Anushruti Singh
The Union Budget 2024-25, unveiled by Finance Minister Nirmala Sitharaman, has earmarked Rs 22,138 crore for the MSME sector, reflecting a significant 0.45% of the total budget expenditure. This year’s budget introduces eight groundbreaking measures aimed at promoting MSMEs, with a strong emphasis on manufacturing and job creation.
In her budget speech, FM Sitharaman states, “This budget provides special attention to MSMEs and manufacturing, particularly labour-intensive manufacturing,” The finance minister also mentions that the Government has formulated a package that covers financing, regulatory changes and technology support for MSMEs to help them grow and also compete globally, as mentioned in the Interim Budget.
The MSMEs are part of the four major themes in the Budget and the Union Finance Minister proposed the following specific measures in support of MSMEs:
Credit Guarantee Scheme: A Game Changer for Manufacturing MSMEs
One of the standout announcements is the introduction of a credit guarantee scheme tailored for MSMEs in the manufacturing sector. This scheme facilitates term loans for purchasing machinery and equipment without the need for collateral or third-party guarantees.
This scheme will operate on pooling of credit risks of such MSMEs. FM states that a separately constituted self-financing guarantee fund will provide, to each applicant, guarantee cover up to ₹100 crore, while the loan amount may be larger. The borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance.
Dinesh Gulati, COO of IndiaMART Intermesh Limited, emphasized the importance of this initiative: “Access to affordable and timely credit has been a consistent hurdle in the MSME sector. The introduction of a new scheme to support the purchase of machinery and equipment without collateral and guarantee for MSMEs will not only help provide the much-needed financial assistance but also act as a catalyst to the growth of the manufacturing sector.”
Harshit Aggarwal, CEO and Founder of Novamax Appliances, echoed this sentiment: “The new credit guarantee scheme for MSMEs in manufacturing is a game-changer. This initiative will notably strengthen the manufacturing sector by facilitating term loans for the purchase of machinery and equipment without collateral and guarantee.”
Mayank Dalmia, Co-founder of Wave Mechanics feeling the same says the announcement can provide a much needed boost for MSME manufacturers. “Will need to wait for further details and clarifications to understand its scope and applicability but it has the potential to unlock a flurry of investment into machinery and capital equipment,” he points out.
New assessment models for credit accessibility
Public Sector Banks (PSBs) will now develop in-house capabilities to assess MSMEs for credit based on their digital footprints rather than relying on traditional asset or turnover criteria. This approach aims to make credit more accessible, even for MSMEs without formal accounting systems.
They will also take a lead in developing or getting developed a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy.
Vineeta Hariharan, Founder of Sankassa Foundation, noted, “The introduction of a new assessment model for MSME credit risk assessment by public sector banks, based on digital footprints, will enable many MSMEs who do not have formal accounting systems to be included in the banking networks, thereby promoting financial inclusion of micro-enterprises.”
Rajan Pental, Executive Director of YES BANK, highlighted the potential impact: “The new credit assessment model, which leverages digital footprints, represents a transformative shift in evaluating MSME creditworthiness. This innovation will streamline the credit process and extend support to MSMEs that lack formal accounting systems, making credit access more inclusive and efficient.”
Arjun Ranga, Managing Director, Cycle Pure Agarbathi points out that the new credit assessment framework will greatly increase the number of MSMEs eligible for credit. “It will cover MSMEs without a formal accounting system as well, as compared to the traditional assessment system which determined credit eligibility based only on assets or turnover,”
More credit support during stress period from govt promoted fund
The government also proposed a new mechanism for facilitating continuation of bank credit to MSMEs during their stress period.
While being in the ‘special mention account’ (SMA) stage for reasons beyond their control, MSMEs need credit to continue their business and to avoid getting into the Non-Performing Assets (NPA) stage. Credit availability will be supported through a guarantee from a government promoted fund.
Enhanced mudra loans
The budget also increases the limit of Mudra loans to Rs 20 lakh for credit-worthy entrepreneurs under the ‘Tarun’ category, doubling the previous cap.
Rishabh Sethia, Director & Business Administrator at MARS Cosmetics, praised these moves: “The Union budget’s enhancement of the Mudra loan limit to Rs 20 lakh for successful borrowers under the Tarun category is a significant step forward. This increase will empower more MSMEs to expand their operations, driving economic growth and creating employment opportunities.”
Stakeholder from the hospitality sector, though disappointed from the budget, feels Mudra loans move will benefit MSMEs in the sector. Mehul Sharma, Founder & CEO, Signum Hotels & Resorts says, the recent budget has left the hospitality industry untouched, despite calls for rationalisation of taxes and clarity on regulatory matters. “However, the increase in the allocation for Mudra loans to ₹3.54 lakh crore is a welcome move for MSMEs, including smaller hotels, which can benefit from easier access to credit,”
TReDS onboarding made easy
For facilitating MSMEs to unlock their working capital by converting their trade receivables into cash, the turnover threshold of buyers for mandatory onboarding on the TReDS platform has been halved from ₹500 crore to ₹250 crore.
This measure will bring 22 more Central Public Sector Enterprises (CPSEs) and 7,000 more companies onto the platform. Medium enterprises will also be included in the scope of the suppliers.
Mohan Ramaswamy, CEO and Co-Founder of Rubix Data Sciences says the move will enhance access to faster payments for MSMEs, improving their cash flow and operational efficiency.
SIDBI Expansion and Food Irradiation Units
SIDBI is set to open new branches to expand its reach to all major MSME clusters within three years. The move will intend to provide direct credit to MSMEs. With the opening of 24 such branches this year, the service coverage will expand to 168 out of 242 major clusters.
Additionally, financial support will be provided for setting up 50 multi-product food irradiation units and 100 food quality and safety testing labs with NABL accreditation.
Dr. Aman Basheer Sheikh, Co-Founder and Chief Medical Officer of TruthIn, emphasised the importance of these initiatives: “The Budget 2024 announcement to facilitate the establishment of NABL-accredited food safety labs is a significant step towards enhancing India’s food safety standards. Additionally, allocating financial support for 50 multi-product food irradiation units will aid in reducing post-harvest losses, improving food quality, and ensuring food security for consumers.”
E-Commerce Export Hubs
To enable MSMEs and traditional artisans to access international markets, the budget proposes the establishment of E-Commerce Export Hubs in public-private partnership mode. These hubs will facilitate trade and export-related services under one roof, ensuring a seamless regulatory and logistical framework.
Vivek Prasad – Partner and Markets Leader, PwC India calls this move substantial. “Provisions under public-private partnerships, e-commerce export hubs, will empower our MSMEs to gain global recognition, driving growth and innovation,” he says.
Mihir Jain, Sales and Marketing Director, Insight Cosmetics is extremely enthusiastic about the new e-commerce export hub announcement. “This will open up some fantastic opportunities for beauty brands to enter international markets and tackle global trade challenges. Together, these measures will create a vibrant environment for both emerging and established beauty brands, fuelling growth and advancing India’s economy,”
The 2024 Union Budget presents a robust and comprehensive plan to empower MSMEs, driving economic growth and fostering innovation. By addressing critical issues such as credit accessibility, skill development, and market expansion, the government aims to create a vibrant and resilient MSME ecosystem.
Ranga of Cycle Pure Agarbathi, aptly summarised the budget’s impact: “The budget for the fiscal year 2024-2025 has been unveiled, promising a comprehensive approach to advancing India’s growth journey,”
With these initiatives, the government is poised to transform the MSME sector, unlocking its potential to drive India’s economic growth and ensuring that small and medium enterprises thrive in the competitive global market.
