Finance Minister Nirmala Sitharaman announces six measures for the MSME sector

FM Nirmala Sitharaman revealing details of the Covid-19 stimulus packagePIB
  • The six measures for the MSME sector are a part of the Modi government’s ₹20 lakh crore stimulus package.
  • These measures include collateral-free loans, additional debt and equity infusion.
  • The government has also announced a new policy that will shield the Indian MSME businesses from unfair competition from foreign companies.
The Indian Finance Minister Nirmala Sitharaman today announced six measures for the MSME sector as part of the Modi government’s ₹20 lakh crore stimulus package.

The six measures for the Micro, Small and Medium Enterprises (MSME) include collateral-free loans, additional debt and equity infusion. The government has also announced a new policy that will shield the Indian MSME businesses from unfair competition from foreign companies.

According to the MSME Development Act, 2006, enterprises which are in the manufacturing and service sectors qualify as MSMEs, subject to investment and turnover limits.

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“MSMEs are critical for employment preservation and growth; firing up the MSME sector is the surest way to accelerate job creation. The Finance Minister’s schemes announced today will provide relief for MSMEs that need immediate succor for their survival as well as help those enterprises that need a fillip to grow. Expanding the definition of MSMEs and introducing new thresholds based on turnover while elevating the investment ceilings for each segment are welcome." said, Arun M. Kumar, Chairman and CEO, KPMG.

"Reduction of TDS being taken by the GOI will positively infuse the much-needed liquidity in such turbulent times. Very bold and decisive steps by the Modi government." said, Rajat Prakash, Partner, Athena Legal.


Here are the six measures announced by FM Nirmala Sitharaman for the MSME sector:
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1. ₹3 lakh crore collateral-free Automatic Loans for Businesses, including MSMEs

An emergency credit line of ₹3 lakh crore for MSMEs from Banks and NBFCs. The credit line will be up to 20% of all outstanding credit as on February 29, 2020.

Tenure: 4 years, with a moratorium of 12 months on the principal payment.

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This scheme is available till October 31, 2020. There will be no guarantee free, no fresh collateral required. 45 lakh units are likely to benefit from this move.

2. ₹20,000 crore subordinate debt for Stressed MSMEs

Stressed MSMEs will get ₹20,000 crore of subordinate debt. Under this scheme, promoters will be given debt by banks, which will then be infused into the MSME as promoter equity.

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MSMEs which are stressed or classified as NPA will be eligible for this.

3. ₹50,000 crore equity infusion for MSMEs through Fund of Funds

MSMEs will be able to avail benefits of additional equity infusion of up to ₹50,000 crore via Fund of Funds.

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This Fund of Funds will be set up with a corpus of ₹10,000 crore. This fund will be operated through a Mother Fund and a Daughter Fund.

The government says that this will help in expanding MSME size as well as activity. MSMEs will also be encouraged to get listed on stock exchanges.

4. New definition of MSMEs

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The Indian government has also given a new definition of MSMEs, which increases the threshold limit for investment in these units.

This move will help the MSME sector grow in size, allowing them to expand their operations while still availing the benefits of MSME classification.

ClassificationExisting Classification (Only investment)Revised Classification (Manufacturing and Services combined)
ManufacturingServicesInvestmentTurnover
Micro< ₹25 lakh< ₹10 lakh< ₹1 crore< ₹5 crore
Small< ₹5 crore< ₹2 crore< ₹10 crore< ₹50 crore
Medium< ₹10 crore< ₹5 crore< ₹20 crore< ₹100 crore

5. Global tenders to be disallowed up to ₹200 crores
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The Indian government will now disallow tenders up to ₹200 crores from foreign companies. The government justified the decision by saying that the move is aimed at protecting MSMEs from the unfair competition from foreign entities.

"Small units can now participate in the government purchases," the Finance Minister said.

6. Other interventions for MSMEs

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E-market linkage to be provided across the board as trade fairs etc. will get rarer in the post-COVID world. All the pending dues from the government or government-owned companies will be cleared in the next 45 days.

See also:

Finance Minister Nirmala Sitharaman reveals the details of Modi's ₹20 lakh crore stimulus package