Micro Small and Medium Enterprises (MSMEs), the growth engine of India.
There are around 6.3 crores MSME in India which contribute up to 1/3rd of the total GDP of India. Source of income to a large segment of population in the non-formal job workers space. The lockdowns of 2020 has been a rough and challenging year for MSMEs health calamities, labour disruption, financing, debt and solvency issues all have been extreme business conditions impacting survival of MSMEs.
GOI rolled out multiple schemes to support MSME’s, 2021 brings a glimmer of hope laced with the pandemic apprehensions. With the upcoming Budget 2021-22, retail/hospitality/textile, jewelry and automobile sector remain in anticipation of what may unfold.
Flash on major government schemes to support MSMEs during the COVID -19 pandemic.
The Central Government vide notification no. S.O. 1702 (E) dated 1st June 2020 re-classified the definition of Micro Small and Medium enterprises as follows:
- Micro enterprises – Investment of less than `1 crore and turnover less than `5 crore
- Small enterprises – Investment of less than `10 crore and turnover less than `50 crore
- Medium enterprises – Investment of less than `50 crore and turnover less than `250 crore
For each category the investment and turn over schemes have to be met.
* the Udyam Registration excludes exports of goods or services or both while calculating the turnover of any enterprise allowing exporting more and more without losing MSME classification.
1. Udyam Registration:
Notification no. S.O. 2119(E) dated 26th June, 2020 re-christines MSMEs as “Udyam” with a registration framework for the same. Udyam and MSME mean the same thing.
Following is the registration process:
- With a self-declaration and without upload documents, papers, certificates or proof, applicant MSME may file Udyam Registration online in the Udyam Registration portal (udyogaadhaargov.co.in).
- On registration, MSME receives a permanent identification number to be known as ―Udyam Registration Number.
- Udyam Registration Certificate (e-Certificate) is issued on completion of the registration process.
The Benefits offered under the various GoI schemes can be procured with the Udyam Registration:
- Loans without collaterals;
- Subsidy on Patent Registration & Industrial Promotion;
- Overdraft facility along with Interest Rate Exemption;
- Concession on Electricity;
- Participation in Government Tenders; and
- Exemption under Direct Tax Laws.
2. Emergency Credit Line Guarantee Scheme:
- For easy credit, Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs is offered.
- loans up to 3 (three) lakh crore to be sanctioned by Banks/Financial Institutions;
- reduce the economic distress faced by MSMEs and other small business enterprises by providing them additional funding in the form of a fully guaranteed credit line;
- Support for the lending Institutions is created by giving 100% guarantee for any losses suffered due to non-repayment of the funds offered to the MSMEs so that benefit of the scheme can have maximum outreach.
MSMEs with annual turnover up to Rs 250/- crore and outstanding loan as on February 29, 2020 of less than or equal to Rs. 25 /-crore and which is not overdue for more than 60 days are eligible to avail funding under this scheme.
The borrowing limit as per the scheme was 20% of the outstanding loan as on February 29, 2020. As of January 8, 2021 banks have sanctioned 71.3% i.e Rs 2, 14,083 crore out of the 3 lakh emergency scheme.
3. Funds of Fund & Subordinate Debt Scheme:
The Funds of Fund scheme with a corpus of Rs. 10,000/- crore is rolled to help MSMEs with their viability and growth potential during a time where they are facing a severe lack of equity and revenue.
- This is for aiding businesses in their nascent and initial stages, which are unable to procure institutionalized funding through professional corporations or venture capitalists. It also, proposes to buy up to 15% growth capital in high credit MSMEs and will be operationalized by a “Mother Fund” having few “daughter funds”.
- Credit facility to be provided to Promoters (upto 15% of his stake or 75 lakhs whichever is lower as per last audited balance sheet) of the stressed MSMEs through Scheduled Commercial Banks (SCBs) for infusing the same as equity/quasi equity/ sub-debt in the unit, with an objective to support MSMEs with SMA-2 classification or NPA.
4. Eligibility for global tenders up to Rs 200 crore:
With the amended the General Financial Rules, 2017 no global tender will be floated by the government or its agencies for procurement of goods and services if the value is less than Rs 200 crore. Indian agencies will have the right to bid for tenders less than 200 crore.
5. Debt Restructuring:
RBI is offering one- time debt restructuring option in notification dated 6th August, 2020. RBI moratorium scheme on interest and EMI of March 27, 2020) extended up to August 31, 2020, was subscribed by nearly 77.5% of MSMEs. Existing MSME loans, classified as “standard” as on March 1, 2020 are allowed to be restructured without asset classification downgrade.
For restructuring, the aggregate exposure with non-fund based facilities, of banks and NBFCs to the borrower should not be more than INR ₹25 crore as on March 1, 2020 and implemented by March 31, 2021, under the restructuring scheme.
6. Authorized Economic Operator (“AEO”) package for MSME:
The Central Board of Indirect Taxes has relaxed the requirement of classification as AEO for MSMEs vide circular dated 15th December, 2020. This is to ensure quality recognition in international supply chain as a secure and reliable trading partner. MSMEs with minimum 10 Customs clearance documents in one year and clean compliance record over 2 years are eligible for the scheme.
- Benefits like reduction in Bank Guarantee requirements;
- Direct port delivery for imported containers, direct port entry for exit containers;
- swift custom clearance; and
- exemption of bank guarantee.
This blog is only for information purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein.
Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.
Research support – Prateek Kumar Singh