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2020

Important announcement for MSME Sector of India by Finance Minister

Direct Taxation and EPF related Measures as a part of Fiscal Stimulus

MSME stands for Micro, Small and Medium Enterprises. India’s MSME base is the largest in the world after China. The sector provides a wide range of services and is engaged in the manufacturing of over 6,000 products – ranging from traditional to hi-tech items. Given the government of India’s ‘Make in India’ push, along with a push to attract greater FDI, the Indian MSMEs sector is poised for rapid growth and integration with major global value chains. In order words, MSMEs are the back bone of Indian Economy.

As we know that Finance Minister Nirmala Sitharaman provided various details on the fiscal stimulus package. The package has some important announcements for MSME sector as well. The purpose of these stimulus packages is to help MSME units restart their production and manage liquidity crises due to COVID 19 outbreak.

Significance of MSME Sector in Indian Economy :

  • There are around 63.4 million MSME units throughout the geographical expanse of the country.
  • MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India's manufacturing output.
  • They have been able to provide employment to around 120 million persons.
  • Contribute around 45% of the overall exports from India.
  • More than 6000 types of products are manufactured in these industries.
  • Consist of 95% of all industrial units of the country.
  • Provides 45% of India’s Total Industrial Employment.

 

Change in the Definition of MSME to include more Establishments :

  • MSMEs are defined as per definition outlined in Micro, Small, and Medium Enterprises Development Act, 2006.
  • This Act was introduced by the Government of India in 2006 to properly regulate MSME sector.
  • MSMEs are normally defined in terms of investment in Plant and Machinery / Equipment etc.
  • However, in recent Press Conference, the Finance Minister proposed to revise the definition of MSME to make it more inclusive so that maximum number of business enterprises can take advantage of the benefits announced for MSMEs. Refer to the below table to understand revised MSME Definition.
  • Revised MSME Definition

 

  Existing MSME Definition

Revised MSME Definition

(Applicable to both Manufacturing and Service)

Defined in terms of Only Investment Criteria Applicable Lower of Investment or Turnover Criteria Applicable
Enterprise Type Manufacturing Enterprises Service Enterprises Investment Criteria Turnover Criteria
Micro Less than 25 Lakh Less than 10 Lakh Less than 1 Crore Less than Rs. 5 Crore
Small Less than 5 Crore Less than 2 Crore Less than 10 Crore Less than 50 Crore
Medium Less than 10 Crore Less than 5 Crore Less than 20 Crore

Less than 100 Crore


Emergency Credit Line to MSMEs:

  • Business/MSMEs have been badly hit due to covid 19 and they need additional funding to meet operational liabilities built up, buy raw material and restart business.
  • Hence, ‘Emergency Credit Line’shall be extended to Businesses/MSMEs from Banks and NBFCs up to 20% of entire outstanding credit as on 29/02/2020.

 

Details of Emergency Credit Line:

Eligible MSMEs Borrowers up to 25 Crore outstanding and Rs. 100 crore turnover.
Tenure of Loan 4 Years
Moratorium on Principal Repayment 12 months
Collateral Requirements No Fresh Collateral required.
Credit Guarantee 100% credit guarantee cover to Banks and NBFCs on principal and interest by GoI.
Last Date of availing this Scheme 31stOctober 2020
Additional Changes

No Additional charges like guarantee fee etc.


Note: As per GoI, approximately 45 Lakh units shall be able to resume business activity and safeguard jobs due to this scheme.

Subordinate Debt for Stressed MSMEs:

  • GoI will facilitate provision of Rs. 20,000 Cr. as subordinate debt to stressed MSMEs.
  • As per GoI, two lakh MSMEs are likely to benefit from this scheme.
  • Functioning MSMEs which are NPA or are stressed will be eligible.
  • Govt. will provide a support of Rs. 4000 Cr. to the SIDBI managed Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
  • CGTMSE will provide Credit Guarantee support to Banks.
  • Promoters of MSMEs will be given debt by banks, which will then be infused by promoters as equity in the Unit.

 

Equity Infusion for MSMEs through Fund of Funds:

  • Fund of Funds with Corpus of Rs. 10,000 crore will be set up.
  • This will provide equity funding for MSMEs with growth potential and viability.
  • FoF will be operated through a Mother Fund and few daughter funds.
  • Fund structure will help leverage Rs. 50,000 cr at daughter funds level.
  • This scheme will help to expand MSME size as well as capacity.
  • It will encourage MSMEs to get listed on main board of Stock Exchange.

 

Disallowance to Foreign Players in Tenders upto Rs. 200 Crore:

  • Indian MSMEs have often faced unfair competition from foreign companies.
  • Therefore, Global tenders will be disallowed in Government procurement tenders up to Rs. 200 Crore.
  • Necessary amendments of General Financial Rules will be effected.
  • This will be a step towards Self-Reliant India and support Make in India.

 

Other Interventions for MSME:

  • MSMEs currently face problems of marketing and liquidity due to COVID.
  • E-market linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.
  • Fintech will be used to enhance transaction based lending using the data generated by the e-marketplace.
  • Government has been continuously monitoring settlement of dues to MSMEs vendor from Government and Central Public Sector Undertaking.
  • MSME receivables from Gov and CPSEs to be released in 45 days.

 

Special Liquidity Scheme for NBFCs/HFCs/MFIs:

  • NBFCs/HFCs/MFIs are finding it difficult to raise money indebt markets.
  • Government will launch a Rs 30,000 crore Special Liquidity Scheme.
  • Under this scheme investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs.
  • This scheme will supplement RBI/Government measures to augment liquidity.
  • Securities will be fully guaranteed by GoI.
  • This will provide liquidity support for NBFCs/HFC/MFIs and mutual funds and create confidence in the market.

 

Partial Credit Guarantee Scheme 2.0 for NBFCs, HFCs, MFIs:

  • NBFCs, HFCs and MFIs with low credit rating require liquidity to do fresh lending to MSMEs and individuals.
  • Existing PCGS scheme to be extended to cover borrowings such as primary issuance of Bonds/ CPs (liability side of balance sheets) of such entities.
  • First 20% of loss will be borne by the Guarantor i.e., Government of India.
  • AA paper and below including unrated paper eligiblefor investment (esp. relevant for many MFIs).
  • This scheme will result in liquidity of Rs 45,000 crores.

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