Finance Minister Nirmala Sitharaman on Wednesday announced COVID – 19 Relief fund slew of liquidity measures, which include collateral-free automatic loan worth Rs 3-lakh crore. Borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover are eligible.
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The FM added that these loans will have a 4-year tenure and moratorium for 4 months. This fund will be 100% credit cover and to banks also principal and interest and the scheme can be availed up to October 31st, 2020 this benefit has been forecasted up to 45 lakh units.
After the announcement of this fund for MSME which is around 3 lakh crore which would heal like Panacea for all kinds of manufacturing and service sector comes under MSME. This figure budget is very vast so we are hoping more description under this in upcoming time but the point is that for those people who want to start their own business and also for those people who already started their business and they want to grow but they are not able to grow in the current market so this package will help for both of them obviously if we can see the companies who are already working under MSME they are already start-up in terms of manufacturing and service their position is good with the support of government to provide stress MSM with equity support government will also facilitate the provision of for rupees to 20,000 crores as the subordinate date for the subordinate that forest rest and promoters of the Amazon will be given date by banks which till then be influenced by promoters as equity in the unit subordinate that facility will lead to less stressed MSME.
So for those people who want to start their own business in the engineering sector for any kind of Engineering sector like manufacturing designing production quality assurance or another in-service sector also they can get the benefit of this fund after the descriptive instruction of this 3 lakh crore fund things will be more clear and how to get the advantage of this fund will also be clear as soon as possible so it’s just a recommendation for everyone who just 12 change their own life and who wants to grow in their own career and want to be e a businessman or who wants to earn passive income so they should have utilized the fund benefit because the focus of Indian government will be more productive by local to make it vocal.
Definitions of Micro, Small & Medium Enterprises In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:
- Manufacturing Enterprises-he enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise is defined in terms of investment in Plant & Machinery.
- Service Enterprises:-The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.
The limit for investment in plant and machinery/equipment for manufacturing/service enterprises, as notified,vide S.O. 1642(E) dtd.29-09-2006 are as under
Which kind of industries comes under MSME?
|Enterprises||Investment in plant & machinery|
|Micro Enterprises||Does not exceed twenty five lakh rupees|
|Small Enterprises||More than twenty five lakh rupees but does not exceed five crore rupees|
|Medium Enterprises||More than five crore rupees but does not exceed ten crore rupees|
|Enterprises||Investment in equipment’s|
|Micro Enterprises||Does not exceed ten lakh rupees:|
|Small Enterprises||More than ten lakh rupees but does not exceed two crore rupees|
|Medium Enterprises||More than two crore rupees but does not exceed five core rupees|
- The FM added that these loans will have a 4-year tenure and moratorium for 4 months.
- To help MSMEs further, global tenders will be banned for government procurement up to Rs 200 crore.
- The MSME sector contributes in a significant way to the growth of the Indian economy and its 6.3 crore units is often considered as the backbone of the nation.
There is also a Rs 50,000 crore equity infusion for MSMEs through Fund of Funds; to be operated through a Mother Fund and few daughter funds; this will help to expand MSME in size as well as capacity.
Among other measures for MSMEs, the FM said e-market linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions. MSME receivables from Government and CPSEs will be released in 45 days
The most important announcement with long term implications is the quantum jump in the definition of MSME, which had not been changed since the MSME Development Act of 2006 and was long-awaited. Along with the decision to not have global tenders for Government procurement up to.
So my recommendation is that we should give a push to our thinking and our dreams to start a business under MSME for availed benefit of this package because in upcoming time in Indian market our Prime Minister are enforcing to manufacture local products in huge volume and we also know about it’s a very big hand to grow are GDP by homemade product under Indian manufacturing sector also we have to grow business in any kind of sectors whatever the people have a skilled and if once we are producing qualitative products and with good services then the local products can also be a brand value in our Indian market so we have to work ok on skill of manufacturing and services so that people and utilise their skill in our MSME sector and their products will grow quickly not even in Indian market but also show in other IEA countries and I believe we have a lot of chances to grow in Indian market because people wants to grow quickly and it’s a very good chance to start their own business with Government support and we should start manufacturing and services on their relevant field.
What are credit guarantees?
Loans to MSMEs are mostly given against property (as collateral) because often there isn’t a robust cash flow analysis available. But in times of crisis, like the one currently playing out, property prices fall and this inhibits the ability of MSMEs to seek loans. It also means that banks are less willing to extend loans.
A credit guarantee by the government helps as it assures the bank that its loan will be repaid by the government in case the MSME falters. For instance, if the government provides say a 100% credit guarantee up to an amount of Rs 1 crore to a firm, it means that a bank can lend Rs 1 crore to that firm; in case the firm fails to pay back, the government will make good all of Rs 1 crore. If this guarantee was for the first 20% of the loan, then the government would guarantee to pay back only Rs 20 lakh.
The major reason behind the enforcement of m s m e sector is that to empower II the employment during this critical time of lockdown and covid-19 pandemic it’s clearly visible if they raise the fund then people will think you start their own business and if the majority of people will start their own business then obviously the employment will be generated and the lack of employment can also be removed from our country the unemployment issue has been also so before Covid pandemic so we have a good advantage to grow our self and to others also most of the experts are also saying that this fund will be helpful for majority of people of our country because micro small and medium category sector are very huge in India and very less companies comes under millions and billions turnover the approach of Indian government it is clearly positive and since enforcing employment it and local manufacturing sector.
What are the other measures?
There is a subordinate debt scheme, worth Rs 20,000 crore, which will allow loans to MSMEs that were already categorised as “stressed”, or struggling to pay back. In this case, the government’s guarantee is not full, but partial.
The third measure is the creation of a fund with a corpus of Rs 50,000 crore to infuse equity into “viable” MSMEs, thus helping them to expand and grow. The government intends to put in Rs 10,000 crore and get others, possibly institutions like LIC and SBI, to fund the remaining amount.
Improvised MSME definition
To address MSMEs fear of outgrowing in size to receive benefits given by the government to businesses categorized as per the current MSME definition, Nirmala Sitharaman on Wednesday revised the definition. Under the new definition, manufacturing and service MSMEs will be defined under a common metric that will be a mix of investment in plants and machinery or equipment and turnover.
“Almost 50 percent of Indian exports come via MSME units. The growth in MSME numbers will likewise increase their contribution to India’s export basket. This will make export-oriented fiscal and policy offerings all the more important in the future,” Pushkar Mukewar, Co-CEO, Drip Capital told Financial Express Online.
Manufacturing enterprises investing less than Rs 25 lakh, less than Rs 5 crore, and less than Rs 10 crore in plant and machinery or equipment were till now defined as micro, small and medium enterprises respectively. For services businesses, the investment threshold limit stood at less than Rs 10 lakh, less than Rs 2 crore and less than Rs 5 crore as micro, small and medium enterprises respectively.
Now, with the revised definition, combining manufacturing and service MSMEs to enjoy same benefits, investment less than Rs 1 crore and turnover under Rs 5 crore will be defined as micro-units while small businesses will be categorized based on investment less than Rs 10 crore and turnover under Rs 50 crore. Medium enterprises will be defined on the basis of investment under Rs 20 crore and turnover less than Rs 100 crore.
“The proposed definitional change for MSME sector based on turnover is progressive and is perfectly synchronized with the GSTN framework. It is time that we now implement this legislation,” said Rajnish Kumar, Chairman, SBI in a statement.
Global tenders disallowed
Addressing MSMEs’ issue of unfair competition from foreign companies in government procurement tenders due to the size and strength differ, the government said it will not allow global tenders in such schemes up to Rs 200 crore. “Necessary amendments of General Financial Rules will be affected,” according to the government document detailing the 15 relief schemes. “Through the recently revised measures, the government has instilled a lot of faith in India’s backbone – the MSME ecosystem. Particularly the collateral-free loans, and the push towards the government procurement tendering will help businesses like us, further innovate and address the upcoming needs of our country,” said Gautam Chopra, CEO, BeatO.
Clearing MSME Dues
Nirmala Sitharaman said that the government and central public sector enterprises will release all pending MSME payments in 45 days. The minister also said that fintech enterprises will be used to boost transaction-based lending using the data by the e-marketplace. This e-market for developing linkages for MSMEs will be promoted to replace trade fairs and exhibitions.
The sector, which operates mainly on a cash basis and has less access to a formal source of credit, has been under immense financial stress as operations have been curtailed due to the lockdown but overhead cost still remains to be borne by the companies, the credit rating agency said in a report.
Without a steady stream of income to cover the expenses, many companies may not survive and shut down or are on the brink of shutting down, it added.
The report’s authors emphasized that MSMEs need enhanced working capital limits as they are in need of finance to meet their regular expenditures even when they are not earning any revenue due to lockdown.
Further, all pending dues owed by public sector units and electricity distribution companies to the small businesses should be cleared.
They sought immediate release of GST (goods and service tax) and tax refunds by the government. Further, GST payment should be waived off or should be reduced by half.
The State governments should consider MSMEs’ demand for waiver of fixed electricity charges and electricity charges for the months of March and April, as production was affected due to lockdown.
Pressure on jobs
“Even while relaxations for manufacturing units were provided in the second and third phases of lockdown, clearance of formalities from district administrators is delaying operations at mills and factories. The mills nevertheless are resuming work at below normal operation rates,” the report said.
“The disturbance caused due to lockdown has not just affected the demand-supply scenario of these activities but also created pressure on the employed workers,” it added.
As a result, stress continues to surmount on around 2.75-3 crore workers involved in MSME manufacturing units, it added.
As per the report, almost 40-45 percent of the workers employed in the trading enterprises and other services categories are likely to see their jobs under pressure. The estimated number of workers employed in trading enterprises and other services is at 3.87 crores and 3.65 crores, respectively.
The report said there are more than 6.3 crore unincorporated non-agriculture MSMEs (excluding construction) in the country engaged in different economic activities, and the sector provides employment to more than 11.1 crore people.
The MSME sector comprises manufacturing, trade, and service providers. A large number of MSMEs are ancillary units catering to the needs of large industries.