Government Proposes Eight New Measures In Support For Promotion Of MSMEs

As anticipated, the government has announced an all-round and continuous support to strengthen the backbone of the Indian economy, the Micro, Small and Medium Enterprises (MSMEs) sector on Tuesday during its budget presentation for FY 2024-25. From Credit Guarantee to increased MUDRA loan to stress fund and new SIDBI branches in MSME clusters, Union Finance Minister Nirmala Sitharaman proposed eight new measures that would transform the sector for ‘Viksit Bharat’.

“This budget provides special attention to MSMEs and manufacturing, particularly labour-intensive manufacturing,” stated Union Minister for Finance and Corporate Affair Nirmala Sitharaman while presenting Union Budget. She said that the government has formulated a package that covers financing, regulatory changes and technology support for MSMEs to help them grow and also compete globally, as mentioned in the Interim Budget announced in February this year.

Hailing the budget, Prime Minister Narendra Modi said that the Union Budget gives a fillip to manufacturing as well as infrastructure. It would give new strength to economic growth while maintaining continuity. MSMEs are part of the four major themes in the Budget and the Union Finance Minister proposed the following specific measures in support of MSMEs during her first Union Budget of third term of of the government led by Prime Minister Narendra Modi.

Credit Guarantee Scheme For MSMEs In The Manufacturing Sector

The Union Finance Minister proposed a credit guarantee scheme for facilitating term loans to MSMEs for purchase of machinery and equipment without collateral or third-party guarantee. Sitharaman said that the scheme will operate on pooling of credit risks of such MSMEs. She said that a separately constituted self-financing guarantee fund will provide, to each applicant, guarantee cover up to ₹100 crore, while the loan amount may be larger. The borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance.

PSBs To Develop New Assessment Model For MSME Credit

To make credit more accessible to MSMEs via a new, independent, and in-house mechanism, Smt. Sitharaman proposed that Public Sector Banks (PSBs) will build their in-house capability to assess MSMEs for credit, instead of relying on external assessment. They will also take a lead in developing or getting developed a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy. “This is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. That will also cover MSMEs without a formal accounting system,” stated the Union Finance Minister.

Credit Support To MSMEs During Stress Period

The Union Finance Minister also proposed a new mechanism for facilitating continuation of bank credit to MSMEs during their stress period. While being in the ‘special mention account’ (SMA) stage for reasons beyond their control, MSMEs need credit to continue their business and to avoid getting into the Non-Performing Assets (NPA) stage. Credit availability will be supported through a guarantee from a government promoted fund, proposed Smt. Sitharaman. 

MUDRA Loans Enhanced To ₹20 Lakh

The Finance Minister proposed to enhance the limit of MUDRA loans to ₹20 lakh from the current ₹10 lakh for those entrepreneurs who have availed and successfully repaid previous loans under the ‘Tarun’ category. The industry was waiting for one such move since some time.

Reiterating the government’s commitment to employment and self-employment, the Prime Minister noted the success of the PLI scheme and highlighted the Employment Linked Incentive scheme which will create crores of jobs. Under the scheme, the first salary of the first job of a youth will be borne by the government. He also mentioned provisions for higher education and the scheme for internships for 1 crore youth. “Working in the top companies under the scheme, the young interns will find new avenues of possibilities”, the Prime Minister said. 

Emphasizing the commitment to creating entrepreneurs in every city, every village and every household, the Prime Minister talked about raising the limit of collateral-free loans under the Mudra Loan from Rs 10 lakhs to 20 lakhs which will greatly benefit small businessmen from all sections of the society. 

Turnover Threshold For Buyers Halved For Mandatory Onboarding In TReDS

For facilitating MSMEs to unlock their working capital by converting their trade receivables into cash, Sitharaman proposed to reduce the turnover threshold of buyers for mandatory onboarding on the TReDS platform from ₹500 crore to ₹250 crore. This measure will bring 22 more Central Public Sector Enterprises (CPSEs) and 7,000 more companies onto the platform. Medium enterprises will also be included in the scope of the suppliers.

Asserting the commitment to make India the manufacturing hub of the world, the Prime Minister emphasized the links of MSME with the middle class of the country and its employment potential for the poor segment. To create big strength for small industries, the Prime Minister informed about the new scheme announced in the Budget that will increase the ease of credit for MSMEs. “The announcements in the Budget will take manufacturing and exports to every district”, he said, “e-Commerce, export hubs and food quality testing will give new momentum to One District-One Product programme.”

The Prime Minister underlined that the Union Budget 2024-25 brings numerous opportunities for India’s start-up and innovation ecosystem. He gave examples of a one thousand crore rupees corpus fund to vitalize the space economy and the abolition of the angel tax.

New SIDBI Branches In MSME Clusters

The Union Finance Minister proposed that SIDBI will open new branches to expand its reach to serve all major MSME clusters within 3 years, and provide direct credit to them. With the opening of 24 such branches this year, the service coverage will expand to 168 out of 242 major clusters, Sitharaman stated.

New MSME Units For Food Irradiation, Quality & Safety Testing

The Finance Minister proposed financial support for setting up of 50 multi-product food irradiation units in the MSME sector will be provided. Setting up of 100 food quality and safety testing labs with NABL accreditation will be facilitated.

E-Commerce Export Hubs To Access To International Markets

To enable MSMEs and traditional artisans to sell their products in international markets, the Union Finance Minister proposed that E-Commerce Export Hubs will be set up in public-private-partnership (PPP) mode. These hubs, under a seamless regulatory and logistic framework, will facilitate trade and export related services under one roof, the Union Finance Minister stated.

Reacting on the budget, Chairman of the ANAROCK Group Chairman Anuj Puri said that covering a wide spectrum of Indian sectors, the first Union Budget of Modi 3.0 focuses on MSMEs, employment, skilling, youth, and the middle class. It will generate a mixed bag of reactions from different sectors. From a real estate point of view, the first thing that stands out is the government’s continued focus on infrastructure with an allocation of over INR 11.11 lakh crore - nearly 3.4% of India’s GDP. Improved infrastructure drives real estate growth.

Puri said that credit guarantee scheme for the MSMEs will help provide impetus to overall industrial development, and this can have a rub-off effect on the real estate sector. The pandemic had a catastrophic impact on the MSME sector, which slowed down the demand for affordable housing since 2020. Affordable housing demand may gain momentum once the economic impact of the pandemic subsides for this target audience.

“The f focus on rural and urban job creation, if effective, may provide some boost to affordable housing, which has given a tepid performance since the pandemic. The move can help stir up housing demand in not just the top 7 cities but also the tier 2 and 3 cities,” he added.

Echoing similar thoughts, Co-Founder of Infra.Market Aaditya Sharda said that the budget's overall direction sets a positive tone, and government initiatives to support MSMEs, including a credit guarantee scheme and a digital footprint-based credit assessment model, align with efforts to enhance infrastructure development and urban growth. The Union Budget 2024-25 emphasizes infrastructure and urban development, offering significant opportunities for start-ups and construction companies through increased capital spending and support for state and private investments. Initiatives like 'Cities as Growth Hubs' pave the way for start-ups to innovate and contribute to India's growth.