Government Unveils Major Support Measures for MSMEs in Budget 2024

In a significant move to invigorate the micro, small, and medium enterprise (MSME) sector, Finance Minister Nirmala Sitharaman announced exciting new measures during her budget speech. These initiatives are designed to provide crucial financial and technological support to MSMEs, aiming to stimulate growth in this vital segment of the economy.

Sitharaman emphasized the government’s commitment to MSMEs and labor-intensive manufacturing, reflecting a proactive approach to uplift these enterprises that contribute significantly to India’s economic landscape. She stated that a credit guarantee scheme will soon be introduced to facilitate term loans for purchasing machinery without requiring collateral or third-party guarantees.

The details of this new scheme reveal that a self-financing guarantee fund will be put in place, providing a guarantee cover of up to Rs. 100 crore for each borrower. This fund is expected to alleviate the financial burdens that MSMEs frequently encounter, especially when seeking to invest in essential machinery and equipment.

Moreover, the government’s plans included a revamped assessment model for MSME credit at public sector banks. This new framework will focus on the digital footprint of MSMEs rather than relying solely on traditional metrics such as assets and turnover. By utilizing modern technology and data analytics, the government aims to create a more transparent and accessible lending environment for these businesses.

In an effort to ensure ongoing support for MSMEs during challenging times, Sitharaman announced mechanisms designed to maintain bank credit for borrowers facing stress. This measure aims to prevent MSMEs from descending into the non-performing asset (NPA) category due to circumstances beyond their control.

Expanding on financial support, the Finance Minister revealed that the Mudra loan limit would be increased from Rs. 10 lakh to Rs. 20 lakh for borrowers who have previously availed and responsibly repaid loans under the Tarun category. This adjustment is anticipated to enable more entrepreneurs to access the funds necessary for growth and expansion.

To further enhance credit availability, the government plans to open 24 new SIDBI branches across MSME clusters within three years. This expansion will bring financial services closer to enterprises that often struggle with access to banks and formal financing.

Additionally, initiatives aimed at fostering e-commerce export hubs are on the horizon. Sitharaman highlighted plans to establish these hubs in a public-private partnership (PPP) model. The goal is to assist MSMEs and traditional artisans in navigating international markets, thus broadening their reach and potential customer base.

As part of her budget speech, Sitharaman noted a reduction in the turnover threshold for mandatory onboarding on the TReDS platform. The threshold will decrease from Rs. 500 crore to Rs. 250 crore, making it easier for more MSMEs to benefit from this online platform designed to facilitate access to finance.

This commitment to enhancing the MSME landscape extends beyond loans and credit. The government also announced financial support for creating 50 multi-product food irradiation units within the MSME sector. This move is expected to improve processing and preservation capabilities, ultimately benefiting both producers and consumers.

While discussing the broader implications of these announcements, experts voiced their opinions on the impact of the budget on the MSME sector. Abhishek Gupta, Founder and Managing Partner at Pierag LLP Consulting, described the credit guarantee scheme as a promising development. He encouraged MSMEs to consider investing in high-quality machinery to leverage this financial support for growth.

Sameer Jain, Managing Director at Primus Partners, highlighted the importance of additional measures focused on environmental sustainability. He pointed out that MSMEs account for roughly 50% of the nation’s power consumption and a significant proportion of greenhouse gas emissions. Jain stressed the need for easier access to climate financing to support the transition of MSMEs towards greener practices.

Deepthi Alexander, Partner at BDO India, echoed this sentiment, praising the emphasis on manufacturing and services in the budget. She indicated that the introduction of the credit guarantee scheme, along with enhanced Mudra loans and the establishment of e-commerce hubs, is likely to stimulate revenue, create jobs, and increase wage opportunities in the sector.

Overall, the budgetary provisions represent a vital step towards ensuring the sustainability and growth of the MSME sector, which is crucial for India’s economic resilience and employment generation. With these measures, the government aims to foster a supportive environment that encourages innovation and entrepreneurship among MSMEs across the country.