Finance Minister Nirmala Sitharaman on Wednesday unveiled a series of steps to provide relief to micro, small and medium enterprises (MSMEs) and also tweaked the definition of MSMEs to expand its purview so that more firms can take advantage of the new measures.
Under the new definition, the distinction between manufacturing and services enterprises has been eliminated. The investment size criteria for each category - micro, small and medium - has been hiked to bring more companies under the definition of MSME. Additional criteria of turnover has been included to the definition of MSMEs.
"Low threshold in MSME definition have created a fear among MSMEs of graduating out of the benefits and hence killing the urge to grow," the government said in a statement.
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 up to Rs 20 crore and turnover up to Rs 100 crore will be considered as medium enterprises.
There are various advantages that firms, especially startups, can derive by registering as a MSME.
Advantages of Registering as MSME
Reservation policy is one of the most vital benefits given to enterprises in the form of a policy under this sector. To ensure that the MSME sector is not affected by the stiff competition in the market, the central government has given exclusive rights to manufacture certain products only to this sector.
Under the Government Stores Purchase Program, the central government has reserved the purchase of more than 300 products exclusively from this sector. For example, wooden furniture and fixtures, pickles, bangles, ground nut oil, mustard oil, bread, jute, brakes and clutches for automobile corporations, among others
Micro and Small Sized enterprise can avail a Rs 50 lakh collateral-free loan. Since the micro and small companies are run without big financial backups, the RBI has directed banks to sanction collateral-free loans to such enterprises.
Some MSMEs may not be able to use their resources to full potential due to lack of the sophisticated technology required. The government, under the Capital Aid for technological upgradation scheme, helps these enterprises upgrade their equipment through latest technology by helping them get low-interest loan from banks.
Apart from the reserved products that government has promised to buy from theses MSMEs, they are given marketing assistance even to those products, manufactured by them, which do not fall under the purview of Reservation Policy.
Fresh Measures Announced Today
Finance Minister Nirmala Sitharaman announced new measures for revival of MSMEs that have taken a serious hit due to the lockdown implemented in order to curb the spread of Covid-19.
Rs 3 lakh crore collateral-free automatic loans for businesses, including MSMEs, was announced by the Centre. Under this, borrowers with upto Rs 25 crore outstanding and Rs 100 crore are eligible. Secondly, Rs 20,000 crore subordinate debt for stressed MSMEs was announced.
Third, Rs 50,000 equity infusion for MSMEs through fund of funds was announced on Wednesday. A fund of funds with corpus of Rs 10,000 crore will be setup immediately said Finance Minister Nirmala Sitharaman.
Additionally, global tenders will be disallowed upto Rs 200 crore. MSME receivable from the Governmentt and CPSEs will also be released in 45 days.