Centre widens definition of MSMEs; FM announces 30,000 cr special liquidity scheme for NBFCs, HFCs and MFIs
Besides announcing Rs 30,000 crore special liquidity scheme for non-banking finance companies (NBFCs), housing finance companies and micro-finance institutions, the FM widened definition of MSMEs
In a major move to benefit several businesses in the country, the Centre has decided to review the definition of micro, small and medium enterprises (MSME) and announced increase of investment limits.
Addressing the media in Delhi, Finance Minister Nirmala Sitharaman said the additional criteria of turnover has also been introduced for recognition of an MSME.
Further, the government has also done away with the distinction of services and manufacturing MSME.
As per the new changes, businesses with investment of less than Rs 1 crore and turnover of Rs 5 crore would be classified as micro enterprises. Under the existing criteria, a company with investment of less than Rs 25 lakh in the manufacturing sector and less than Rs 10 lakh in the services sector were considered micro enterprises.
The investment limit of small enterprises has been increased to Rs 10 crore, and the companies would have to have turnover of less than Rs 50 crore.
Further, the investment limit for medium enterprises has been increased to Rs 20 crore and the turnover limit has been kept at Rs 100 crore.
Sitharaman said that the necessary amendments to laws will be brought about to give effect to the changes.
Among other measures for MSMEs, she also announced a collateral free automatic loans for businesses including MSMEs up to Rs 3 lakh crore.
Under the measure, borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover would be eligible for the special collateral free loan.
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Accordingly, the investment limit for defining MSMEs has been revised upwards, said the FM.
Besides, she highlighted that additional criteria such as turnover has been considered for defining MSMEs.
The Centre has also decided not to go in for global bidding for government procurement for tenders up to Rs 200 crore, thereby, promoting the participation of MSMEs, she said.
In addition, e-market linkage for MSMEs will also be provided and that CPSEs will pay all receivables to MSMEs within 45 days.
The finance minister announced a Rs 30,000 crore special liquidity scheme for non-banking finance companies (NBFCs), housing finance companies (HFCs) and micro-finance institutions (MFIs).
Finance Minister Nirmala Sitharaman noted that these finance institutions are finding it difficult to raise money in debt markets and many institutions have not been able to take advantage of the recent relaxations given by the government and the Reserve Bank of India.
Under the scheme, investments will be made in both primary and secondary market transactions in investment grade debt paper of these institutions.
She said that the scheme will support the previous initiatives of the government and the central bank to boost liquidity.
The securities under the scheme will be fully guaranteed by the Central government.
As per the government, the scheme would provide liquidity support to mutual funds along with NBFCs, HFCs and MFIs and create confidence in the market.
Further, the government has also announced Rs 45,000 crore partial credit guarantee scheme for NBFCs.
Under the scheme, first 20 per cent loss will be borne by Cenre, and even unrated papers will be eligible for investment, enabling NBFCs to reach out even to MSMEs in far-flung areas.
The step has been taken as NBFCs, HFCs and MFIs with low credit rating require liquidity to do fresh lending to MSMEs and individuals.
The measure is a part of the Rs 20 lakh crore economic package announced by Prime Minister Narendra Modi on Tuesday evening.