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The Central Government has announced a package of Rs 20 lakh crore under Aatmanirbhar Bharat Abhiyan (ABA) for implementing reforms across various sections including Micro, Small & Medium Enterprises (MSMEs), industries, labourers, middle class, and others. This package was equal to 10% of India’s Gross Domestic Product (GDP), and it was announced in five tranches. The first tranche of the ABA covers the support of Rs 3.7 lakh crore and various reforms for the MSMEs. This article explains the impact of ABA on MSMEs.
The existing MSME classification was based on the criteria of investment in plant and machinery or equipment. So, to enjoy the MSME benefits, they have to limit their investment to a lower limit, as mentioned below:
Existing MSME Classification
|Manufacturing||Investment||< Rs.25 lakh||< Rs.5 crore||< Rs.10 crore|
|Services||Investment||< Rs.10 lakh||< Rs.2 crore||< Rs.5 crore|
These lower limits are killing the urge to grow as they are unable to scale their businesses further. Also, there has been a long-pending demand for the revision of MSME classification so that they can further expand their operations while continuing to avail the MSME benefits. Now, under the ABA, the government revised the MSME classification by inserting composite criteria of both investment and annual turnover. Also, the distinction between the manufacturing and the services sectors under the MSME definition has been removed. This removal will create parity between the sectors. The following is the revised MSME classification, where the investment and annual turnover, both are to be considered for deciding an MSME.
Revised MSME Classification
|Investment & Annual Turnover||< Rs.1 crore & < Rs.5 crore||< Rs.10 crore&< Rs.50 crore||< Rs.50 crore&< Rs.250 crore|
* Further upward revision made by the government
The revision of MSME classification allows for further scaling of business and also increases a healthy competition among businesses.
Almost all the MSMEs among businesses have been badly hit due to COVID-19. They need additional funding to meet operational liabilities, purchase raw materials, built up and resume their activities. An emergency credit line of Rs 3 lakh crore has been made available to the businesses and the MSMEs to support in this pandemic situation, with these features below:
This emergency credit line helps around 45 lakh units to resume their business operations and safeguards jobs of millions of people.
The functioning MSMEs, which are NPAs or stressed needs equity support to revive their businesses. To support the MSMEs, the Central Government will provide Rs.20,000 crore as subordinate debt. Subordinated debt means a debt which is owed to an unsecured creditor and can only be paid after the payment of claims of secured creditors at the time of liquidation.
To implement this scheme, the government will extend support of Rs.4,000 crore to Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) and then the CGTMSE will provide partial credit guarantee support to banks. Finally, the banks will give debt to the MSME promoter to infuse as equity in the unit.
The infusion of fresh capital into the business will reduce the burden on MSMEs and helps to revive the business in a faster manner. This scheme benefits around two lakh MSMEs.
MSMEs face a severe shortage of equity, and the government is going to set up a Fund of Funds (FoF) with a corpus of Rs.10,000 crore to overcome this struggle. FoF will be operated and controlled through Mother Fund and few Daughter Funds. This Fund structure will help in leveraging Rs.50,000 crore of funds at Daughter Funds level.
The MSMEs, which has growth potential and viability, will be identified to provide equity funding. Through this funding, the MSMEs can expand their size as well as capacity. Also, this will encourage MSMEs to get listed on the main board of Stock Exchanges.
When there is a global tender for government procurement, the Indian MSMEs and companies were not able to withstand the pressure of unfair competition from foreign companies. This led to the discouragement of domestic companies and MSMEs. To remove this unfair competition, the government decided to disallow global tenders in government procurement tenders up to Rs.200 crore.
This move leads to Self-Reliant India (Aatmanirbhar Bharat) and supports the Make in India initiative. This will help domestic companies in general and MSMEs in particular. Also, this creates an enormous scope for MSMEs of the country.