In the year 2019, MSMEs contributed nearly 29% towards the GDP of India. The Union Minister for MSME Mr. Nitin Gadkari has the vision to increase contribution to over 50% in the upcoming period as he believes that MSME is the crucial pillar in making the Indian economy a $ 5 trillion economy. To substantiate his vision, the Government of India has introduced major MSMEs relief on 13th May 2020.
As most of the MSMEs get badly affected due to COVID-19 and will need additional funds to resume their operations to make their business coronavirus negative.
To Overcome this Crisis, Here are the 6 COVID-19 Reliefs Offered by the Government for MSME's
1. Definition of MSMEs
|Existing MSME Classification|
|Criteria – Investment in Plant & Machinery or Equipment|
|Manufacturing Enterprises||Investment < Rs. 25 lakhs||Investment < Rs. 5 Crores||Investment < Rs. 10 Crores|
|Service Enterprises||Investment < Rs. 10 lakhs||Investment < Rs. 2 Crores||Investment < Rs. 5 Crores|
|Revised MSME Classification|
|Composite Criteria – Investment & Turnover|
|Manufacturing & Service||Investment < Rs. 1 Crores
Turnover < Rs. 5 Crores
|Investment < Rs. 10 Crores
Turnover < Rs. 50 Crores
|Investment < Rs. 20 Crores
Turnover < Rs. 100 Crores
This redefinition will assist the MSME sector to grow and emerge as a vibrant and dynamic sector, contributing to self-reliance and employment in a big way
2. Rs. 3 Lakh Crores Collateral-Free Automatic Loans for Businesses, including MSMEs.
- The emergency credit line from Banks and NBFCs up to 20% of entire outstanding credit as 0n 29th Feb 2020.
- Borrowers with up to Rs. 25 crores outstanding and Rs. 100 crores turnover is eligible.
- Loan tenure is 4 years with 12 months moratorium for principal repayment.
- Interest to be capped (Capped Interest Rate)
- No guarantee fee, no fresh collateral
- The scheme can be availed till 31st Oct 2020
3. Rs. 20,000 Crores Subordinate Debt for Stressed MSMEs
- Functioning MSMEs which are NPA or are stressed will be eligible.
- Support of Rs. 4000 crores to CGTMSE (Credit Guarantee Trust for Micro and Small Enterprise. CGTMSE will provide partial credit Guarantee support Banks.
- Promoters of MSME will be given debt by the banks, which will then be infused by the promoter as equity in the unit.
4. Rs. 50,000 Crores Equity Infusion for MSMEs Through Fund of Funds
- A Fund of Funds (FOF) with Corpus of Rs 10,000 crores will be set up to provide equity funding for MSMEs which have growth potential & viability
- FOF will be operated through a mother fund and few daughter funds, this fund structure will help leverage Rs. 50,000 crores of funds at daughter funds level.
This will help MSME’s to expand their size and capacity and further encourage them to get listed on the major stock exchange of the country (BSE & NSE).
5. Global Tenders to be Disallowed in the Government Procurement up to Rs. 200 Crores
This will curb unfair competition from foreign companies faced by Indian MSMEs and other companies. This will help India to become a Self-reliant India & Support Make in India.
6. Other Measures for MSMEs
- E-market linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.
- Fintech will be used to enhance transaction-based lending using the data generated by the e-marketplace.
- The government has been continuously monitoring settlement of due to MSMEs vendors from Government (Gov) and Central Public Sector undertakings (CPSE’s).MSME receivables from Gov and CPSE’s to be released in 45 days.
MSME is the boon for the fresh talent in India.It is the most significant driver in India contributing to GDP considering its contribution towards manufacturing, exports, and employment, other sectors are also benefitting from it. The signature initiative by the Prime Minister of India “Make in India” has been made easy with MSME. It is taken as a backbone in making this dream a possibility.
The main hurdle in the upliftment of the MSMEs in this pandemic scenario is the nonavailability of funds. So, these relief measures for MSMEs may help them in better survival & standing.
Frequently Asked Questions
What is Credit Line?
A line of credit is a preset amount of money that a bank or credit union has agreed to lend. A person may withdraw from the line of credit whenever needed and Interest will be charged on the amount borrowed.
What is Capped Interest Rate?
A capped rate is an interest rate that is allowed to fluctuate, but which cannot surpass a stated interest cap i.e. Upper Limit.
What is Fund of Funds (FOF)?
A Fund of Funds (FOF) is a pooled investment fund that invests in other types of funds. FOF is like Mother who invests money in the future of a Daughter called Daughter fund. Mother fund collects money from others to invest in daughter and daughter again invests these funds in the equity of various others
What is Fintech?
Financial technology, also known as Fintech, is an economic industry composed of companies that use technology to make financial services more efficient. It is so inherently difficult to define the concept of Fintech because definitions change over time.