In a bid to bolster the Micro, Small, and Medium Enterprises (MSMEs) sector and invigorate labour-intensive manufacturing, Finance Minister Nirmala Sitharaman presented a series of targeted measures in the Union Budget 2024-25. Highlighting the government's commitment to MSMEs, Sitharaman detailed a robust package encompassing financing, regulatory reforms, and technological support designed to empower these enterprises and enhance their global competitiveness.

Credit Guarantee Scheme for MSME Growth

Central to the announced measures is a new credit guarantee scheme aimed at facilitating term loans for MSMEs without requiring third-party collateral. This initiative, designed to aid in the purchase of machinery and equipment, will operate on a model that pools credit risks. The scheme will offer a substantial guarantee cover of up to INR 100 crore, with borrowers required to provide an upfront guarantee fee as well as an annual fee based on the reduced loan balance.

“The budget's emphasis on local kirana shops and MSMEs shows the government's commitment to revitalizing this sector. Introducing a credit guarantee scheme and raising the Mudra loan limit to 20 Lakhs for previous borrowers will facilitate finance access. By prompting banks to consider digital footprints for eligibility and implementing the MSME guarantee plan and internal assessment models, credit access for kirana shops is simplified. The collateral-free credit guarantee scheme and support for MSMEs in financial distress are crucial. Establishing export hubs and providing technological support will enhance global competitiveness and innovation for local kirana shops.” – Mr. Amit Bansal, CEO, Solv

Continued Credit Support During Stress Periods

Recognizing the challenges MSMEs face during financial stress periods, Sitharaman introduced a new mechanism to ensure the continuity of credit support. This initiative is part of a broader effort to provide a safety net for MSMEs, ensuring their sustainability and growth even during challenging times.

Innovative MSME Credit Assessment Model

In a significant shift from traditional credit assessment methods, public sector banks will now develop in-house capabilities for credit evaluation. This new model will utilize the digital footprint of MSMEs, offering a more comprehensive assessment of credit eligibility beyond mere asset or turnover criteria. This approach is expected to significantly improve the accuracy and fairness of credit evaluations for MSMEs.

Enhanced TReDS Platform Access

To further support MSMEs, the turnover threshold for mandatory onboarding on the Trade Receivables Discounting System (TReDS) platform will be reduced from Rs 500 crore to Rs 250 crore. This move aims to increase the accessibility of the platform, providing MSMEs with more opportunities to manage their receivables efficiently.

Financial Support for Food Irradiation Units

The budget also includes financial support for 50 multi-product food irradiation units within the MSME sector. This measure is expected to enhance the food processing capabilities of MSMEs, improving product quality and shelf life, and thereby increasing their market competitiveness.

Ruchin Kumar, VP - South Asia Futurex quote on the Union Budget 2024 says - "In today’s tax budget announcement, significant focus was placed on the development of MSMEs and labour-intensive manufacturing. The government introduced a comprehensive support package that includes financing, regulatory changes, and technology support to help MSMEs grow and compete globally. Over the past decade, technology has played a crucial role in boosting productivity and reducing economic inequality by improving access to market resources, education, health, and services. The government aims to further enhance this by accelerating the adoption of digital technologies.

To improve data governance, the budget highlights the use of various sectoral databases established under the Digital India mission, supported by advanced technology tools. This approach will be crucial for critical sectors such as BFSI (Banking, Financial Services, and Insurance), e-governance, Retail, Telecom, and Healthcare. Robust data protection and compliance with evolving regulations will ensure the secure and efficient implementation of digital infrastructure across these sectors."

Futurex is a 40-year-old USA-based world's leading enterprise data security solutions company.

Finance Minister Sitharaman's comprehensive support package for MSMEs underscores the government's strategic focus on empowering small and medium enterprises, recognizing their critical role in driving economic growth and job creation in India. With these measures, the government aims to create a more conducive environment for MSMEs to thrive and compete on a global scale.

"What is encouraging for MSMEs from this budget is the credit assessment for availing loans emphasizing higher weightage for Turnover and Assets. This may lead to revisiting their prioritization of repayments allowing MSMEs to give importance to clearing B2B dues. However, the problem of late payments is not going to be solely addressed by this. But some marginal respite for those looking forward to easing their working capital and cash-flow issues. Also, the enhanced Credit Guarantee scheme for manufacturers is quite a welcoming note for Atmanirbhar,” says Mr. Winny Patro, CEO and Co-Founder- of Recordent India on the Budget 2024. Recordent is India’s first credit & payment reporting fintech platform for non-banking transactions.

The comments in this story are all personal and were given to SMBConnect’s Radhika Bansal.