The 2024-25 Union Budget of India has introduced several measures to support the Micro, Small, and Medium Enterprises (MSMEs) sector.
Key Announcements MSMEs in Budget 2024:
1. Credit Guarantee Scheme:
Through the new credit guarantee scheme, MSMEs in the manufacturing sector can borrow for purchasing machinery and equipment, without the need for collateral or third-party guarantees. The government will set up a separate self-financing guarantee fund for the same, which will guarantee cover of up to ₹100 crore per applicant. The loan amount may even exceed the guarantee amount. However, the borrower will bear the guarantee fee. This will aid MSMEs in upgrading their technologies and operations.
2. Mudra Loan Limit Enhancement:
Increased limit for Mudra loans under the ‘Tarun’ category from ₹10 lakh to ₹20 lakh for entrepreneurs who have successfully repaid previous loans. The ‘Tarun’ category covered loans from ₹5 lakh to ₹10 lakh.
3. SIDBI Branch Expansion:
SIDBI will open 24 new branches to serve all major MSME clusters within three years.
4. E-Commerce Export Hubs:
E-Commerce Export Hubs will be set up in a public-private partnership (PPP) mode to help MSMEs and traditional artisans sell their products in international markets.
5. Credit Assessment Model:
According to Avendus Capital report, MSMEs face a credit gap of $530 billion, and only 14% of 6.3 crore small businesses have access to credit. Banks often reject MSME loan applications due to inadequate credit history. That pushes the firms to obtain it at a higher interest rate or through informal sources. The government and the industry have been working on a solution for higher rejection rates. In this budget, the government announced that the public sector banks will develop a new credit assessment model, based on the scoring of digital footprints of MSMEs. It will improve assessment for eligibility which was earlier based on assets or turnover criteria. [TS1] This will bridge the gap and improve credit accessibility to a greater extent.
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6. Support During Stress Periods:
The government announced that a stressed MSME unit will continue to get a credit guarantee from a government supporter fund. This will ensure a smoother flow of credit to even the stressed firms, which are in the Special Mention Account (SMA) stage, This will be available for reasons beyond their control. This measure will prevent them from slipping into non-performing (NPA) status. It will not only help the firms but also the banking sector
7. TReDS Onboarding:
The turnover criteria for onboarding on the TReDS platform reduced from ₹500 crore to ₹250 crore, bringing in more companies on the platform. Medium enterprises will also be included in the scope of the suppliers. Thus more invoices will get discounted and that will help improve cash flows, enhance credit accessibility and reduce finance costs.
8. Food Quality:
Setting up food irradiation units and quality and testing labs for MSMEs. These steps can help food-sector MSMEs adhere to international quality norms that can open doors for the market abroad.
9. Employment-Linked Incentive Scheme:
There are three kinds of schemes to boost the hiring of those entering the labour force for the first time. With different conditions and amounts, each scheme has unique features. In Scheme A, the newly entered employee gets one month’s wage as a subsidy up to Rs. 15000. It will be paid in three instalments. In Scheme B, both the employer and the newly entered employee get incentives. They will receive it for four years in this manner – Year 1 and 2 = 24%, Year 3 = 16% and Year 4 = 8%. It will be distributed between them equally. However, it applies only for firms in the manufacturing sector. In Scheme C, only the employer gets incentives to the tune of Rs. 3000 per month for the additional employee hired. The scheme will be for two years. Since the MSME sector employs the most in the country, these steps may incentivise MSMEs to hire skilled workers and reduce the unemployment rate in the country. Ideally, employer incentives have more potential than those given to employees.
10. Tax Simplification:
Steps like simplification of capital gains taxation, abolishment of angel tax, ease in litigation-related matters, reduction of customs duty on various raw materials, etc. will also help MSMEs to a great extent. For example, customs duty on 25 critical minerals such as cobalt, copper, nickel, lithium, and silicon have been exempted. These minerals are used in various industries like automobiles, auto components, energy sectors, etc. Some products like MDI for spandex yarn, leather, garment accessories, etc. have seen duty reduction/exemption which will help textiles sector.
Where is the Government Spending?
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For 2024-25, the allocation to the MSME Ministry has been maintained at the similar levels of the previous year, i.e. ₹22,138 crore. However, over the years, the allocation has jumped 8 times from less than ₹3000 crore in 2015-16. For 2024-25, there has been a change in the allocation of funds to various schemes and programmes.
For example, allocation to the Prime Minister Employment Generation Programme (PMEGP), Guarantee Emergency Credit Line (GECL) and Procurement and Marketing Support Scheme (PMSS) has come down by more than 20% compared to 2023-24 while it has increased towards Khadi, Village and Coir Industries, Entrepreneurship cum Skill Development Programme (ESDP), Raising and Accelerating MSME Performance (RAMP) and PM Vishwakarma scheme.
Of the total allocation, 44% is towards GECL, 22% towards PM Vishwakarma scheme and 10% in PMEGP. GECL is an additional working capital facility fully guaranteed by the government. PM Vishwakarma Yojana began in September 2023 to provide end-to-end support for artisans and craftspeople in scaling up their products and services. Under PMEGP, the government provides financial assistance to entrepreneurs for setting up new micro-enterprises.
This apart, the government has announced a start-up fund of ₹1 lakh crore in the interim budget this year. The fund will provide an interest-free long-term loan for boosting research & development and innovation in various sunrise sectors.
The announcements and budgetary allocation maintain a balance between short-term and long-term measures. Measures such as credit guarantees, Mudra loans, TReDS onboarding, and tax simplification will start showing results in the short run while benefits from the likes of employment-linked incentive schemes, skill development and technology upgradation will kick in over the next two to four years.
India’s growth is tied up with the growth and development of MSMEs. In the ‘MSME Segment Review 2023’ episode of the MSME Talk Podcast, we discussed certain challenges the sector faced. Those included subdued demand, sluggish export growth, access to credit, delayed payments and lack of skilled manpower. Consumption demand is low, and delayed payments continue to be a significant issue. However, the government is actively addressing the challenges of credit access and skills. We hope the government will continue to support this sector until we unlock the full potential of MSMEs and drive economic growth.
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