Atmanirbhar Bharat’: New Mantra for MSMEs

Atmanirbhar Bharat’: New Mantra for MSMEs

Executive Summary

• Finance Minister, Nirmala Sitharaman, announced Rs 3 lakh crore bailout package for the Micro Small And Medium Enterprises (MSMEs). The move was taken to benefit about 45 lakh MSMEs across the country amid the distressing circumstances due to coronavirus pandemic.
• In order to re-boot the SMEs, the Centre has changed the definition of MSME bringing in companies with investment of up to Rs 1 crore and turnover of Rs 5 crore under the ambit of micro-companies.
• With Rs 50,000 crore equity infusion into MSMEs through funds-of-funds, the move will help the small companies to widen its scale besides enjoying the benefits for MSMEs.
• The companies will be provided a 12-month moratorium on loan repayment with an assurance of 100 per cent credit guarantee cover by the government, if any MSME fails to repay the loan.

Introduction

Indian economy thrives through the means of enterprise creation as one of the prime movers of the economy. In this direction, the “Make in India and Made in India” movement is integral to entrepreneurship development across the country. Therefore, Micro, Small and Medium Enterprises (MSMEs) play a vital role in strengthening the Indian economy. MSMEs have been contributing to spreading entrepreneurial culture through business innovations. The unique feature of MSMEs is that they are widely dispersed across sectors of the economy producing a diverse range of products and services to meet local as well as global markets. Needless to mention that the contribution of MSME is 8 percent of GDP, 45 percent of manufacturing output and 40 percent of exports of the country and uniquely they are the least investment-driven with high returns. Employment creation is next to agriculture, thus the MSME sector has the potential of tapping individuals to associate with economic activities by way of self-employment.

Aatmanirbhar Bharat Abhiyan: Relief Measures Revival of MSME’s

• Collateral free automatic loan for SMEs up to 3 lakh crore: which means not a single MSME unit needs to pay any collateral or guarantee for the loans availed under this scheme. They will also not be required to pay any principal component of the loan for the first year. The tenure of the loan will be for 4 years. This will benefit 45 lakh units resume business activities and safeguard jobs, said the FM.
• Rs. 20,000 crore subordinated debt for stressed MSMEs facing an equity problem. It will help functioning MSMEs which are either NPA (non-performing assets) or are economically stressed. Around Rs. 2 lakh MSMEs qualify under this category. The government will provide Rs. 4,000 crore partial credit guarantee support to banks and promoters of the MSMEs will be given debt by banks in the form of equity infusion.
• Infusion of Rs. 50,000 crore as equity into MSMEs. This will benefit MSMEs with potential and viability by providing them greater support in capacity expansion and for the purpose of market-listing. This will cover MSMEs that are performing very well and can use the opportunity to expand.
• The definition of MSME is being changed to encourage MSMEs to grow bigger without losing on the benefits availed by MSMEs. The MSME’s will now be judged on the basis of ‘turnover’. In addition, the differentiation between manufacturing MSME and Service MSME has been removed. Following are the limits on the basis of which MSME’s will be determined –
Similar limits for manufacturing and services units.
Criteria will be based on Investment and Annual Turnover.
The Bonded Labour System (Abolition) Act 1976
Small: Investment < Rs. 10 crore; Turnover < Rs. 50 crore
Medium: Investment < Rs. 20 crore; Turnover < Rs. 100 crore
• Only Local Bids for Government Tenders up to Rs. 200 crores. The government procurement tenders up to Rs. 200 crore will no longer be open to global tenders/players, allowing MSMEs the chance to compete. This is to help MSMEs fight unfair competition from global competitors. This is a major step towards creating a self-reliant India.
• MSME Dues & Market Access. Post Covid-19 trade fares will be difficult, therefore e-linkage market is being provided to MSMEs as there will not be any trade fairs and exhibitions soon. In addition to this, the government has promised to clear all receivables due to MSMEs in the next 45 days.
• The government has raised the minimum threshold to initiate insolvency proceedings to Rs. 1 crore from Rs. 1 lakh, which largely insulates MSMEs. Further, it also states that the insolvency proceedings will not be initiated up to 1 year, recollecting that currently, the MCA has extended it to six months.

Eligibility for Startups under Aatmanirbhar Bharat Abhiyan:

• Startups will be eligible to avail relief measures announced for micro, small, and medium enterprises (MSME) under the Aatmanirbhar Bharat Scheme by registering as MSMEs on the Udyog Aadhaar portal.
• Startups are eligible for the measures announced for MSME, such as the collateral-free loan with credit guarantee, subordinated debt, and equity infusion through the MSME fund of funds.

Regards,

Legal Team

Proind Business Solutions Private Limited
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