The Union Cabinet on Monday said it has approved and further revised the definition of MSMEs in the country, given the go ahead to setting up the Rs 20,000 crore subordinate debt for stressed MSMEs and equity infusion of Rs 50,000 crore through a fund of funds.
Accordingly a business will now be classified as ‘micro’ units if they have investments upto Rs 1 crore and turnover of less than Rs 5 crore.
For an MSME to be defined as a ‘small’ unit, its investment limit has been raised from Rs 5 crore to Rs 10 crore with a turnover of less than Rs 50 crore. Whereas enterprises with investments up to Rs 50 crore with a turnover of less than Rs 250 crore will now be defined as ‘medium’ units. All differences between manufacturing and services in terms of definition has been eliminated.
Announced by Finance Minister
Nirmala Sitharaman on May 13 as a part of the economic stimulus package, the proposed definition for medium enterprises was earlier kept at a turnover of Rs 100 crore and invetment was kept at Rs 20 crore. This had led to many questioning the low threshold of the definition.
“We interacted with different association and they wanted an increase in the threshold for medium businesses. The Government has decided to accept their suggestions. It has also been decided that export turnover will not be a part of the definition,” sayid Minister for MSME,
Nitin Gadkari.
The existing definition of MSMEs as per the MSMED Act 2006 is done on the basis of investments put in, but the revised definitions now also include turnover of the company.
The cabinet has also approved the provision that was made of Rs. 20,000 crore subordinate debt for two lakh MSMEs, which are NPA or are stressed. Government will support MSMEs with Rs. 4,000 crore to Credit Guarantee Trust for Micro and Small enterprises (CGTMSE). Banks are expected to provide the subordinate-debt to promoters of MSMEs equal to 15% of his existing stake in the unit subject to a maximum of Rs 75 lakhs.
Similarly, the Government announced it will set up a Fund of Funds with a corpus of Rs 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 is expected that with leverage of 1:4 at the level of daughter funds, the Fund of Funds will be able to mobilise equity of about Rs 50,000 crores.
The Fund of Funds is expected to benefit over 25 lakh MSMEs under stress.
It has been a particularly challenging time for the MSME sector that has been reeling under the harsh impact of the Covid-19
pandemic. With manufacturing units being shut for a considerable period of time and migrant labourers also returning home, many of the MSMEs have been on the brink of closing down all operations. In a bid to make this crucial sector of the economy survive, the FM in her first tranche of the stimulus had laid out specific boosters that could offer some relief to this ailing industry. This included Rs 3-lakh crore collateral-free automatic loans for MSMEs.
According to Animesh Saxena, President, FISME, there is a need to see the finer details of the government's announcement on equity infusion for MSMEs through Fund of funds. “According to the last announcement, only a small percentage of MSMEs have shown their interest in the government’s announcement. This is mainly due to the fact that 97% of MSMEs are not in the corporate sector. Technically, they are either partnerships or proprietorships. So, only 3% of firms that are either private limited or LLP are expected to benefit from the said move. That's why we expect the Government to come out with an announcement that addresses this anomaly because largely MSMEs have been out of this. Ideally, the existing criteria bracket should be widened,” says Saxena.