Union Budget 2024: MSMEs to breathe easy with 'credit oxygen'

Bengaluru: Finance Minister Nirmala Sitharaman has unveiled a comprehensive package to propel the growth of micro, small, and medium enterprises (MSMEs).

She stated that this Budget will cover financing, regulatory changes and technology support for MSMEs to help them grow and compete globally.

The Budget has provided a credit guarantee scheme to facilitate the accessing of loans by MSMEs and enable them to purchase machinery, equipment without collateral or third-party guarantee.

"The (credit guarantee) scheme will operate on pooling of credit risks of such MSMEs. A separately constituted self-financing guarantee fund will provide, to each applicant, guarantee cover up to Rs 100 crore, while the loan amount may be larger. The borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance",  said Sitharaman.

Moreover, there is a new mechanism for facilitating continuation of bank credit to MSMEs during their stress period. While being in the ‘special mention account’ (SMA) stage for reasons beyond their control, MSMEs need credit to continue their business and to avoid getting into the NPA stage.

The limit on Mudra loans has been raised for entrepreneurs who have availed and successfully repaid previous loans under the ‘Tarun’ category, from Rs 10 lakh to Rs 20 lakh.

"While the budget is promising, a more detailed timeline and a stronger emphasis on digital implementation within MSMEs, particularly in IoT and digital technologies, would have been beneficial," said Dr S  Devarajan, President of BCIC.

"Transparency and digitalisation are paramount for development, and improving quality consistency is crucial for accessing international markets. The increase in Mudra loan limits to Rs 20 lakh is a positive step towards ensuring MSMEs have access to affordable credit," he added.

MSMEs can now get access to cash by selling their unpaid invoices (trade receivables) on a platform called TReDS. Currently, only big companies (with a turnover of Rs 500 crore) are allowed to use this platform.This threshold is being lowered to Rs 250 crore, facilitating more companies to use the platform.

"To facilitate exports, the government is also establishing e-commerce export hubs and making it easier for MSMEs to participate in the TReDS platform. These measures can help drive growth at grassroots level," said  Saurabh Agarwal, Partner, EY

According to Sitharaman, this measure, besides including  medium enterprises, will also bring 22 more central public sector enterprises and 7,000 more companies onto the platform. 

The government is also extending the presence of the Small Industries Development Bank of India to all major MSME clusters within 3 years. With the opening of 24 such branches this year, the service coverage will expand to cover 168 out of 242 major clusters.

It also proposes a new assessment model for MSME credit by public sector banks which will not rely on external assessment. This will be based on the digital footprint of MSMEs in the economy, rather than only on assets and turnover criteria traditionally used, the minister said.

Financial support for setting up of 50 multi-product food irradiation units in the MSME sector will be provided. It will also facilitate the setting up of 100 food quality and safety testing labs with National Accreditation Board for Testing and Calibration Laboratories  accreditation, she added.

Union Budget 2024 LIVE | Making a record for any Finance Minister, Nirmala Sitharaman presented her 7th consecutive Union Budget on July 23, 2024 under the Modi 3.0 government. This Budget brought tax relief for the middle class, while focusing on jobs through skilling, incentivising employers. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.