The Game Changing Announcements for MSMEs

Recently, the central government announced major reforms which will be used to motivate entrepreneurs from Micro, Small and Medium Enterprises (MSMEs) segment. A series of five press conference by the finance minister as a follow up of Prime Minister Narendra Modi's announcement of Aatmanirbhar Bharat Abhiyan (Self-Reliant India Campain) showcased the role and importance of Indian MSMEs. Well, such priority given to this sector is an evidence of it being the backbone of India’s economy. Since the COVID Pandemic impact is severe on the economy, it becomes inevitable to work on motivating MSMEs for a much needed economic revival.

The finance minister while announcing the reforms claimed the changes were aimed to make the Indian economy self-reliant. Here are the few important reforms or measures announced by the finance minister which shows the importance of MSMEs and Government's focus towards this sector.

New MSME Definition

Firstly, the MSME Definition itself has been reworked. The low threshold in MSME definition has created a fear among MSMEs of losing out on the benefits and hence killing the urge to grow. There has been a long-pending demand for revisions. We at SMEStreet have also written in our reports that the MSME definition should be reconsidered. The distinction between the manufacturing sector and the services sector under the MSME definition has been removed. The following is the revised MSME classification, where both the investment and annual turnover to be considered for defining MSME.

We are working on a quick industry feedback activity on the new revised MSME definition. We are getting enormous messages from entrepreneurs and very soon we will be compiling a detailed note on how the industry has reacted to Govt's new MSME definition. So, I request you to stay tuned to SMEStreet for further update.  

Three Lakh Crore for MSME Collateral Free Loans 

Collateral free automatic loan for SMEs up to 3 lakh crore which means not a single MSME unit needs to pay any collateral or guarantee for the loans availed under this scheme. They will also not be required to pay any principal component of the loan for the first year. The tenure of the loan will be for 4 years. This will benefit 45 lakh units resume business activities and safeguard jobs, said the FM.

Stressed MSMEs /Businesses in Aatmanirbhar Bharat

Rs 20,000 crore subordinated debt for stressed MSMEs facing an equity problem. It will help functioning MSMEs which are either NPA (non-performing assets) or are economically stressed. Around Rs 2 lakh MSMEs qualify under this category. The government will provide Rs 4,000 crore partial credit guarantee support to banks and promoters of the MSMEs will be given debt by banks in the form of equity infusion.

The Much awaited Fund of funds

The wait for the Fund of Funds is finally over. Though we were expecting this as a major announcement in the recent Union Budget of this year, the Finance Minister has only given a hint on this. Moreover, when SMEStreet reached out to MSME Minister Mr. Nitin Gadkari on the topic of Fund of Funds, he did mention that very soon it will be announced and proper planning have been under process. So this was around the UNion Budget 2020. Now with this recent marathon of press conferences, Nirmala Sitharaman has also introduced a Fund of Funds for the infusion of Rs 50,000 crore as equity into MSMEs.

This will benefit MSMEs with potential and viability by providing them greater support in capacity expansion and for the purpose of market-listing. This will cover MSMEs that are performing very well and can use the opportunity to expand.

Possible Inclusion of Small Retailers in MSME Category

Well, this news is undoubtedly underplayed. We have heard MSME Minister, Mr. Gadkari mentioning that small retailers are also likely to be part of the MSME segment. If this becomes reality, it will surely be going to make a huge impact in terms of the numbers of MSMEs in India. We expect that if this happens, the MSME data will going to touch at least four times from the present-day number.