FM’s stimulus package for MSMEs

The Minister of State for Commerce & Industry (Independent Charge), Smt. Nirmala Sitharaman addressing a press conference, in New Delhi on October 14, 2016.

The Finance Minister recently announced a slew of measures to help the MSME sector. Some of these measures include changing the definition of MSMEs and removing the distinction between a services and manufacturing MSME. In addition an extra criteria of turnover has also been introduced to classify an MSME.

New Definition of MSMEs:

The definition of a micro unit shall now be classified as a unit that has an investment of less than Rs 1 crore and a turnover of less than Rs 5 crore.

The definition of a small unit shall now be classified as a unit that has an investment of less than Rs 10 crore and turnover of less than Rs 50 crore.

While the definition of a medium unit shall now be classified as a unit that has an investment of less than Rs 20 crore and turnover of less than Rs 100 crore.

While some of the other measures include providing equity infusion, emergency working capital etc. Below are a few measures announced by the finance minister.

“MSME receivables from Government and CPSEs will be released in 45 days”

1. Rs 3 lakh crore Emergency Working Capital Facility for Businesses, including MSMEs

To provide relief to the business, additional working capital finance of 20% of the outstanding credit as on 29 February 2020, in the form of a Term Loan at a concessional rate of interest will be provided. This will be available to units with upto Rs 25 crore outstanding and turnover of up to Rs 100 crore whose accounts are standard. The units will not have to provide any guarantee or collateral of their own. The amount will be 100% guaranteed by the Government of India providing a total liquidity of Rs. 3.0 lakh crores to more than 45 lakh MSMEs.

2.Rs 20,000 crore Subordinate Debt for Stressed MSMEs

Provision made for Rs. 20,000 cr subordinate debt for two lakh MSMEs which are NPA or are stressed. Government will support them with Rs. 4,000 Cr. to Credit Guarantee Trust for Micro and Small enterprises (CGTMSE). Banks are expected to provide the subordinate-debt to promoters of such MSMEs equal to 15% of his existing stake in the unit subject to a maximum of Rs 75 lakhs.

3. Rs 50,000 crores equity infusion through MSME Fund of Funds

Govt will set up a Fund of Funds with a corpus of Rs 10,000 crore that will provide equity funding support for MSMEs. The Fund of Funds shall be operated through a Mother and a few Daughter funds. It is expected that with leverage of 1:4 at the level of daughter funds, the Fund of Funds will be able to mobilise equity of about Rs 50,000 crores.

4. Other Measures for MSME

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

5. No Global tenders for Government tenders of up to Rs 200 crores.

General Financial Rules (GFR) of the Government will be amended to disallow global tender enquiries in procurement of Goods and Services of value of less than Rs 200 crores

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