MSME Loans Explained | COVID-19 Relief

 To support the gradually falling economy, Prime Minister Narendra Modi announced the “Atmanirbhar Bharat Abhiyan” To encourage growth and to develop a self-reliant India. Supporting this Abhiyan Finance Minister Nirmala Sitharaman stressed the five pillars of growth: Infrastructure, economy, technology-driven systems, demand, and demography. The Prime Minister had announced an economic relief package of Rs. 20 Lakh Crore under the scheme Atmanirbhar Bharat Abhiyan, the details of which was unveiled by Finance Minister Nirmala Sitharaman.

Under the relief package due importance was placed on MSMEs as the MSME sector was on the verge of collapse. To improve the conditions under the economic relief scheme the announcements made for MSME are: –

1. MSME definition amended: –

• No distinction between manufacturing and services units.
• Micro: Investment < Rs 1 crore; Turnover < Rs 5 crore
• Small: Investment < Rs 10 crore; Turnover < Rs 50 crore
• Medium: Investment < Rs 20 crore; Turnover < Rs 100 crore

2. Collateral free automatic loans: –

• An outlay of Rs. 3 lakh crore, to benefit 45 lakh MSMEs.
• All MSMEs having 25 crores outstanding in loans and 100 crore turnover are eligible for credit guarantee-backed loans of four-year tenure.
• Interests to be capped
• A 12-month moratorium on principal repayment
• Can be availed till 31stOctober

3. Subordinate debt for stressed MSMEs: –

• Rs 20,000 crore outlay, 2 lakh MSMEs to benefit
• Government to provide Rs 4,000 crore towards partial credit guarantee support to banks
• Banks will lend money to promoters who can use it to infuse it as equity

4. Fund of Funds: –

• Corpus of Rs 10,000 crore
• Will operate through primary and secondary funds
• Will help leverage Rs 50,000 crore at the secondary fund level
• Will help MSMEs to expand the size and get listed on mainboard

5. Local Bids for Government tenders of up to Rs. 200 crore: –

• Foreign tenders will be disallowed for government procurement up to Rs 200 crore
• This is to help MSMEs fight unfair competition from foreign competitors

6. MSME dues and Market access: –

• E-market linkage for MSMEs, as there will be no trade fairs and exhibitions anytime soon due to COVID-19
• All receivables of MSMEs from government and PSUs will be cleared in a period of 45 days

In the previous definition, MSMEs were defined on the basis of investments put in; now the definition also includes the turnover of the company. The Finance Minister also announced that there will be no more distinction between Manufacturing and Service MSMEs. They will now be defined similarly. The definition of MSME is:- how to explain msme loan

To know more information about the economic relief package or the MSMEs contact the Consult Avenue team. We are a consultancy group considered as the top GST consultants in Delhi. Click here to know more.