Relief Packages for MSMEs

MSME sector is the only sectors with the least investment and gives more job opportunities. But due to the pandemic that we are all facing today, the most affected are the MSME sectors. This sector is the backbone of our Nation’s economy. So, when the backbone gets hurt the whole economy hurt. In case to heal the pain suffered by our economy our Government had provided many relief funds for the MSME to overcome these hard situations and they also initiated some schemes for the development and survival of the MSMEs.

Introduction

Due to the COVID -19 condition, the whole Nation is under lockdown since 24th March 2020 so many enterprises and business was affected. The Government of India released many new schemes and relief packages to encourage the MSMEs to run their business smoothly so that the economy could revive again to its normal condition, our government has spent ₹ 20 lakh crores for the relief package in which around ₹ 3.7 lakh crores related to MSME sector. If these reliefs and schemes work properly the whole Nation can survive from this pandemic.

Brief about MSME sector

MSME stands for Micro, Small and Medium Enterprises. These sectors are the backbone of the Indian economy as they supply large employment opportunities at comparatively lower cost than massive industries, and also help in industrialization of rural and backward areas thereby reducing regional imbalance sharing more double distillation of the nation’s income and wealth. Let’s see some stats; in India quite 63.40 million MSME units were registered. These sectors contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities. They also provide employment for quite 120 million persons and contributing 45% of overall export from India.

Relief for MSMEs

Due to the pandemic many sectors including the MSME sector are badly affected and it has become very difficult for them to start out their business and to satisfy their operational liabilities. As said above these sectors are the backbone of our economy so the government has given various benefits to MSME by, “Atmanirbhar Bharath Scheme” in order that they can continue their business in a sound manner.

Detail of Covid-19 relief packages for MSMEs

1.     Change in definition for MSME

The definition of MSME under the relief package has been revised. As per the sooner definition the investment for machinery and repair enterprises were different. Under the revised MSME classification the investment for machinery and repair enterprises are same and therefore, the investment limit was increased and an extra criteria of turnover was introduced. Under the new revised definition many new entities will get benefits of MSME.

The Ministry of small scale industry gave a notification dated 5th October 2006, where it mentioned that the investment in plant and machinery mentioned in respective limits is the original price, regardless of whether the plant and missionary are new or secondary, are often taken under consideration as long as the case of import missionary, the subsequent shall be included in calculating the worth,

  1. Import duty.
  2. Shipping charges.
  3. Customs clearance charges.
  4. Sales tax or value added tax.

Further, some are excluded from calculating the investment in plant and machinery under Section 7(1)(a) of MSMED Act 2006, namely:

  1. Equipments such as tools, dyes, moulds and spare parts for maintenance, and the cost of consumables stored.
  2. Installation of plant and machinery.
  3. Research and development equipment and pollution control equipment.
  4. Power generation set and extra transformer installed by the Enterprise.
  5. Bank and service charges paid to the National small industries Corporation or the state small industries Corporation.
  6. Procurement or installation of cables, wiring, bus bars, electric control panels, oil circuit breakers or miniature circuit breakers which are necessary to be used for providing electrical power to the plant and machinery are for safety measures.
  7. Gas producers’ plants.
  8. Transportation charges for indigenous machinery from the place of the manufacture to the site of the enterprise.
  9. Firefighting equipment.

Also, investment in land, building, vehicle, furniture and fixtures, office equipments, etc. shall not be considered in determining the edge limit of plant and machinery or equipment because the case could also be.

2.     3,00,000 crores collateral free automatic loans for business including MSME

Emergency credit line was made to pay up to 20% of the entire outstanding loan of MSME to banks and Non Banking financial company (NBFC) as on 29.02.2020.

Conditions for getting benefits of the relief:

  1. Borrowed with two ₹ 25 crores outstanding and turnover ₹ 100 crores will be eligible.
  2. Interest to the capped – in this, the government is to fix the upper limit of the interest rate beyond which cannot be changed.
  3. Loan to have 4 year tenor with moratorium of 12 months on principal repayment.
  4. 100% credit guarantee cover to banks and NBFCs on principal and interest to be provided by the Government of India.
  5. Scheme can be availed till 31st October 2020.
  6. No guarantee and no fresh collateral required.

To resume business activities and for safeguarding of job the government gave a total of 3,00,000 crores liquidity to more than 45 lakhs MSMEs. It is definite that the collateral free loan to the MSMEs will increase their liquidity and working capital base as well.

3.     20,000 crores subordinate debts for stressed MSMEs

  1. Any account of MSMEs which are non-performing assets (NPA) or stressed will be eligible for this scheme.
  2. ₹ 4000 crores will be given to the credit guarantee fund for micro-and small enterprises (CGTMSE) by the government of India.
  3. A partial credit guarantee support will be given to the banks by the CGTMSE.
  4. A debt will be given to the promoters of MSME by the bank which will then be influenced by promoter as equity in the unit.

Nearly 2 lakhs MSMEs will be benefited and this will also support them to restart their business and produce new jobs.

4.     50,000 crores equity infusion for MSME through funds of funds (FOF)

  1. FOF will be set up with corpus of ₹ 10,000.
  2. FOF will provide equity funding to MSME.
  3. FOF will be operated through a mother fund and few daughter funds level.

This scheme will encourage MSMEs to get listed on the main board of the stock exchange, and it also helps them to expand their size, and capacity of business.

5.     Global tenders will be disallowed up to ₹ 200 crores

  1. General financial rules (GFR) amended that global tenders of any government procurement of up to ₹ 200 crores will be disallowed.

This scheme gave more opportunities for domestic MSMEs and less competition from foreign companies, as the global tenders up to ₹ 200 crores will be awarded to the MSMEs companies.

6.     Other interventions for MSMEs

  1. All MSME receivables from the government, and central public sector enterprises (CPSEs) released within the next 45 days.
  2. As a replacement for trade fairs and exhibitions that E-marketing linkage for MSMEs to be promoted.
  3. There has been a continuous monitoring by the government on the settlement of dues to MSME vendors from the Government and Central Public Sectors Undertaking.

By this scheme the liquidity concerns will be resolved; the working capital of MSMEs will be increased.

Financial support provided to MSMEs before Covid 19 relief package

1.     Collateral free loans from the bank

The Ministry of MSME, the government of India and small industries development Bank of India (SIDBI), introduced the Credit Guarantee Fund scheme (CGS) for the MSME was launched by the government of India to make available collateral free credit to the MSME sectors. Both the existing and the new enterprises are eligible to be covered under the scheme.

2.     Technology and quality up gradation support to MSMEs

The main aim of Credit Linked Capital Subsidy scheme (CLCSS) is to facilitate technology up gradation of MSMEs by providing 15% capital subsidy on institutional finance availed by them for induction of well-established and improved technology approved subsectors or products. Enterprises that have MSME registration certificate or eligible for industrial promotion subsidy as may be prescribed by the government in this behalf. This scheme currently encompasses 51 subsectors/products. Replacement of the current equipment with the same one or purchasing of second-hand equipment shall not be entertained under the scheme

3.     It provides 50% subsidy on patent registration

The enterprises which have MSME registration certificate can claim the subsidy of 50% for patent registration by applying to the Ministry of MSMEs.

4.     Overdraft facility along with the interest rate exemption

Under the MSMED Act, 2006, any enterprise or business registered as MSME are eligible to avail the benefit of 1% on the overdraft as a part of the Credit Guarantee Trust Fund scheme. This can vary from bank to bank.

5.     Protection against delayed payments

The MSMED Act, 2006 provides for the provisions to deal with problems of delayed payments from the buyers, and the right of interest on delayed payment through conciliation and arbitration and settlement of disputes be done in a minimum time. If a buyer purchases any goods and services from the MSME then he is required to pay the payment within the date agreed between the buyer and the MSME. In case were no date is mentioned the buyer required to make payment within 15 days of the acceptance of goods or service. Further, in any cases, it should not exceed more than 45 days from the day of acceptance. The date exceeds then the buyer to pay interest to the MSME and the penal interests chargeable for delaying payment to the MSME is three times to the bank rate notified by the reserve Bank of India (RBI).

6.     Reimbursement of ISO certification charges

Any enterprise registered as MSME can get repayment for the ISO certificate charges by making an application for the Ministry of MSME.

7.     Concession in electrical bills

Enterprise with have a MSME certificate can get a confession in electrical bills by making an application to the electricity department along with the MSME certificate.

8.     Market assistance from the government and export promotion

Being categorized as micro-small, medium enterprise gives access to a large amount of platforms like exchange programs, craft fairs, exhibition, and trade related events internationally are being organized by the government of India for international cooperation on trade related aspects with different countries and fosters new business connections. The government also motivates the export of goods and services by MSMEs by the way of subsidies, tax exemptions and technical support.

Conclusion

India is a large country with the second largest population. So, it requires a large need of employment opportunities this can be solved only through MSME sectors as they give more employment opportunities with less capital investment. This will only be solved when the above said schemes are being provided without any flaws to the MSMEs. Nowadays the young generations are most likely to start their business. So, they must know the financial support by the government to start the micro-or small, medium enterprises. This article will help in knowing the benefits of registering as a MSME sector.

Frequently Asked Questions (FAQs)

  1. What are MSMEs and what does it do?
  2. What are the benefits of registering as MSMEs?
  3. What are the reliefs provided by the Government to MSMEs?
  4. Can the MSMEs survive the situation with these reliefs?
  5. In what way does MSMEs help in building our Nation’s economy?

References

  1. https://msme.gov.in/sites/default/files/MSME-AR-2017-18-Eng.pdf
  2. https://msme.gov.in/sites/default/files/gazette%201722-E-Hindi-English.pdf
  3. https://msme.gov.in/sites/default/files/ActiononCOVID-19ReliefforMSMESector.pdf
  4. https://economictimes.indiatimes.com/small-biz/sme-sector/budget-2019-15-key-takeaways-for-the-msme-sector/articleshow/70089949.cms?from=mdr
  5. https://www.quora.com/What-is-MSME-and-what-are-the-benefits-of-MSME-registration

Leave a Reply

Your email address will not be published. Required fields are marked *