units: – MSMEs with an investment of up to Rs. 20 crore and a turnover of less than Rs. 100 crore will now be called as Medium units.

Henceforth Micro, Small and Medium Enterprises (MSMEs) will not be defined based on their investment alone but will also be defined on their turnover. The definition has been tweaked and the distinction existing between Manufacturing and Services units have been eliminated.

To hike the investment limits was a long standing demand from the industry. As in inflation the threshold limit is often crossed by many units thereby not able to receive the benefits. To prevent this, the units run their business at a reduced capacity or incorporate multiple units so that their turnover is distributed in such a way that they still remain within the limits so that they can reap the benefits. Thus the decision to add the turnover criteria with the investment is considered a good decision as there are several units that leverage a small capital to post large revenues.

Existing MSME Classification
Criteria: – Investment in Plant & Machinery and Equipment
Classification Micro Small Medium
Manufacturing Enterprises Investment < Rs. 25 Lakhs Investment < Rs. 5 Crore Investment < Rs. 10 Crore
Service Enterprises Investment < Rs. 10 Lakhs Investment < Rs. 2 Crore Investment < Rs. 5 Crore
Revised MSME Classification
Composite Criteria: – Investment and Annual Turnover
Classification Micro Small Medium
Manufacturing & Services Investment < Rs. 1 Crore

And

Turnover < Rs. 5Crore

Investment < Rs. 10 Crore

And

Turnover < Rs. 50 Crore

Investment < Rs. 20 Crore

And

Turnover < Rs. 100 Crore

 

The definition has been changes to support MSMEs, as even the successful MSMEs feared that they would lose their entitled benefits if they outgrew their size. Thus many MSMEs preferred to stay within the old definition rather than grow. Thus this new definition will encourage the MSMEs to grow while still availing the benefits.

To reduce the burden of MSMEs, the Finance Minister Nirmala Sitharaman announced a number of liquidity measures. The Government under these measures proposed to offer a collateral free automatic loan worth of Rs. 3 Lakh Crore. All MSMEs having a turnover of up to Rs. 100 crore and an outstanding credit of Rs. 25 crore are eligible for the loan. As Mentioned by the Finance Minister these loans will have tenure of 4 years and a moratorium of 4 months. The Finance Minister also mentioned that there wills a 100% credit guarantee on the principal and interest amount for these loans to banks. The scheme can be availed till 31st October, 2020. This scheme is expected to benefit around 45 lakhs MSME units.

The Finance Minister also announced that the government will also facilitate provision of up to Rs. 20,000 crore as subordinate debt, thus providing stressed MSMEs with equity support. This subordinate debt Rs 20,000 crores will be funnelled a fund trust named the Credit Guarantee Fund Trust for Micro and Small Enterprises, through which the banks will lend money to the promoters of MSMEs, which will then be infused by the promoter as equity in the units. This Subordinate debt facility will benefit around 2 lakh MSMEs with non-performing assets.

It is also proposed infuse equity into the MSMEs through a Fund of Funds system in which the government will give an initial corpus of Rs. 10,000 crore of the Funds. This will further be leveraged to raise Rs. 50,000 crore which will be used to support MSMEs which are in desperate need of equity through ‘daughter funds’ of the main Fund of Funds. This is done with an aim to expand the size and capacity of MSMEs with equity and also help them to get listed on the stock exchange.

As seen earlier Indian MSMEs have often faced unfair competition from foreign companies. Thus to prevent this and further help MSMEs, all global tenders will be banned for government procurement of up to Rs. 200 Crore. This is a step taken towards a ‘Self-reliant India’ and support to ‘Make In India’.

These announcements made by the Finance Minister are a path- breaking reform. The various measure like: loans to MSME, support to stressed MSMEs, allowing MSMEs to participate in government tenders of up to Rs. 200 crore project and the change in the definition of MSMEs, all these are path breaking steps will enable to accelerate the growth of MSMEs.

Ever since the first lockdown was announced there has been a clamour of fiscal support for MSMEs. Industry body FICCI also sought an amount of up to Rs 4.5 lakh crore in the fiscal support for the MSME sector. They had also written to the government to release Rs. 2.5 lakh crore which are stuck in refunds and dues, to tide over the crisis.

Among various other measures to support MSMEs, the Finance Minister also announces e-market linkage for MSMEs. These e-market linkages with be promoted to act as a replacement for trade and fair exhibitions. Also The Finance Minister said that the MSME receivables from the government and CPSEs will be released in a period of 45 days.

Benefits of these measures: –

 

All these announcements came as a measure to support the sinking MSME sector and benefit them. This will act as initial seed of money to support these small enterprises which are hit by zero cash flow due to the national lockdown. The loan provided by the government and banks will help them to buy raw materials, pay initial bills and daily wages and salary to employees. Thus serving like a working capital for running up their businesses again.

Initially banks used to avoid lending loans to these categories of enterprises and they feared that their money will not get replayed. Also these small enterprises have not much assets left to pledge to get more loans.

Thus this announcement was made to break this chain. Since the government announced that they will act as a complete guarantee for these loans thus these loans do not need any collateral. With this, banks are now expected to be more comfortable in assisting this category of borrowers because now the risk is zero.

This particular announcement is considered as the single biggest proposal in the last three portions of announcements made under the Atmanirbhar Bharat Abhiyan scheme. Small enterprises are expected to gain big benefits from this and around 45 lakh MSMEs are expected to gain from this proposal.

MSME Sector- Glorified!

The budget announce for the relief of MSME sector was a reflection of the words of concern by the Union Minister Mr. Nitin Gadkari, who shoed concerns that the MSME sector is in a dire state. He in his statement requested major industries to ease out the outstanding dues to such companies within a month.

Thus the Finance Minister’s announcements have been welcomed as a path breaking reform for the stressed MSME sector. It has been estimated that with the infusion of the promised funds with accelerate the growth of MSMEs undoubtedly and benefit the stressed MSME sector.

The E-market linkage for the MSMEs will provide an excellent and vast platform to MSME as against their non-participation in trade fairs and exhibitions due to the COVID-19.

Amongst all the announcements made the redefinition of MSMEs is considered the most important one. The definition had not been changed since the MSME Development Act of 2006 and had been long-awaited. It is considered as a big step towards the growth of MSMEs. It is believed that this newly defined MSME sector will emerge as the most vibrant and dynamic sector and will contribute towards the Self-reliant India in great way.

The MSME sector is considered as the backbone of the country as it contributes a good 30 percent of share in the Gross Domestic Product and a manufacturing input of 45 percent.

However the benefits and outcomes of all these announcements are yet to show on the ground level so we can only hope for the best and surely the condition of this sector will improve in the coming period.

To know more information about the economic relief package or the MSMEs contact the Consult Avenue team. We are a consultancy group considered as the top GST consultants in Delhi. Click here to know more.

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