India’s Union Budget 2024: Transformative Measures for the MSME Sector

On July 23rd, Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2024-25, emphasizing support for Micro, Small, and Medium Enterprises (MSMEs). This year’s budget introduces innovative measures to drive growth, technological advancement, and global competitiveness within the MSME sector. Here are the key updates and their potential impact:

Focus on Innovation and Technological Advancements

The budget has introduced several measures aimed at fostering innovation within the MSME sector. Initiatives designed to encourage technological advancements and the development of new business models are at the forefront. MSMEs are encouraged to explore these opportunities to stay competitive and drive growth.

One of the standout provisions is the introduction of a credit guarantee scheme offering term loans for machinery and equipment without requiring collateral or third-party guarantees. This move is expected to significantly reduce the financial strain on small businesses looking to upgrade their equipment, thereby promoting technological innovation and productivity.

Easing Financial Burdens and Enhancing Credit Accessibility

To ease the financial burden on MSMEs, the budget proposes potential tax breaks and easier access to credit. These measures aim to provide relief and facilitate smoother business operations, enabling MSMEs to focus on growth and expansion.

Collateral-Free Loans and Risk-Sharing Mechanisms

A game-changer for MSMEs in the manufacturing sector is the introduction of a credit guarantee scheme offering term loans for machinery and equipment without requiring collateral or third-party guarantees. This scheme also establishes a self-financing guarantee fund that pools credit risks, providing coverage up to ₹100 crore per applicant. Borrowers pay minimal upfront and annual fees based on the reducing loan balance, making credit more affordable.

Digital Footprint-Based Assessment

A revolutionary shift is the adoption of digital footprints for credit evaluation. Public sector banks will develop in-house capabilities to assess MSME creditworthiness, moving away from traditional asset-based methods. This approach will benefit MSMEs lacking formal accounting systems, making credit more accessible to a broader range of businesses.

Supporting MSMEs During Financial Stress

Recognizing the challenges faced by MSMEs during financial hardships, the budget proposes a new mechanism to ensure continued credit access for those categorized as “special mention accounts” (SMA) due to unforeseen circumstances. This government-backed guarantee will help businesses maintain operations and avoid transitioning into non-performing assets (NPAs).

Credit Guarantee for Stressed MSMEs

A new system will be introduced to ensure MSMEs receive uninterrupted bank credit during financial difficulties, even if they are categorized under the Special Mention Account (SMA) due to factors outside their control. This initiative is designed to prevent MSMEs from becoming Non-Performing Assets (NPAs) by securing continued access to credit, supported by a government-backed fund.

Increased Mudra Loan Limits

Entrepreneurs with a proven track record of successful loan repayments can now access larger funds for business expansion. The Mudra loan limit under the “Tarun” category has been increased from ₹10 lakh to ₹20 lakh, providing enhanced financial resources for growth and development.

Expanding Market Access and Infrastructure

Improving connectivity and the overall business environment is a significant focus in this year’s budget. Enhanced infrastructure, including better roads, railways, and digital connectivity, is expected to reduce operational costs and improve market access for MSMEs.

TReDS Platform Expansion

By lowering the mandatory onboarding turnover threshold for the TReDS platform from ₹500 crore to ₹250 crore, the budget facilitates participation from an additional 22 Central Public Sector Enterprises (CPSEs) and 7,000 companies. This move will also allow medium enterprises to participate as suppliers, unlocking more working capital for MSMEs through trade receivables discounting.

Enhanced SIDBI Presence

To provide direct credit support to MSMEs in key clusters, the Small Industries Development Bank of India (SIDBI) will establish 24 new branches this year, expanding its reach to 168 out of 242 major clusters within three years. This expansion aims to enhance service coverage and provide better financial support to MSMEs.

Boosting Food Processing

Financial support will be provided for establishing 50 multi-product food irradiation units and 100 NABL-accredited food quality and safety testing labs. This initiative aims to enhance food safety standards and propel MSME units involved in food processing, improving product quality and marketability.

E-Commerce Export Hubs

The government plans to create e-commerce export hubs in Public-Private-Partnership (PPP) mode. These hubs will offer trade and export-related services under one roof, making it easier for MSMEs and artisans to sell their products in international markets. This initiative aims to boost exports and enhance the global presence of Indian enterprises.

Key Highlights and Their Impact

Enhanced Credit Access

The Union Budget for 2024-25 has unveiled a new mechanism designed to support the continued provision of bank credit to MSMEs experiencing financial stress. This initiative aims to ensure that businesses grappling with economic challenges can still access essential funding.

Streamlined Trade Receivables

To enhance liquidity and financial access for businesses, significant adjustments have been made to the Trade Receivables Discounting System (TReDS) platform and Mudra loans. The turnover threshold for mandatory onboarding on the TReDS platform has been lowered from ₹500 crore to ₹250 crore, aiming to streamline the receivables discounting process and extend its benefits to a broader range of businesses.

Support for Food Irradiation Units

The budget includes financial support for the establishment of 50 multi-product food irradiation units within the MSME sector. This initiative is designed to enhance food safety and extend the shelf life of products, which will benefit both producers and consumers by improving the quality and longevity of food items.

Ensuring Bank Credit Continuity for MSMEs During Stress Periods

A new system will be introduced to ensure MSMEs receive uninterrupted bank credit during financial difficulties, even if they are categorized under the Special Mention Account (SMA) due to factors outside their control. This initiative is designed to prevent MSMEs from becoming Non-Performing Assets (NPAs) by securing continued access to credit, supported by a government-backed fund.

E-Commerce Export Hubs

In a bid to expand market access, E-Commerce Export Hubs will be set up through public-private partnerships (PPP). These hubs are intended to help MSMEs and traditional artisans reach international markets, providing a platform for their products to be showcased and sold globally. This initiative aims to boost exports and enhance the global presence of Indian enterprises.

Enhanced Self-Financing Guarantee Fund

The recently established Self-Financing Guarantee Fund is designed to provide each applicant with a guarantee cover of up to ₹100 crore, irrespective of the loan amount. To access this cover, borrowers are required to pay an upfront guarantee fee along with an annual guarantee fee, which will be calculated based on the reduced loan balance.

Enhanced Model Skill Loan Scheme

One of the notable updates is the overhaul of the Model Skill Loan Scheme. The government plans to revamp this program, increasing the loan amount to ₹7.5 lakh, supported by a government-backed fund guarantee. This revision is expected to assist 25,000 students each year by providing essential financial support for skill acquisition.

Introducing a New MSME Credit Assessment Model

Public sector banks will enhance their in-house capabilities to evaluate MSMEs for credit, shifting away from dependence on external assessments. This new model will leverage digital footprints to offer a more thorough assessment of MSME creditworthiness.

Expanding Internship Opportunities for Youth

Under the Prime Minister’s initiative, a new internship scheme will be introduced, offering placements at 500 leading companies for 1 crore young individuals over the next five years. This program will provide interns with hands-on experience in real-world business settings and diverse professions, including a monthly allowance of ₹5,000 and a one-time support payment of ₹6,000. Companies will finance the training costs and contribute 10% of the internship expenses through their CSR funds.

SIDBI Expands Branch Network and Enhances Food Quality Testing

SIDBI will enhance its presence by opening new branches in key MSME clusters, aiming to extend direct credit services. This expansion will increase service coverage to 168 of the 242 major clusters, with 24 new branches set to open this year. Furthermore, the government will support the creation of 100 NABL-accredited food quality and safety testing labs to benefit MSME units.

Conclusion

The Union Budget 2024-25 presents a transformative package of measures aimed at revitalizing and advancing India’s MSME sector. By expanding access to credit, streamlining trade receivables, and providing targeted support for technology and infrastructure, the budget addresses the multifaceted challenges faced by MSMEs. Enhanced provisions for Mudra loans, financial aid for food irradiation units, and the establishment of E-Commerce Export Hubs reflect a strategic focus on fostering growth and global competitiveness. The introduction of new credit assessment models and expanded internship opportunities further underscores the commitment to nurturing both financial stability and workforce development. Collectively, these initiatives represent a robust framework designed to strengthen the MSME sector, ensuring its continued contribution to India’s economic vitality and international presence.


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