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July 27, 2020

Benefits and Recent key announcement for the MSME’s made by the Government

by Mahesh Mara in Compliance Law

Benefits and Recent key announcement for the MSME’s made by the Government

Recently the government has made many announcement to boost the MSME sector. MSME stands for Micro, Small and Medium Enterprise, they are the backbone of the Indian economy. MSME are also known as small scale industries. With around 63.4 million 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 and contribute around 45% of the overall exports from India. The growth of the Indian economy depends upon this sector. In this article we will be discussing the various benefits and measures announced by the government.

Definition of MSME:

As per the new guide lines laid down by the Finance Minister on 13th May 2020, the definition of the MSME has been changed and an additional criterion of turnover has been introduced for the MSME. The new MSME definition is as follows:

  • A micro unit is one with investment up to Rs 1 crore and turnover less than Rs 5 crore,
  • The small unit has investment up to Rs 10 crore and turnover up to Rs 50 crore, and
  • The medium-firm will be one with an investment of up to Rs 20 crore and turnover under Rs 100 crore.

The new definition applies for both service and Manufacturing unit. The MSME must fulfill both conditions of investment and turnover in order to take registration. Only Manufacturers and Service Providers are eligible to take registration Traders / Wholesalers are not covered under MSME’s. The definition has been amended on 1st June 2020 which shall be applicable from 1st July 2020.

Benefits of MSME Registration:

  1. Easy Availability of Collateral Free loans from banks
  2. 50% subsidy for patent registration
  3. Simplification in getting Licenses, approvals and other registrations
  4. Reimbursement of ISO Certification
  5. Subsidy on NSIC Performance and Credit ratings:
  6. Concession in electricity bills and may more
  7. 15% subsidy on import of fully automatic machinery under bank loan
  8. Gets protection against delayed payment through MSME samadhan
  9. Registered MSMEs gets tariff subsidies and tax and capital subsidies
  10. MSME registration helps in getting government tenders
  11. MSME gets compensation on ISO certificate expenditure

Recent measures announced by finance minister for MSMEs:

1. Collateral free Working Capital Loan of Rs. 3 Lakh Crores:

The government has created an emergency credit line for the MSME’s. The business/MSMEs can borrow up to 20% of their existing outstanding credit as on 29.2.2020 from banks and NBFCs. The facility is available to entities having:

  • Outstanding bank exposure up to Rs.25 Crores AND
  • Turnover of upto Rs. 100 Crores

Others features:

  1. The tenure of the loan would be 4 years with a moratorium of 12 months on Principal repayment.
  2. 100% credit guarantee cover to Banks and NBFCs on principal and interest.
  3. The MSME’s and Businesses can avail the scheme till Oct 31, 2020
  4. No guarantee, fee or fresh collateral is required for availing benefit under this scheme.

2. Rs.20, 000 crores subordinate debt for stressed MSMEs:

In order to consider the need of equity for stressed MSME’s, Government of India will provide support of Rs. 20,000 Crore as subordinate debt. Conditions for the scheme are as below:

  1. Only functioning MSMEs which are NPA or stressed will be eligible under this scheme.
  2. Promoters of the MSMEs will be given Debt by banks which will in turn infuse by the promoter in the form of Equity in the Unit Others
  3. Government will provide support of Rs. 4000 crore to CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprise)
  4. Banks will get partial Credit Guarantee support from CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprise)

3. Equity infusion through Fund of funds:

MSMEs face severe shortage of Equity, to meet this requirement, a fund of funds with Corpus of Rs 10,000 crores will be set up which will provide equity funding for MSMEs with growth potential and viability. This will:

  1. Be operated through a Mother Fund and Few Daughter Funds.
  2. Help leverage Rs. 50,000 Crore of Fund at daughter funds level that is government will infuse 10,000 Crore and rest 40,000 Crore will be done by other investor, ventures or some private entities etc.
  3. Encouragement for MSME to get listed on Stock Exchange so that they can sale of Equity and regain the Invested fund.

4. Global Tenders up to Rs. 200 Crore:

In order to protect the MSMEs from unfair competition from foreign companies, the Government has decided to take a major step towards self-reliant India by disallowing Government procurement tenders up 200 Crores for foreign companies. This step would give major boost to medium enterprises in India which faces tough competition at hands of foreign players.

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