Benefitting from the Government Schemes for MSMEs

 

In February 2021, Union MSME Minister Nitin Gadkari said that there are nearly 6.5 crore MSMEs in India, which contribute about 30% to the GDP. Now, with such a big share, it would not be wrong to refer to them as the ‘backbone of the country.’

But an online poll conducted a month before that, by a community social media platform LocalCircles, said that 68% of respondents in the survey had not benefited from the government's MSME and startup-centric schemes in the past 12 months, a period devastated by the COVID-19 pandemic.

If only 22% of MSMEs and startups had managed to benefit from the schemes, imagine the potential that they hold in contributing to the GDP of the nation.

On 13 May 2020, the government also launched various incentives under the ‘Atmanirbhar Bharat’ initiative which were a part of a comprehensive package of Rs 20 lakh crore- almost 10% of the GDP, against the backdrop of the pandemic.

In this article, we shall be looking at the various schemes launched by the central government for MSMEs.

First, we look at the various schemes launched which are aimed at providing the credit facility to MSMEs:

1.     Pradhan Mantri Mudra Yojana (PMMY): Perhaps the most successful credit availment scheme launched in the past 5 years, this is a scheme set up by the govt. through MUDRA (a subsidiary of SIDBI) that helps in facilitating micro credit up to Rs. 10 lakh to small business owners. MUDRA supports financial intermediaries like public and private sector banks and NBFCs to extend loans to the non-corporate, non-farm sector income generating activities of micro and small entities with credit need up to Rs. 10 lakhs. The interventions have been named 'SHISHU', 'KISHOR' and 'TARUN' to signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur.

2.     Credit Linked Capital Subsidy for Technology Upgradation (CLCSS): To facilitate technology to MSMEs through institutional finance for induction of well established and proven technologies in the specific and approved 51 sub-sector/products, an upfront subsidy of 15% on institutional credit up to Rs 1 Crore (i.e. subsidy cap of Rs.15 lakh) for identified sectors and technologies is being provided under this scheme. Both up-gradation projects (with or without expansion) and new projects are eligible.

3.     Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE):  Ministry of MSME and SIDBI jointly established a trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Scheme for Micro and Small Enterprises. The corpus of CGTMSE is contributed by GOI and SIDBI. 75% of the loan amount to the bank is guaranteed by the Trust Fund. Collateral free loan up to a limit of 1 cr is available for individual MSE on payment of guarantee fee to the bank by the MSE.

4.     2% Interest Subvention Scheme for MSMEs 2018: Encouraging both manufacturing and service enterprises to increase productivity and to provide incentives to MSMEs for on boarding on to the GST platform which helps in formalization of the economy, while reducing the cost of credit, this interest relief will be calculated at two percentage points per annum (2% p.a.), on the outstanding balance from time to time from the date of disbursal/withdrawal or the date of notification of this scheme, whichever is later, on the incremental or fresh amount of working capital sanctioned or incremental or new term loan disbursed by eligible institutions.

5.     Rs. 20,000 crore Subordinate Debt for Stressed MSMEs: Promoters of the MSMEs will be given credit equal to 15% of their stake (equity plus debt) or Rs 75 lakh whichever is lower. The maximum tenure for repayment will be 10 years. There will be a moratorium of 7 years on payment of principal. 90% guarantee coverage for the sub-debt would come from the scheme/trust and the remaining 10% from the concerned promoter.

6.     Interest Subsidy Eligibility Certificate (ISEC): The Interest Subsidy Eligibility Certificate (ISEC) Scheme is an important mechanism of funding the khadi programme undertaken by khadi institutions. It was introduced to mobilise funds from banking institutions for filling the gap between the actual fund requirements and the availability of funds from budgetary sources.

7.     Prime Minister Employment Generation Programme (PMEGP):  A subsidy will be provided at the rate of 15-35% of the maximum cost of the project based on categories of beneficiaries under the scheme. The maximum cost of the project/unit admissible in the manufacturing sector is Rs. 25 lakhs and in the business/service sector, is Rs 10 lakhs.

Second, we now look at the various schemes launched which are aimed at providing the technical up-gradation and quality certification to MSMEs :

1.     A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE): To create new jobs and reduce unemployment, promote entrepreneurship culture in India, boost grassroots economic development at the district level and to facilitate an innovative business solution for unmet social needs, this is an excellent scheme which aims at setting up 80 Livelihood Business Incubators. A one-time grant of 100% of the cost of Plant & Machinery other than the land and infrastructure, or an amount up to Rs 1 cr would be provided under this scheme.

2.     Marketing Support/Assistance to MSMEs (Bar Code): Under this scheme, the Ministry conducts seminars and reimburses registration fees for barcoding to encourage MSMEs to use bar-codes. Reimbursement of the registration fee (one time and recurring for 3 years) for barcoding, financial assistance for reimbursement of 75% of the one-time registration fee and 75% of the annual recurring fee for the first three years paid by MSMEs to GS1 India for the use of barcoding would be provided.

3.     Lean Manufacturing Competitiveness for MSMEs: Financial assistance is provided for the implementation of lean manufacturing techniques, primarily the cost of lean manufacturing consultant (80% by GOI and 20% by beneficiaries). Lean manufacturing consultants (LMCs) will raise bills for services provided to Special Purpose Vehicles (SPV). SPV will, in turn, pay the first installment of 20% to the LMC and will obtain reimbursement from the NMIU. Thereafter, the Ministry of MSME will transfer funds to the NMIU. SPV payments to LMC will be on a milestone basis in 5 tranches, each of 20% of the amount fixed.

4.     Technology and Quality Upgradation Support to MSMEs: The scheme advocates the use of energy-efficient technologies (EETs) in manufacturing units to reduce the cost of production and adopt clean development mechanisms. Setting up Carbon Credit Aggregation Centers, encouraging MSMEs to acquire product certification and licenses from National & International bodies are some of the highlights of this scheme. Various reimbursements are provided for cluster-level energy audit and preparation of DPR models.

5.     Entrepreneurial and Managerial Development of SMEs through Incubators: The objective of the scheme is to provide early-stage funding to nurture innovative business ideas (new indigenous technology, processes, products, procedures, etc.) that could be commercialized in a year. The scheme provides financial assistance for setting up business incubators.

6.     Financial Support to MSMEs in ZED Certification Scheme: The objectives of the scheme include inculcating Zero Defect & Zero Effect practices in manufacturing processes, ensuring continuous improvement and supporting the Make in India initiative. The ZED Certification scheme is an extensive drive to create proper awareness in MSMEs about ZED manufacturing and motivate them for assessment of their enterprise for ZED and support them. After ZED assessment, MSMEs can reduce wastages substantially, increase productivity, expand their market as IOPs, become vendors to CPSUs, have more IPRs, develop new products and processes etc.

Apart from this, there are schemes aimed at entrepreneurship and skill development:

1.     Entrepreneurship Skill Development Programme (ESDP): Entrepreneurship Development Programmes are being organized regularly to nurture the talent of youth by enlightening them on various aspects of industrial activity required for setting up MSMEs. These EDPs are generally conducted in ITIs, Polytechnics and other technical institutions, where skill is available to motivate them towards self-employment.

2.     Assistance to Training Institutions (ATI): The assistance is provided to National level training institutions operating under the Ministry of MSME, namely, NIMSME, KVIC, Coir Board, Tool Rooms, NSIC & MGIRI in the form of a capital grant for the creation and strengthening of infrastructure and support for entrepreneurship development and skill development training programmes. Assistance is also provided to existing State-level EDIs for the creation or strengthening/expansion of their training infrastructure.

Apart from this, the government had launched a huge bailout package for MSMEs at the peak of the pandemic on 13th May 2020, when the lockdown was in full force and no business was being conducted. Here are highlights of the same:

1.     Changing the definition of MSMEs to widen their scope: The government decided to change not only the basic definition of MSMEs but also to end the difference between the manufacturing and services sector. The definition would have investment and annual turnover as criteria. Units having investment less than ₹ 1 crore and turnover less than ₹5 crore would be called Micro units. Investment between ₹1 crore and ₹ 10 crore and turnover of ₹ 5 crore to ₹ 50 crore would be categorized as Small Enterprises. Units having investment between ₹10 crore but up to ₹ 20 crore and turnover between ₹ 50 crore and ₹100 crore would be known as Medium Enterprises.

2.     Rs 3 Lakh crore Collateral Free Automatic loans for MSMEs: Emergency Credit Line of Rs 3 Lakh crore to MSMEs to restart their businesses was provided from Banks and NBFCs up to 20% of entire outstanding credit as of 29.02.2020. There would be no guarantee fee and no fresh collateral required for availing these loans.

3.     Rs 20,000 crore Subordinate Debt for stressed MSMEs: Functioning stressed MSMEs or NPA ones needed equity support. So the government launched this scheme to give debt to promoters who will, in turn, infuse this as equity in the business.

4.     Global tenders disallowed up to 200 crore: To prevent unfair competition from foreign companies, government has disallowed procurement tenders up to Rs 200 crore to help MSMEs increase their businesses.

5.     Rs 30,000 crore Special Liquidity Scheme for NBFCs/HFCs/MFIs: To help NBFCs/HFCs/MFIs find debt in primary and secondary markets, the government launched a special liquidity scheme of Rs 30,000 crore wherein investment would be made in investment-grade debt paper of NBFCs/HFCs/MFIs. These securities would be fully guaranteed by GOI.

6.     Rs 90,000 crore liquidity injection for DISCOMs: The government announced this scheme to tackle the revenue problem faced by power distribution companies in wake of a huge cash flow problem due to shortened demand. In this scheme, loans were given against state guarantees for the exclusive purpose of discharging liabilities of DISCOMs to GENCOs.

7.     Rs 50,000 crore liquidity through TDS/TCS rate reduction: To provide more funds at the disposal of the taxpayers the rate of TDS for non-salaried specified payments made to residents and rates of TCS for specified receipts were reduced by 25% of the existing rates. This measure resulted in releasing liquidity of Rs. 50000 crore.

8.     Rs 45000 crore partial credit guarantee scheme (PCGS) 2.0 for NBFCs:  NBFCs with low credit rating required liquidity to do cash lending to MSMEs and individuals. The original PCGS scheme was extended to cover borrowing such as primary issuance of bonds of such entities. Under this scheme, the first 20% of the loss was to be borne by the guarantor which was GOI and this scheme resulted in the liquidity of Rs. 45000 crore.

1.     Nitin Gadkari 30% remark: https://www.businesstoday.in/current/economy-politics/centre-aims-to-increase-msme-share-in-gdp-to-40-nitin-gadkari/story/430526.html

2.     Online survey link :https://www.businesstoday.in/current/economy-politics/68-start-ups-msmes-didnt-benefit-from-centre-schemes-covid-year-localcircles/story/428051.html

3.     Atmanirbhar package : https://www.thehindubusinessline.com/economy/policy/fm-announces-3-lakh-crore-collateral-free-automatic-loan-for-businesses/article31574953.ece