A special economic package for the MSME was announced on May 12, 2020, by the prime minister of India Shri Narendra Modi to support them during the covid 19 pandemic. The economic package announced by the prime minister was Rs 29 lakh crores which is nearly equal to 10 % of our GDP. This relief package was announced to give the boost towards achieving ‘Atmanirbhar Bharat’. it mainly focuses on liquidity, land, labour and laws. Here this package has been provided to cater to several sectors such as MSMEs, cottage industry, middle class, labourers, and so on. The Economic package was later discussed by the finance minister Shri Mata Nirmala Sitaraman on May 13, 2020.
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All about this package which is specially provided for the MSMEs is discussed below :
New or Revised criteria for the classification of MSME :
Now the government of India has changed the definition and criteria for micro, small and medium enterprises. And the revised definition of the MSMEs is applicable from July 1, 2020. it reclassified the maximum limit so that it covers more enterprises under its ambit. We know that in the old definition of MSMEs there were different limits for the manufacturing and the service sectors.
The new enterprises maintain the same limits for the manufacturing and service sectors. since more enterprises can get more benefits like loans and the schemes which are provided by the government for the MSMEs.
The new definitions or criteria for the MSMEs are mentioned below :
For the micro-enterprises: the investment in the company or the plant and machinery should be less than Rs 1 Cr. and the annual turnover should be less than Rs5 Cr.
For the Small enterprises: the investment in the firm and in the machinery should be less than Rs10 Cr and the yearly turnover should be not more than Rs 50 Cr.
For the Medium enterprises: the investment in the plant or in the machinery should not be more than Rs 50 Cr and the annual turnover be less than Rs 250 Cr.
So these are the revised criteria for MSMEs and according to this classification, the owners can avail of the registration.
- There is a Credit Guarantee Scheme for the subordinated debt which is also known as the ‘Distressed assets Fund subordinate dept for stressed MSMEs’.
And here there is provided with the credit product guarantee under this scheme so it is known as the ‘Credit guarantee scheme for subordinated debt’ (CGSSD). Here there is a provision which provides for Rs 20000 Cr subordinated debt for 2 Lakh MSMEs which are already under NPA and we can say they are under stress. And one more thing is that the banks will also provide the subordinate debt to the promoters of the MSMEs which is equal to 15 % of the promoter’s existing stake.
90 % guarantee coverage will be provided by this scheme and the remaining 10 % will be covered by the concerned promoters.
The main objective of this scheme is to provide the personal loan requirements to the promoters of the stressed MSMEs.
A gist of the nature of Assistance –
MSMEs’ promoters will be provided with a credit which is equal to 15 % of the stake.
The rate of interest under the scheme will be capped.
The maximum tenure of the repayment is 10 yrs.
There is a provision for the moratorium for payment of principle which is a maximum of 7 yrs.
Eligibility criteria :
Those MSMEs are applicable whose standard accounts are in continuous operation as of 31 March 2018. Standard accounts and NPA accounts are both during the fiscal year 2018-2019 and the fiscal year 2019-2020.
The promoters of the MSMEs will be provided with a personal loan.
Only the stressed MSMEs units are eligible under this scheme.
More about the 3 lakh crore loans to MSMEs :
As we know that the covid 19 pandemic hit the MSMEs sector fiercely, and due to this MSMEs were under stress. So to boost these sectors by additional funding to meet their operation liabilities like building up, buying raw materials and then restarting their business again, to fulfil these liabilities the government introduced a relief package of Rs 3 lakh crore to the MSMEs. under this relief package, MSMEs will not have to provide any type of guarantee or collateral to avail the benefits under the scheme.
Here one more thing provided by the government to the MSMEs is that it provides 100 % credit guarantee cover on principle to the banks and the NBFC.
There is no need to provide the collateral for the loans and this scheme was available till October 31, 2020.
It is assumed that nearly 45 lakh units can take this benefit under the relief scheme and they can continue their business activity.
Know the Nature of Scheme :
Under the scheme, it provides the additional capital finance of 20% of outsourcing credit as of 29 Feb 2020.
Can get concessions on the rate of interest.
it has a tenure of 4-year loan
And it is a moratorium on principal repayment of 12 months
All MSMEs are applicable.
The MSMEs whose accounts standard, are available for units up to Rs 25 crore outstanding and the turnover is up to Rs 100 crore.
They can apply through the banks, DFS and NCGTC.
Equity infusion for MSMEs :
As we know the MSMEs are encountering a severe shortage of Equity. The equity funds for SMEs are provided by the Fund of Funds which has a potential for growth and viability. It is expected under this scheme that would facilitate the equity financing of Rs 50000 crore in the MSMEs sector.
The main objective of the scheme is to boost the MSMEs to grow further and these get listed on the stock exchanges. According to this scheme, the government has set up a fund of funds with a corpus of Rs 10000 crore that will provide the MSMEs with equity funding support. A mother and a few daughter funds will operate the fund of funds. Here it is expected that the fund of funds can mobilise the equity of about R50000 crore.
Here in this scheme, there is a mother fund in which the government of India will be the anchor investor. a fund can be invested from the mother fund to the daughter fund which will deploy investment to the targeted MSMEs.
Eligibility for the fund of funds :
all enterprises under MSMEs are eligible and can apply for investor funds on board and can be registered with the fund of funds.
- The government introduces the General financial Rules(GFR) that would disallow the global tenders in the procurement of goods and services whose value should be less than Rs 200 crore. We know that the MSMEs and the other firms or enterprises have to face the unfair fray from the foreign enterprises so to support the Indian MSMEs, global tenders would not be allowed in the procurement under the government.
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We have discussed the detailed analysis on the given topic so now we have a broad knowledge of why the schemes were launched and what are the main reasons for launching and how this relief scheme supported the MSMEs.