Budget 2024: Government announces special support for MSMEs

A new credit guarantee scheme for MSMEs in the manufacturing sector, higher limit of Mudra loans for those who have repaid earlier loans, and credit support for small businesses under stress are among the measures that were announced.

“We have formulated a package covering financing, regulatory changes and technology support for MSMEs to help them grow and also compete globally," Sitharaman said in her budget speech on Tuesday.

Following Sitharaman's speech, Prime Minister Narendra Modi echoed her sentiments around supporting small businesses in an address to the nation.

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“We will together make India a global manufacturing hub. The MSME sector of the country is connected to the middle class. The ownership of the MSME sector is with the middle class. This sector provides maximum employment to the poor...," said Modi.

Industry leaders like Uday Kotak, founder of Kotak Mahindra Bank, welcomed these budget measures. “Well thought-out budget. Fiscal discipline maintained. Right focus on employment and MSME," tweeted Kotak on X.

In her seventh budget speech, Sitharaman announced an increase in limit for Mudra loans for MSMEs from ₹10 lakh to ₹20 lakh for those in the ‘Tarun’ category who have availed the loans before and successfully repaid them.

Pradhan Mantri MUDRA Yojana (PMMY) was launched in April 2015 for providing loans up to ₹10 lakh to non-corporate, non-farm MSMEs. These advances are classified as Mudra loans and given by commercial banks, regional rural banks (RRBs), small finance banks, cooperative banks, micro finance institutions (MFIs) and NBFCs.

Till fiscal year 2022-23, a cumulative ₹22.89 trillion has been disbursed to 410 million MSME borrowers, according to data available with Mudra.

Sitharaman also introduced a new credit guarantee scheme for MSMEs for the purchase of machinery and equipment without collateral. For this, the government will separately set up a self-financing fund to provide guarantee cover up to ₹100 crore to each applicant, even as 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.

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Sitharaman also announced a new mechanism to provide continued credit support to MSMEs under stress. Credit will be made available through a guarantee from a government-promoted fund to MSMEs that are classified as ‘special mention account’ (SMA) or showing early signs of stress.

“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 NPA stage," she said in her speech.

Bankers say the new scheme could be akin to the ECLGS (emergency credit line guarantee scheme), which was introduced for businesses affected by the covid pandemic. The scheme offered 100% guarantee to banks and non-banks on credit given to businesses and MSMEs.

In a statement, MSME industry body FISME welcomed the credit guarantee scheme for the purchase of machinery up to ₹100 crore, and said it will significantly boost technology upgradation.

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It also lauded the move to ask banks to develop their own risk assessment models. “This will end the expenses and harassment MSMEs faced at the hands of rating agencies," the statement said.

At the same time, FISME said the SMA measure was a "halfway house" as the major issue of a lack of empowered officials at branch levels remains unaddressed.

The finance minister also announced that public sector banks will build an in-house model to assess MSMEs to provide credit, instead of relying on external assessment. This new credit assessment model will be based on the scoring of digital footprints of MSMEs in the economy.

“This is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. That will also cover MSMEs without a formal accounting system," she said.

To give a boost to online bill discounting through the trade receivables discounting system (TReDS) platform, Sitharaman proposed to reduce the turnover threshold of buyers for onboarding from ₹500 crore to ₹250 crore. This move is expected to bring 22 more public sector enterprises and 7,000 more companies onto the platform, according to the government.

Sitharaman also proposed setting up of e-commerce export hubs in public private-partnership (PPP) mode to help MSMEs and traditional artisans to sell their products in the international markets. These hubs, under a seamless regulatory and logistic framework, will facilitate trade and export related services under one roof, she said.