What are MSME ?
MSME stand for Micro, Small, & Medium Enterprises. MSMEs sector in India is second largest in the world (after China).
It is backbone of the India's economy (mostly for developing countries). India's MSME contribution are -
* Total Industrial Employment - 45%,
* India's total export - 50%,
* All Industrial Unit of the Country - 95%
* & More than 6000 types of products are manufactured in these Industries.
MSME are classified in two categories :
1. Manufacturing Enterprises :
Based on investment in plant & machinery / equipment -
* Micro : Rs. 2,500000
* Small : Rs. 2,500,000 to Rs. 50,000,000
* Medium : Rs. 100,000,000
2. Service Enterprises :
Based on investment in service sector -
* Micro : less than Rs. 10,000,000
* Small : Rs. 10,000,000 to Rs. 20,000,000
* Medium : Rs. 20,000,000 to Rs. 50,000,000
Finance minister announce packages for relief and credit related to bounce back businesses especially MSMEs to boost Indian economy during COVID-19 Crisis. Government main focused goal of stimulus economy would be on land, labour, liquidity & law.
Finance minister, major announcement on Getting back to Work by increasing employees and employers, businesses especially Micro, Small, Medium Enterprises to get back to production and worker back to gainful employment. Government efforts to strengthen Non-Banking Finance Institutions (NBFCs), Housing Finance Companies (HFCs), Micro Finance Sector and Power Sector. Other actions are the tax relief to business, relief from contractual commitments to contractors in public procurement and compliance relief to real estate sector were also covered.
In last five years, Government various activities for Industry and MSME -
* Enactment of the Real Estate (Regulation and Development) Act [RERA] in 2016 to bring more transparency in the Industry.
* Provide affordable and middle income housing.
* Samadhan Portal launched in 2017 - to reduce delayed payment by any Government department or PSUs with MSMEs.
* Provide fund of funds for startups under SIDBI - to boost entrepreneurship and other credit guarantee scheme s to the MSMEs.
Recently, Government announced Economic stimulus for MSMEs under Atmanirbhar Bharat :
1. Infuse Rs. 3 lakh crore Emergency Working Capital for Businesses, including MSMEs :
To provide big relief to the business through additional working capital finance of 20% of the outstanding credit as on 29 February 2020, at a concessional rate of interest in the form of a Term Loan. The available unitd up to Rs. 25 crore outstanding and turnover of up to Rs. 100 crore whose accounts are standard. The units will not have any guarantee or collateral of their own. The amount will be 100% guaranteed by the Government of India providing a total liquidity of Rs. 3 lakh crore to more than 45 lakh MSMEs.
2. Rs. 20,000 crore for Stressed MSMEs :
This amount subordinate debt for 2 lakh MSMEs which are NPA or are stressed. Government will support them with Rs. 4,000 crore to Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). Banks are expected to provide the subordinate debt to promoter of such MSMEs equal to 15% of his existing stake in the unit subject to a maximum of Rs. 75 lakh.
3. MSME Fund of Funds :
Government will provide fund of funds with corpus of Rs. 10,000 crore that will provide equity funding support for MSMEs. The funds of fund will be operated into two part a Mother and a few Daughter funds. It is expected that with ratio of 1:4 at the level of daughter funds, the fund of funds will be able to mobilise equity of about Rs. 50,000 crore.
4. New definition of MSME :
According to new definition MSME will be raising the investment limits. Changing criteria for turnover also being introduced. The difference between manufacturing and service sector also be eliminated.
5. Other factors for MSME :
Establishing e-market linkage for MSMEs through a replacement for trade fair and exhibitions. MSME receivables from Government and CPSEs will be released in 45 days.
6. Limits for Global tenders for government tenders :
General Financial Rules (GFR) of the government will be amended to disallow Global tender enquiries in procurement of of Goods and Services of value of less than Rs. 200 crores.
7. Employees provident Fund support for business and organised workers :
It is a part of PMGKY (Prime minister Garib Kalyan Yojana) under which GoI contributes 12% of salary each on behalf of both employer and employee to EPF will be extended by another 3 months for salary months of June, July and August 2020. Total benefits accrued is about Rs. 2500 crore to 72.22 lakh employees.
8. EPF contribution to be reduced for Employers and Employees for 3 months :
For next 3 months provident fund contribution for both employer and employees reduced to 10% from existing 12% under EPFO rule. This will provide liquidity of about Rs. 2250 crore per month.
9. Rs. 30,000 crore in Special liquidity Scheme for NBFC/HFC/MFIs :
This liquidity provided by RBI. Investment will be made in primary and secondary market transactions in investment grade dept paper of NBFCs, HFCs and other micro finance institutions (MFIs). This will be 100% guaranteed by the Government of India.
10. Injection of Rs. 90,000 crore Liquidity for DISCOMs :
Power Finance Corporation and Rural Electrification Corporation will infuse liquidity in the DISCOMS to the extent of Rs. 90000 crores in two equal installments. This amount will be used by DISCOMS to pay their dues to Transmission and Generation companies. Further, CPSE GENCOs will give a rebate to DISCOMS on the condition that the same way for the final consumers as a relief towards their fixed charge.
11. Partial Credit Guarantee Scheme 2.0 for Liabilities of NBFCs/MFIs :
Partial Guarantee Scheme is being changed and now will be extended to cover the borrowing of lower rated NBFCs, HFCs and other Micro Finance Institutions (MFIs). Government of India will provide 20% first loss sovereign guarantee to public sector banks.
12. Relief to Contractors :
All Central agencies like Railways, Ministry of Road Transport and Highway and CPWD will give extension of up to 6 months for completion of contractual obligations, including in respect of EPC and concession agreements.
13. Relief to Real Estate Projects :
State Governments are being advised to invoke the Force Majeure clause under RERA. The registration and completion date for all registered projects will be extended up to 6 months and may further extended by another 3 months based on the State's situation. Various statutory compliances under RERA will also be extended currently.
14. Tax Relief to Business :
The pending income tax refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership and LLPs and cooperative shall be issued immediately.
15. Tax related Measures :
* Reduction in rates of 'tax deduction at source' and 'tax collected at source'
* The due date of all Income Tax Returns for Assessment Year 2020-21 will be extended to 30 November, 2020. Similarly, tax audit due date will be extended on 31 October 2020.
* The date for making payment without additional amount under the "Vivad se Vishwas" scheme will be extended on 31
December, 2020.
* Labour charge may become higher.
* Lack of Liquidity
* Issues of coordination between States.
* Fear of new labour law formation.
* MSMEs are heterogeneous sector, where almost 90% enterprises under Rs. 1000000 (tiny enterprises), they are lesser benefited by government schemes.
Despite the many challenges, MSMEs makes India to become part of 'Global Supply Chain'. The Economic stimulus for growing MSMEs are playing biggest role in Atmanirbhar Bharat (Self-reliant India).
Reference :
E-book
PIB
To provide big relief to the business through additional working capital finance of 20% of the outstanding credit as on 29 February 2020, at a concessional rate of interest in the form of a Term Loan. The available unitd up to Rs. 25 crore outstanding and turnover of up to Rs. 100 crore whose accounts are standard. The units will not have any guarantee or collateral of their own. The amount will be 100% guaranteed by the Government of India providing a total liquidity of Rs. 3 lakh crore to more than 45 lakh MSMEs.
2. Rs. 20,000 crore for Stressed MSMEs :
This amount subordinate debt for 2 lakh MSMEs which are NPA or are stressed. Government will support them with Rs. 4,000 crore to Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). Banks are expected to provide the subordinate debt to promoter of such MSMEs equal to 15% of his existing stake in the unit subject to a maximum of Rs. 75 lakh.
3. MSME Fund of Funds :
Government will provide fund of funds with corpus of Rs. 10,000 crore that will provide equity funding support for MSMEs. The funds of fund will be operated into two part a Mother and a few Daughter funds. It is expected that with ratio of 1:4 at the level of daughter funds, the fund of funds will be able to mobilise equity of about Rs. 50,000 crore.
4. New definition of MSME :
According to new definition MSME will be raising the investment limits. Changing criteria for turnover also being introduced. The difference between manufacturing and service sector also be eliminated.
5. Other factors for MSME :
Establishing e-market linkage for MSMEs through a replacement for trade fair and exhibitions. MSME receivables from Government and CPSEs will be released in 45 days.
6. Limits for Global tenders for government tenders :
General Financial Rules (GFR) of the government will be amended to disallow Global tender enquiries in procurement of of Goods and Services of value of less than Rs. 200 crores.
7. Employees provident Fund support for business and organised workers :
It is a part of PMGKY (Prime minister Garib Kalyan Yojana) under which GoI contributes 12% of salary each on behalf of both employer and employee to EPF will be extended by another 3 months for salary months of June, July and August 2020. Total benefits accrued is about Rs. 2500 crore to 72.22 lakh employees.
8. EPF contribution to be reduced for Employers and Employees for 3 months :
For next 3 months provident fund contribution for both employer and employees reduced to 10% from existing 12% under EPFO rule. This will provide liquidity of about Rs. 2250 crore per month.
9. Rs. 30,000 crore in Special liquidity Scheme for NBFC/HFC/MFIs :
This liquidity provided by RBI. Investment will be made in primary and secondary market transactions in investment grade dept paper of NBFCs, HFCs and other micro finance institutions (MFIs). This will be 100% guaranteed by the Government of India.
10. Injection of Rs. 90,000 crore Liquidity for DISCOMs :
Power Finance Corporation and Rural Electrification Corporation will infuse liquidity in the DISCOMS to the extent of Rs. 90000 crores in two equal installments. This amount will be used by DISCOMS to pay their dues to Transmission and Generation companies. Further, CPSE GENCOs will give a rebate to DISCOMS on the condition that the same way for the final consumers as a relief towards their fixed charge.
11. Partial Credit Guarantee Scheme 2.0 for Liabilities of NBFCs/MFIs :
Partial Guarantee Scheme is being changed and now will be extended to cover the borrowing of lower rated NBFCs, HFCs and other Micro Finance Institutions (MFIs). Government of India will provide 20% first loss sovereign guarantee to public sector banks.
12. Relief to Contractors :
All Central agencies like Railways, Ministry of Road Transport and Highway and CPWD will give extension of up to 6 months for completion of contractual obligations, including in respect of EPC and concession agreements.
13. Relief to Real Estate Projects :
State Governments are being advised to invoke the Force Majeure clause under RERA. The registration and completion date for all registered projects will be extended up to 6 months and may further extended by another 3 months based on the State's situation. Various statutory compliances under RERA will also be extended currently.
14. Tax Relief to Business :
The pending income tax refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership and LLPs and cooperative shall be issued immediately.
15. Tax related Measures :
* Reduction in rates of 'tax deduction at source' and 'tax collected at source'
* The due date of all Income Tax Returns for Assessment Year 2020-21 will be extended to 30 November, 2020. Similarly, tax audit due date will be extended on 31 October 2020.
* The date for making payment without additional amount under the "Vivad se Vishwas" scheme will be extended on 31
December, 2020.
Challenges for MSMEs :
* One of the biggest challenge are lack labour due to migration (lack of migrant workers)* Labour charge may become higher.
* Lack of Liquidity
* Issues of coordination between States.
* Fear of new labour law formation.
* MSMEs are heterogeneous sector, where almost 90% enterprises under Rs. 1000000 (tiny enterprises), they are lesser benefited by government schemes.
Despite the many challenges, MSMEs makes India to become part of 'Global Supply Chain'. The Economic stimulus for growing MSMEs are playing biggest role in Atmanirbhar Bharat (Self-reliant India).
Reference :
E-book
PIB
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