A Shot in the Arm for MSMEs

Union Budget 2024-25 lays bare the ambitious goals of the Narendra Modi government in refurbishing and revitalising the country’s manufacturing sector, especially Micro, Small, and Medium Enterprises (MSMEs). With the spotlight clearly on job creation and disbursal of funds to spur growth, the government has come out with a credit guarantee scheme for MSMEs by which they can avail of loans without collateral or third-party guarantee. For this purpose, a new self-financing guarantee fund will be set up to offer each applicant a guarantee cover up to ₹100 crore.

Finance Minister Nirmala Sitharaman said, presenting the Budget on July 23, “For facilitating term loans to MSMEs for the purchase of machinery and equipment without collateral or third-party guarantee, a credit guarantee scheme will be introduced. The scheme will operate on pooling of credit risks of such MSMEs, and a separately constituted self-financing guarantee fund will provide to each applicant a guarantee to cover up to ₹100 crore, while the loan amount may be larger.” She also announced that public sector banks will build “in-house capability” for credit assessment of MSMEs. The government will also slash the mandatory revenue requirement for MSMEs for submitting applications on TReDS from ₹500 crore to ₹250 crore. TReDS is an electronic platform for facilitating the financing or discounting of trade receivables of MSMEs through multiple financiers, according to a government communiqué.

Among other steps promised in the Budget, the Small Industries Development Bank of India (SIDBI), a state-run financial institution, will open 24 new branches to serve MSME clusters. Apart from all this, Sitharaman also announced a significant hike in the Mudra loan scheme, enhancing the limit of Mudra loans to ₹20 lakh from the current ₹10 lakh for those who have availed and successfully repaid loans previously taken under the Tarun category, a step that has evinced a mixed response among MSMEs since full repayment of loans is a tough condition, they aver. The Budget has also set aside funds for technology support for MSMEs and to make them competitive globally. The Centre envisages setting up export hubs in the public-private partnership mode to ensure that MSMEs and traditional artisans can sell their products and services in international markets, the finance minister said in her speech.

To rev up the industry, the Budget also announced three major employment-linked incentives and the finance minister noted, “These schemes will be based on enrolment in the EPFO [Employees’ Provident Fund Organisation] and focus on first-time employees and employers.” According to these schemes, a one-month wage will be paid to all new entrants in formal sectors. They will be paid the first month’s salary in instalments. These schemes are meant to encourage additional jobs in manufacturing. The finance minister said that incentives will be offered to both employees and employers based on their EPFO contributions in the first four years of employment. The government will reimburse employers up to ₹3,000 per month for two years towards their EPFO contribution for every additional employee they have. The government hopes these schemes will benefit at least 10 lakh youth and encourage employers to create more job opportunities. In her speech, Sitharaman also stressed enhancing women’s participation in manufacturing and other professional jobs.

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