Introduction: In the light of covid-19 pandemic, the whole country is in lockdown from 24 March 2020. Due to Corona virus pandemic, economy is in very danger zone, all factories, malls & shops are closed and over the coming month jobs are at high risk because firms are looking for some reduction in manpower. To boost the economy and safeguards the jobs GOI has announced a relief package of Rs.20 lacs cr. (i.e. 10% of GDP) of which around 3.7 lakh crore related to MSME sector.
Brief about MSME Sector: The MSME sector is back bone of Indian economy structure. In India around 63.40 million MSME units registered, which contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities. The MSME sector provide employment around 120 million persons and contribute 45% of overall export from India. MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth.
Relief package announced to MSME: As earlier said MSME industries are backbone of economy, these industries are badly affected due to COVID-19 and it’s becomes difficult for them to restart their business and meet their operational liabilities. Govt. of India has given various benefits to MSME through “Atmanirbhar Bharat Scheme” so that they can resume their business and safeguards jobs.
Details of relief are as fallow:
1. Change of definition of MSME: Under the relief package the definition of MSME has been revised. As per the earlier definition the criteria, investment limit in plant and machinery for manufacturing and service enterprises are different. Under the revised MSME classification, investment limit for the both sector are same and additional criteria of turnover also introduced. Under the new revised definition a lot of new entities will get benefit of MSME that earlier was not getting. The comparison of existing and revised MSME classification criteria provided below:-
Existing and revised MSMEs classification
| Existing MSMEs classification | Revised MSME classification | ||
| Criteria: Investment in plant &machinery or equipment | Criteria: Investment and annul turnover | ||
| Classification | Mfg. Enterprise | Services enterprises | Manufacturing & Services |
| Micro | Investment< Rs. 25 Lacs | Investment < Rs. 10 Lacs | Investment< Rs. 1 crore & Turnover <
Rs. 5 Crores |
| Small | Investment < Rs. 5 crores | Investment < Rs. 2 Crores. | Investment < Rs.10 crore & Turnover < Rs. 50 Crores |
| Medium | Investment <
Rs.10 Crores. |
Investment < Rs. 5 Crores. | Investment < Rs. 20 crore & Turnover < Rs. 100 Crores |
√ Impact: The proposed revised definition for MSME sector based on turnover is progressive and is perfectly synchronized with the GST framework. Further, the elimination of distinction between manufacturing and service sector is a welcome move for the MSMEs sector.
Note: Computation of Investment limit in Plants & Machineries or in Equipment’s for the purpose of MSMED Act, 2006: As per Ministry of Small Scale industries notification dated 5th day of October, 2006, the investment in Plant and Machinery referred to in respective limits is the Original Price, irrespective of whether the plant and machinery are new or second handed, shall be taken into account provided that in the case of imported machinery, the following shall be included in calculating the value, namely
i. Import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port)
ii. Shipping charges
iii. Customs clearance charges
iv. Sales tax or value added tax (know Good and Service Tax)
Further, as per the said notification, the following are excluded while calculating the investment in Plant and Machinery
i. Equipment such as tools, jigs, dyes, moulds and spare parts for maintenance and the cost of consumables stores
ii. Installation of plant and machinery
iii. Research and development equipment and pollution controlled equipment
iv. Power generation set and extra transformer installed by the enterprise
v. Bank charges and service charges paid to the National Small Industries Corporation or the State Small Industries Corporation
vi. Procurement or installation of cables, wiring, bus bars, electrical control panels (not mounded on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures
vii. Gas producers plants
viii. Transportation charges (excluding GST) for indigenous machinery from the place of the manufacture to the site of the enterprise
ix. Charges paid for technical know-how for erection of plant and machinery
x. Such storage tanks which store raw material and finished produces and are not linked with the manufacturing process and
xi. Firefighting equipment.
Further, investment in Land, Building, Vehicles, Furniture and fixtures, Office Equipment etc. shall not be considered in determining the threshold limit of plant and machinery or Equipment as the case may be.
2. 3 lakh crores collateral-free automatic loans for Business including MSME:
√ Emergency credit line to business/MSME from banks and NBFC up to 20% of entire outstanding loan as on 29.02.2020
√ Conditions for availing the relief:
√ Borrower with up to Rs. 25 crore outstanding and turnover Rs.100 crore will be eligible.
√ Loan to have 4 year tenor with moratorium of 12 month on principal repayment. It means interest on loan have to be paid from starting.
√ Interest to be capped- It means upper limit of interest rate to be fixed by govt. beyond which cannot be charged.
√ 100% credit guarantee cover to Banks and NBFCs on principal and interest to be provided by GOI.
√ Scheme can be availed till 31st Oct 2020.
√ No guarantee fee and no fresh collateral required.
√ Impact: Total of 3 lakh core liquidity (100% guaranteed by the Government of India) will be provided to more than 45 lakhs MSMEs which shall help in resuming business activities and safeguarding of jobs. Needless to say, collateral free loans to MSMEs will boost their liquidity and working capital base as well.
3. 20000 Crore subordinate debt for stressed MSMEs:-
√ MSMEs whose accounts are NPA or stressed will be eligible for this scheme.
√ GOI will provide a support of RS.4000 crore to CGTMSE.
√ CGTMSE will provide partial credit guarantee support to banks.
√ Promoters of MSME will be given debt by banks which will then be infused by promoter as equity in the unit.
√ Impact: This scheme is likely to benefit to 2 lakh MSMEs. This will support them to restart their business and produce new jobs.
4. 50000 crore Equity infusion for MSME through funds of funds:-
√ Funds of funds will be set up with corpus of Rs.10000.
√ FOF will provide equity funding to MSME.
√ FOF will be operated through a mother fund and few daughter funds level.
Fund structure will help leverage Rs. 50000 cr of funds at daughter level.
√ Impact: This will help them to expand their size and capacity of business and will encourage MSMEs to get listed on the main board of the Stock Exchange.
5. Global tenders will be disallowed up to Rs.200 crores :-
√ Global Tenders for any government procurement of up to Rs 200 crore will be disallowed via the amendment of General Financial Rules (GFR).
√ Impact: Now Onwards the global tenders’ up to Rs 200 crores will be awarded to MSMEs companies, which means more opportunity for domestic MSMEs and less competition from foreign companies.
6. Others interventions for MSMEs:-
√ All MSME receivables from Govt. and CPSEs to be released in the next 45 days.
√ E-marketing Linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.
√ Government has been continuously monitoring settlement of dues to MSME Vendors from Government and Central Public Sectors Undertakings.
√ Impact: This will increase the inflow of working capital and resolves the liquidity concerns for MSMEs.
Financial support provided to MSMEs before Covid-19 relief package:
1. Collateral free borrowing- The Govt. of India set up trust know as Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) view to facilitate flow of credit to the MSE sector without the need for collaterals/ third party guarantees. MSMEs under this can avail maximum collateral free credit (Fund based / non fund based – LC, BG etc) up to 200 lakhs from notified financial institutions. The maximum gurantee cover is as under
| Category | Maximum extent of Guarantee cover | ||
| Up toRs. 5 lakh | Above Rs.5 lakh up to Rs.50 lakh | Above Rs.50 lakh up to Rs.200 lakh | |
| Micro Enterprises | 85% of the amount in default subject to a maximum of Rs.4.25 lakh | 75% of the amount in default subject to a
maximum of Rs.37.50 lakh |
75% of the amount in default subject to a maximum of Rs.150 lakh |
| Women entrepreneurs/ Units located in North East Region (incl. Sikkim) (other than credit facility up to 5 lakh to micro enterprises) | 80% of the amount in default subject to a
maximum of Rs.40 lakh |
||
| All other category of borrowers | 75% of the amount in default subject to a maximum of Rs.37.50 lakh | ||
| MSE Retail Trade Credit : 10 Lakh to 1 Cr | 50% of the amount in default subject to a maximum of Rs.50 lakh | ||
Annual Guarantee Fee: To promote the borrower for good repayment track record, Annual Guarantee Fee (AGF) would be charged form the borrower on the guarantee amount for the first year and on the outstanding loan amount subsequent year, instead of amount for credit facilities sanctioned / renewed to MSMEs on or after April 01, 2018 as detailed below:
| Category | Annual Guarantee Fee (AGF) [% p.a.] | |
| Women, Micro Enterprises and Units covered in North East Region | Others | |
| Up to Rs.5 Lakhs | 1.00 + Risk Premium as per extant guidelines of the Trust | |
| Above Rs.5 Lakhs and up to Rs.50 Lakhs | 1.35 + Risk Premium as per extant guidelines of the Trust | 1.50 + Risk Premium as per extant guidelines of the Trust |
| Above Rs.50 Lakhs and up to Rs.200 Lakhs | 1.80 + Risk Premium as per extant guidelines of the Trust | |
2. Reimbursement of ISO certification Fee- of India is implementing ISO: 9001/14001/HACCP Certification Reimbursement Scheme for Micro & Small Enterprises (MSEs) for reimbursement of certification expenses. Under the scheme MSMEs can claim reimbursement of 75% of the certification expenses up to a maximum of Rs.75,000/- (Rupees seventy five thousand only) to each unit as one-time reimbursement only to those MSEs which have acquired Quality Management Systems (QMS)/ISO 9001 and /or Environment Management Systems (EMS)/ ISO14001and / or Food Safety Systems (HACCP) Certification.
3. Reimbursement of credit rating Fee: – To Under the Performance & Credit Rating Scheme as per the turnover of MSME a percent of Rating Agency charges are reimbursed by Ministry of SSI through NSIC. This support helps the MSME to ascertain the strengths and weaknesses of their existing operations and take corrective measures to enhance their organizational strength. CARE, ONICRA, ICRA, CRISIL, INDIA RATINGS, BRICKWORK RATINGS and SMERA are the empanelled rating agencies. The slab of turnover and fee to be reimbursed are as below-
| Turnover | Fee to be reimbursed by Ministry of MSME |
| Upto 50 Lacs | 75% of the fee or Rs. 25,000 (whichever is less) |
| Above Rs. 50 to 200 lacs | 75% of the fee or INR30,000 (whichever is less) |
| More than Rs. 200 lacs | 75% of the fee or INR40,000 (whichever is less) |
4. Interest Equalization Scheme: Under the “Interest Equalization Scheme on Pre and Post Shipment Rupee Export Credit”, the Interest Equalization @ 5% per annum is available to all MSME exporters across all their merchandise exports. This scheme has been extended till 31/03/2021. (RBI/2019-20/231 DOR.Dir.BC.No.69/04.02.001/2019-20 Dated 13/05/2020)
5. Technology Upgradation support: Credit Linked Capital Subsidy Scheme (CLCSS) for technology upgradation, provides an upfront capital subsidy for upgrading technology for new or existing Micro, Small and Medium Enterprises (MSMEs). The scheme provides upfront capital subsidy of 15 per cent (on institutional finance of upto Rs 1 crore availed by them) to MSMEs, including tiny, khadi, village and coir industrial units, for induction of well-established and improved technologies in specified sub-sectors/products approved under the scheme. This scheme currently encompasses 51 sub-sectors/products. Replacement of the current equipment with the same ones or purchasing of second-hand equipment shall not be entertained under this scheme (As per Revised Guidelines on CLCSS for Technology Upgradation of SSI).
Conclusion: India is a labour intensive country requiring for lot of employment opportunities which can be
Successfully achieve through the micro, small and medium sector as it requires less capital investment providing employment for more number of people. The MSME will grow and expand very smoothly if the above support provided to them timely and unbiased way without any procedural intervention. In India currently around 63.4 million MSME units and many young people want start their own business so they must know the financial support and benefit provided to MSMEs. In this article have try to explain in a simple way the financial benefit and support provided to MSMs sector and we hope this will helps all those who have had any confusion regarding this.
Author of this article can reach through Email-caanoopmaurya93@yahoo.com
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