Lok Sabha Question No. 185 (STARRED), answered on 2021-08-02
Subject: Measures announced for MSME Sector
Ministry: FINANCE
Asked by: Annasaheb Shankar Jolle, B. Y. Raghavendra

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## LOK SABHA STARRED QUESTION NO. *185 ANSWERED ON 02.08.2021

## Measures announced for MSME Sector

## *185  SHRI ANNASAHEB SHANKAR JOLLE SHRI B.Y RAGHAVENDRA

## Will the Minister of FINANCE be pleased to state:

- (a) whether the measures announced so far to boost diverse sectors of economy also benefit Micro,  Small  and  Medium  Enterprises  (MSMEs)  sector  which  has  been  hit  hard  by  the COVID-19 Pandemic;
- (b) if so, the details thereof;
- (c) the exact measures taken for MSMEs rejuvenation including the exports;
- (d) whether integrating MSMEs into larger industries' logistical chains has been envisaged for efficiency gains; and
- (e) if so, the details thereof and if not, the reasons therefor?

## ANSWER THE FINANCE MINISTER

## (SMT. NIRMALA SITHARAMAN)

(a) to (e): A statement is laid on the Table of the House

## Statement as referred to in reply to Lok Sabha Starred Question No. *185 for answer on 02.08.2021 regarding "Measures announced for MSME Sector" by SHRI ANNASAHEB SHANKAR JOLLE and  SHRI B.Y RAGHAVENDRA

## (a) to (c):

I. Yes sir, the measures announced  so far include various long-term schemes/ programmes/ policies, which aim to benefit Micro, Small and Medium Enterprises (MSMEs) also  which  are  affected  by  COVID-19.  Outcomes of these measures will be visible over a period  of  time.  Details  of  key  schemes  recently  announced  so  far  related  to  MSME  under Atmanirbhar  Bharat,  Budget  for  2021-22  and  recent  financial  package  announced  by Government in June 2021 are provided at Annex-1.

II. Multiple measures have been taken to support MSMEs, including their exports.  MUDRA provides refinance support to Banks / MFIs / NBFCs for lending to micro units having loan requirement upto 10 lakh under the Scheme of Pradhan Mantri MUDRA Yojana. Government has launched schemes such as Credit Guarantee Scheme for providing access to credit to Micro and Small Enterprises, SFURTI scheme to organize the traditional industries  and  artisans  into  clusters  to  make  them  competitive,  Cluster  Development Programme for providing infrastructure support and enhance the competitiveness of Micro and Small Enterprises, providing skilled manpower to the industry, design and manufacturing of quality tools through Tool Rooms/Technology Centres etc. In addition to this, Ministry of MSME is implementing International Cooperation scheme to facilitate the MSMEs business delegations to visit / participate in international exhibitions/ trade fairs etc., of other countries for  exploring new areas of technology infusion/ up-gradation, facilitating of joint ventures, improving market for MSMEs products, foreign collaborations amongst others. Government is also implementing the Niryat Bandhu Scheme for mentoring new and potential exporter on the  intricacies  of  foreign  trade  through  counselling,  training  and  outreach  programmes. 'MSME clusters' have been identified, based on the export potential of the product and the density of industries in the cluster, for focused interventions to boost exports.

III. Interest  Equalization  Scheme  (IES)  provides  exporters  a  cheaper  source  of  rupee credit for pre-shipment and post-shipment activities.  Presently IES covers 416 ITC-HS tariff lines  at  4  digits  at  3%  subvention  rates  for  merchants  and  manufacturer  exporters,  and  all tariff  lines  with  5%  rates  for  MSMEs.  The  Scheme  has  been  extended  till  September  30, 2021.

IV.  RBI  has  taken  several  monetary  and  liquidity  measures  to  keep  the  flow  of  credit uninterrupted  to  the  productive  sectors  of  the  economy,  including  MSMEs.  Some  of  these measures are listed in Annexe-1 (D) .  Overall, the RBI has since February 2020 announced liquidity enhancing measures worth ₹17.2 lakh crore (8.7 per cent of nominal GDP of 202021).

## (d) to (e):

MSMEs in general  and  especially  in  the  manufacturing  sector  are  linked  to  the  logistical supply  chain  of  larger  industries  as  most  of  such  units  function  as  ancillary  suppliers  or vendors This is also evident from the fact that the concentration of MSME is generally higher in the areas with higher industries base. Government of India is also working in this direction of integrating MSMEs with logistical supply chain of larger industries, by organizing Vendor Development Programmes in large organization/PSUs, helping MSMEs in the procurement of raw material, implementation of Public Procurement Policy, etc.  In this regard, the Public Procurement Policy for Micro and Small Enterprises (MSE) Order 2012 had mandated every Central Ministry/Department/PSU to set an annual goal for procurement of minimum 25% from the MSE sector. Total number of 149 CPSEs have uploaded details for 2020- 2021. The share of purchases from all MSEs amounts to Rs. 40442.86 crore (174701 MSEs benefited) which work out to be 28.12% of the total procurement. In addition, the Public Preference (Make in India) Order 2017 has mandated manufacturing, production of goods and services in India, in which preference for local manufacturers and service providers and local content requirement is supporting public procurement from local suppliers, especially by MSMEs.

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## Annex - I

## Measures taken so far to support MSMEs

## A. Atmanirbhar Bharat

## 1. ₹ 3 lakh crores Collateral-free Automatic Loans for Businesses, including MSMEs:

The  Emergency  Credit  Line  Guarantee  Scheme  (ECLGS)  has  been  formulated  as  a  relief measure to MSMEs by providing them additional funding of up to ₹ 3 lakh crore in the form of a fully guaranteed emergency credit line. Borrowers with up to ₹ 25 crore outstanding and ₹ 100 crore turnover are eligible. This scheme provides 100 per cent credit guarantee cover to Banks and NBFCs on principal and interest. No guarantee fee, no fresh collateral is required.

2. ₹  20,000  crore  Subordinate Debt for Stressed MSMEs :  Provision  made  for  ₹  20,000 crore subordinate debt for MSMEs which are NPAs or are stressed. Government to support them  with  ₹  4,000  crore  to  Credit  Guarantee  Trust  for  Micro  and  Small  enterprises (CGTMSE).  Banks  are  expected  to  provide  the  subordinate-debt  to  promoters  of  such MSMEs equal to 15 per cent of the existing stake in the unit subject to a maximum of ₹ 75 lakhs.
3. ₹ 50,000 crores equity infusion through MSME Fund of Funds: Government to set up a Fund of Funds with a corpus of ₹ 10,000 crore that will provide equity funding support for MSMEs. The Fund of Funds shall be operated through a mother and a few daughter funds. It will provide equity funding for viable MSMEs. This scheme will help MSMEs to expand its size and capacity and will also encourages them to get listed on stock exchanges.
4. New definition of MSME: Low threshold in MSME definition have created a fear among MSMEs  of  graduating  out  of  the  benefits.  Hence,  government  has  revised  definition  of MSME by raising the Investment limit. An additional criteria of turnover has been introduced and distinction between manufacturing and service sector stands removed.
5. Global tenders to be disallowed upto ₹ 200 crores: General Financial Rules (GFR) of the Government amended to disallow global tender enquiries in government procurement of goods and services of value of less than ₹ 200 crores. This is a step in support of the Make in India initiative and will promote MSMEs to grow.
6. Other Measures for MSMEs: e-market linkage for MSMEs to act as a replacement for trade  fairs  and  exhibitions.  MSME  receivables  from  Government  and  CPSEs  are  to  be released in 45 days. Since May 2020 and upto 26.07.2021, pending payments of Rs 55863.30 crore  have  been  made  to  MSMEs.  This  would  help  MSMEs  to  solve  the  problems  of marketing and liquidity.
7. Income  Tax  Refund: Income  tax  refunds  to  nearly  8.2  lakh  small  businesses  worth  ₹ 5,204  crore  has  been  issued  with  the  objective  to  help  MSMEs  to  carry  on  their  business activities without pay cuts and layoffs in these challenging times.

8. Relief of ₹ 1500 crores to MUDRA- Shishu loans: GoI to provide Interest subvention of 2 per cent to prompt payees for a period of 12 months. Small business under MUDRA to be benefited.

9. Ease of doing business for business including MSMEs : Government announced further enhancement  of  Ease  of  Doing  business  through  Insolvency  and  Bankruptcy  Code  (IBC) related measures which include (a). raising of the minimum threshold to initiate insolvency proceedings  to  Rs.  1  crore  from  Rs.  1  lakh  (which  largely  insulates  MSMEs),  (b)  special insolvency resolution  framework  for  MSMEs  under  Section  240A  of  the  Code,  (c) suspension of fresh initiation of insolvency proceedings up to one year depending upon the pandemic situation and (d) empowering Central Government to exclude COVID 19 related debt from the definition of 'default' under the Code for the purpose of triggering insolvency proceedings.

10. Credit Guarantee Scheme for Micro Finance Institutions: Guarantee to be provided to Scheduled  Commercial  Banks  for  loans  to  new  or  existing  NBFC-MFIs  or  MFIs  for  on lending upto Rs 1.25 lakh to approximately 25 lakh small borrowers. Loans from banks to be capped  at  Marginal  Cost  of  Funds  based  Lending  Rate  (MCLR)  plus  2%.  Maximum  loan tenure  will  be  3  years,  and  80%  of  assistance  to  be  used  by  MFI  for  incremental  lending. Interest rates will be at least 2% below maximum rate prescribed by RBI. Guarantee cover will be available for funding provided by MLIs to MFIs/NBFC-MFIs till March 31, 2022 or till guarantees for an amount of Rs. 7,500 crore are issued, whichever is earlier.

11. Udyam Registration PortalThe Udyam registration Portal has facility through which an entrepreneur can opt for linking itself with Government e-market (GeM) place. With this facility,  MSEs  can  link  themselves  with  the  Government's  procurement  system  and  can participate in Government's mandatory procurement program from MSEs. In addition to it, the portal has linkages with IT, GST and TReDs portals.

12.  Government of India on 02.07.2021 decided to include Retail and Wholesale Trade as MSMEs. However, benefits to the MSMEs engaged in Retail and Wholesale Trade would be restricted to availing credit under Priority Sector Lending only. This measure will benefit a large number of trading entities.

13.  Amendments to the Factoring Regulation Act 2011 have been approved by Parliament which will enhance supply of credit to MSMEs from NBFCs.

14. Government,  on  23.10.2020,  approved  the  Scheme  for  grant  of  ex-gratia  payment  of difference  between  compound  interest  and  simple  interest  for  six  months,  to  borrowers  in specified loan accounts.

## B. Union Budget for 2021-22

1.    To  ensure  faster  resolution  of  cases,  NCLT  framework  to  be  strengthened,  e-Courts system shall  be  implemented  and alternate methods  of debt resolution and special framework for MSMEs shall be introduced.

2. Budgetary allocation for MSMEs of  Rs.  15,700  crores  provided  in  2021-22,  which  is more than double of BE for 2020-21.
3. Customs duty have been reduced uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels to provide relief to metal re-cyclers, mostly MSMEs, Duty on steel scrap has been exempted for a period up to 31st March, 2022.
4. Basic Customs Duty rates have been uniformly reduced on  caprolactam, nylon chips and nylon fiber & yarn to 5%. This will help the textile industry, MSMEs, and exports, too.
5. Certain customs duty changes to benefit MSMEs have been made. Duty increased from 10% to 15% on steel screws  and  plastic  builder  wares. On prawn feed it is increased from 5%  to  15%.  Exemption  on  import  of  duty-free  items  is rationalised as  an incentive  to exporters  of 36 garments,  leather,  and  handicraft  items.  Almost  all  these items  are made domestically  by  MSMEs.  Exemption  are withdrawn on imports  of certain  kind  of leathers  as  they  are  domestically  produced  in  good  quantity and  quality,  mostly  by MSMEs.  Customs  duty  on  finished synthetic  gem  stones  is increased to  encourage  their domestic  processing.

## C. Announcements related to MSMEs in Relief Package announced on 28 June 2021

1. 1.1 Lakh Cr Loan Guarantee Scheme for COVID Affected Sectors which includes Rs. 50,000 crore for health sector to scale up medical infrastructure targeting under-served areas and Rs. 60,000 crore for other sectors. Interest rate capped at 8.25% p.a. for other sectors and further decisions to be taken at later stage based on evolving needs.
2.  Additional  1.5  lakh  Cr  for  Emergency  Credit  Line  Guarantee  Scheme  (ECLGS) Launched  as  part  of  Atma  Nirbhar  Bharat  Package  in  May,  2020.  Limit  of  admissible guarantee  and  loan  amount  increased  above  existing  level  of  20%  of  outstanding  on  each loan. Overall cap of admissible guarantee raised from Rs. 3 lakh crore to Rs. 4.5 lakh crore.
3. Extension of Atmanirbhar Bharat Rozgar Yojana Launched on 1st Oct, 2020. Scheme extended  from  30.6.2021  to  31.03.2022. Incentivizes  employers  for  creation  of  new employment, restoration of loss of employment through EPFO. Approved outlay Rs. 22,810 crore for 58.50 lakh estimated beneficiaries. Last date for registration is 30.06.2021. Subsidy provided for two years from registration for new employees drawing monthly wages less than Rs. 15000 for:
4. (I)  Both  Employer's  and  Employee's  share  of  contribution  (total  24%  of  wages)  for establishment strength upto 1000 employees.
5. (ii)  Only Employee's share (12% of wages) in case of establishment strength of more than 1000.
4. Rs. 88,000 crore Boost to Export Insurance Cover Export Credit Guarantee Corporation (ECGC) promotes exports by providing credit insurance services. Proposed to infuse equity in ECGC over 5 years to boost export insurance cover by Rs. 88,000 crore.

## D. Measures taken by Reserve Bank of India

1.  As  credit  facilities  to  MSME  borrowers,  extended  under  the  emergency  credit  line guarantee scheme of GoI guaranteed by national credit guarantee trustee company (NCGTC), are  backed  by  an  unconditional  and  irrevocable  guarantee  provided  by  the  GoI,  member lending  institutions,  viz.,  SCBs  (including  scheduled  RRBs),  NBFCs  (including  HFCs  as eligible under the scheme) and AIFIs, permitted to assign zero per cent risk weight on the credit facilities extended under the ECLGS scheme to the extent of guarantee coverage.
2.  In view of the need to support viable MSME entities on account of the fallout of COVID19, the scheme of one-time restructuring of loans to MSMEs without an asset classification downgrade, was extended where the borrower's account was a 'standard asset' as on March 1, 2020 and the aggregate exposure of banks and NBFCs was not more than Rs.25 crore. The restructuring had to be implemented by March 31, 2021, subject to certain conditions.
3. Scheduled  Commercial  Banks  allowed  to  deduct  credit  disbursed  to  new  MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio. To further incentivize the inclusion of the MSMEs into the banking system, this exemption, available for exposures up to Rs 25 lakh and credit disbursed up to October 1, is being allowed until December 31, 2021.
4. Special liquidity facility of Rs 16,000 crore to  Small Industries Development Bank of India (SIDBI) for on-lending/refinancing through novel models and structures available at the prevailing policy repo rate for a period of up to one year.
5. Restructuring  of  MSME  Accounts  under  Resolution  Framework  2.0: Individual borrowers, small businesses and MSMEs having aggregate exposure of up to Rs 25 crore and classified  as  'Standard'  as  of  March  31,  2021,  are  eligible  for  the  latest  framework.  They, however, shouldn't have availed restructuring under any of the earlier frameworks (including the August 2020 resolution). Restructuring under the latest framework needs to be invoked up to September 30, 2021 and shall have to be implemented within 90 days after invocation.

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