Key boosts for MSMEs in India after Union Budget 2024-25
There is excellent news for MSMEs—micro, small, and medium enterprises—in India, as the government has suggested a number of policies to help MSMEs in their steps to grow and get involved in the domestic and international markets, recognizing the significant assistance companies make to the nation's economic development.
Union Budget 2024-25 Theme:
Speaking on the budget theme, Smt. Sitharaman stated that we are concentrating on employment, skill development, MSMEs, and the middle class in this budget, with an eye toward the entire year and beyond. With a federal outlay of ₹2 lakh crore, she launched the Prime Minister's package of five programs and initiatives to help 4.1 crore youth find work, develop their skills, and access other opportunities during a five-year period. ₹1.48 lakh crore has been set aside this year for skill development, employment, and education.
An Overview of Budget Initiatives for MSME Growth and Support 2024:
A number of initiatives for the Micro, Small, and Medium Enterprises (MSME) sector have been announced in the Union Budget 2024-2025. To encourage labor-intensive manufacturing, especially for MSMEs, the government established a self-financing guarantee fund that offers each applicant up to ₹100 crore in guarantee coverage. This calculated action attempts to support ongoing loan flow, particularly for MSMEs in times of financial crisis.
A sum of ₹ 22,137.95 crore has been intended in the budget for the micro, small, and medium-scale enterprises. Illustrating the capacity of the government to support such a vital sector within the economy. Of this, ₹ 21,868.45 crore would go to the Central Sector Schemes and Projects, which more than showcases its direct commitment to help enable the growth of MSMEs.
Also, ₹257.40 crore is allotted to the Center's establishment expenditure, providing efficient administration and support for these initiatives. A smaller amount of ₹12.10 crore is allocated for other Central Sector Expenditures, highlighting the comprehensive strategy used to meet different operating requirements. This budgeted allocation highlights the need for both structural and financial assistance to improve MSMEs' competitiveness and their contribution to India's economic development.
8 Key initiatives to boost MSMEs in Union Budget 2024-25:
There are new initiatives for micro, small, and medium enterprises that were highlighted in the union budget for 2024-25 as follows:
- Term loans for MSMEs to buy machinery and equipment will be made easier via a credit guarantee program, which eliminates the need for collateral or third-party guarantees.
- Public Sector Banks (PSBs) will move away from depending on outside assessments of MSME creditworthiness and instead build internal skills to boost credit accessibility. They will also take the lead in developing a new methodology for evaluating lending that is based on the digital footprints of MSMEs.
- During times of financial stress, a new system will be implemented to guarantee that bank credit to MSMEs is maintained.
- For business owners who have successfully paid back loans under the "Tarun" category, the Mudra loan cap would be increased from ₹10 lakh to ₹20 lakh.
- An additional 22 CPSEs and 7000 additional businesses will come on board the TReDS when the turnover threshold, above which firms are mandatorily registered with TReDS, is reduced to ₹ 250 crore from ₹ 500 crore.
- Within three years, SIDBI plans to cover all of the major MSME clusters by expanding its branch network and offering direct loans to MSMEs.
- In the MSME sector, 50 multi-product food irradiation facilities would be established with financial assistance.
- The establishment of e-commerce export hubs through public-private partnerships (PPP) will enable MSMEs and traditional craftspeople to sell their products in international markets.
Let's get details of the eight initiatives for MSMEs in the Union Budget 2024 in detail:
1. Simpler Loan Access
- The New Credit Guarantee Scheme:
In times of financial stress, a new credit guarantee program has been put up to make it easier for manufacturing MSMEs to get term loans. The goal of this program is to facilitate small companies access to financing for the purchase of machinery and equipment. Since the program is self-financing, no government assistance will be given.
Depending on the size of the term loan, MSMEs are required to pay upfront and yearly guarantee costs. When defaults reach a predetermined threshold, the government will further offer a backstop guarantee. A specific guarantee fund with a coverage cap of ₹100 crore per application would be created to support this initiative.
This strategy may greatly lower the financial obstacles that many MSMEs encounter when growing or modernizing their businesses, which could encourage more investment and sector expansion.
- Improved Credit Assessment
A more contemporary and inclusive method of evaluating MSME loan applications is also addressed in the budget. Instead of depending on outside assessments, public sector banks will now create their methodologies for determining an MSME's creditworthiness.
Digital footprint scoring will be used in these new models, enabling banks to take into consideration MSMEs without official accounting systems. A larger group of MSMEs may find it simpler to obtain loans as a result of this modification in evaluation approach, especially those who would have had trouble with more conventional procedures.
2. Assistance to MSMEs in Difficult Times -
- Support for MSMEs Under Stress:
A new framework was created in the budget to assist MSMEs during this stressful time. The program seeks to guarantee continuous credit flow to companies that are temporarily facing difficulties, including those that are categorized as special mention accounts (SMAs), by offering government-backed guarantees. The goal of this policy is to increase MSMEs' resilience and keep them from turning into non-performing assets (NPAs). To help MSMEs obtain more loans, a government-backed guarantee system would be put in place.
- The Mudra Loan Limit has been raised:
Borrowers who have successfully repaid prior loans under the 'Tarun Plus' category will have their maximum Mudra loan ceiling under that category raised from ₹10 lakh to ₹20 lakh.
Growing companies may receive more significant financial support as a result of this rise, allowing them to undertake bigger initiatives or investments. This program seeks to assist the expansion goals of prosperous MSMEs while promoting financial discipline by giving responsible borrowers access to more substantial loans.
3. Improved Cash Flow Control
- The TReDS Platform's expansion:
The government calls for lowering the turnover threshold for required buyer onboarding on Trade Receivables Discounting System (TReDS) platforms from ₹500 crore to ₹250 crore in order to improve MSMEs' access to working capital. With this modification, medium-sized businesses will now be eligible to be suppliers, and 22 more CPSEs and 7,000 more businesses will join the platform. By making these adjustments, more MSMEs will be able to efficiently manage their working capital and lessen the strain on their cash flow.
4. SIDBI Services Expanded
- New Divisions within MSME Groups:
In order to better assist MSMEs, the Small Industries Development Bank of India (SIDBI) will increase its footprint across the country. In order to reach 168 of the 242 key MSME clusters in three years, the proposed growth plans call for the opening of 24 new branches this year.
By offering direct credit services to MSMEs, these new branches will facilitate small firms' access to specialized financial services and support across different locations. This increased visibility may be essential in meeting the distinct requirements of MSMEs across the nation, which could result in more equitable regional growth for the MSME industry.
5. Assistance for MSMEs Associated with Food
- Units for Food Irradiation:
The government would fund the establishment of 50 multi-product food irradiation units within the MSME sector. The establishment of 100 food safety and quality testing facilities with NABL accreditation will also be facilitated. MSMEs involved in the food industry can enhance product quality and comply with regulations by having access to quality testing facilities.
6. Increase in Foreign Sales
Exporting e-commerce Public-private partnerships will be used to create hubs that will help MSMEs and traditional craftspeople reach global markets. Under a single legislative and logistical framework, these hubs will provide a simplified ecosystem that includes services connected to trade and export.
This program has the prospect of significantly boosting small enterprises' and craftsmen's export potential, developing new sources of income.
Boosting MSME Growth: Formalization and Expanding Credit Guarantees
Over the past year, the number of micro, small, and medium-sized businesses (MSMEs) in India has increased significantly, from 1.65 crore to 5 crore registered. MSMEs, which account for about 30% of the country's GDP, 36% of manufacturing output, and 44% of exports, are essential to the Indian economy. This increase has helped close large gaps in formalization and finance availability for them. Additionally, the industry employs about 21 crore people.
Through the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE), which has provided credit guarantees totalling ₹4 lakh crore over the past two years, the government has achieved significant strides in meeting the credit needs of MSMEs.
The government is now aiming to provide ₹5 lakh crore in credit guarantees for MSEs under the CGTMSE over the next two years, building on this momentum. The ₹2.6 lakh crore in total loan guarantees offered over 22 years are increased by this program. For micro business loans up to ₹5 lakh, the CGTMSE offers an 85% guarantee; for loans between ₹5 lakh and ₹5 crore, the guarantee is 75%.
With guarantees of up to 85% for loans up to ₹ five crore, special provisions are available for women, SC-ST entrepreneurs, and companies operating in aspirational districts. The program provides 80% coverage for loans up to ₹50 lakh in areas like the Northeast, Jammu & Kashmir, and Ladakh.
Conclusion
All of the above are important initiatives to increase micro, small, and medium enterprises growth, formalization, and competitiveness, including new export hubs, better loan accessibility, and more credit guarantees. These budgetary allocations are likely to improve the sector's contribution to GDP, employment, and exports. Also, MSMEs prepare themselves for stability and sustainable growth in the years ahead. At the same time, challenges such as compliance with new safety rules continue.
This acquires significance since MSMEs play a crucial role in preserving macroeconomic stability and socioeconomic equilibrium in addition to making a substantial contribution to India's process of economic growth and structural transformation.
To motivate MSMEs onto a higher and more sustainable growth orbit, there needs to be a greater emphasis on the convergence of entrepreneurship, education, credit, and technology in the MSME ecosystem at this critical moment when India is on the verge of a tipping point. Although this seems like a challenging task, it can be completed if all stakeholders work together as development partners and coordinate their efforts.
Additional Read:
MSME loan subsidy scheme - CGTMSE
Emerging Trends in MSME Financing Through CGTMSE
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