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Centre’s 6-Point Strategy to Revive MSMEs Has Rs 3 Lakh Crore Collateral-Free Loan and New Definition for Firms

FM Nirmala Sitharaman addresses a press conference on the economic package in New Delhi on Wednesday.

FM Nirmala Sitharaman addresses a press conference on the economic package in New Delhi on Wednesday.

The Centre revised the definition of MSMEs to help more firms fall under its purview. Investment limit will be revised upwards and additional criteria of turnover has also been introduced.

Rounak Kumar Gunjan
  • News18.com New Delhi
  • Last Updated: May 13, 2020, 6:04 PM IST
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Finance Minister Nirmala Sitharaman on Wednesday announced six measures to revive micro, small, medium enterprises (MSME) that have taken a serious hit due to the lockdown implemented in order to curb the spread of covid-19.


Detailing the first tranche Rs 20 lakh crore economic package to help revive the economy, the finance minister said Rs 3 lakh crore collateral-free automatic loans for businesses, including SMEs, will be given. Under this, borrowers with up to Rs 25 crore outstanding and Rs 100 crore are eligible.


Loans will be issued with 4 year tenure and moratorium up to 12 months on principal repayment. The Centre will also cap interests, the measure of which was not announced immediately. A 100 per cent credit guarantee cover to banks and NBFCs on principal and interest will be provided. This scheme can be availed till October 31, 2020. There will be no guarantee fee and no fresh collateral will be required.

Sitharaman said that 45 lakh units are expected to resume business activity as a reault of this measure and jobs will be safeguarded.

Secondly, Rs 20,000 crore subordinate debt for stressed MSMEs was announced, adding this would benefit 2 lakh such businesses. Functioning MSMEs which have NPAs or are stressed will be eligible. Government will provide support of Rs 4,000 crore to Credit Guarantee Trust for MSMEs. The Central body will provide partial credit guarantee support.

The third support measure is Rs 50,000 equity infusion for MSMEs through fund of funds. A fund of funds with corpus of Rs 10,000 crore will be setup immediately, said the finance minister.


This is aimed to provide equity funding for MSMEs, with growth potential and viability. Fund of funds will proceed through mother fund and a few daughter funds. Fund structure will leverage Rs 50,000 crore fund at daughter funds levels. This is expected to help firms get listed.

Fourth, the Centre revised the definition of MSMEs to help more firms fall under its purview. Investment limit will be revised upwards and additional criteria of turnover has also been introduced.


The difference between manufacturing and services-based MSMEs has been done away with.


From now onwards, firms with investment up to Rs 1 crore and turnover up to Rs 5 crore will be considered as micro enterprises. Similarly, businesses with investment up to Rs 10 crore and turnover up to Rs 50 crore will be considered as small enterprises and businesses with investment upto Rs 20 crore and turnover upto Rs 100 crore will be considered as medium enterprises.

The fifth measure said that global tenders will be disallowed up to Rs 200 crore. Indian MSMEs and other companies have often faced unfair competition from foreign companies, and therefore, global tenders will be disallowed in government procurement tenders upto Rs 200 crore, the FM announced. Necessary amendments of General Financial Rules will be effected.

Lastly, MSME receivable from the governmentt and CPSEs will be released in 45 days.


MSMEs contribute to 29 per cent of India's GDP and employ over 12 crore people, according to reports. These businesses usually depend on month-to-month operation, with little reserves for the future.


On Tuesday, PM Modi during his address on Tuesday focused on the importance of local manufacturing, market and supply chain, which are bound to include a host of small and medium businesses apart from large companies.


On Tuesday, the finance ministry said that between March 20 and May 8, state-run lenders contacted 97% of borrowers eligible for emergency credit lines and working capital enhancements and sanctioned loans to the tune of Rs 65,879 crore.


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