Union Budget 2024: FM Nirmala Sitharaman Gives Boost to MSMEs Finance Minister Nirmala Sitharaman announced the Budget for 2024, giving a significant boost to MSMEs through a self-financing guarantee fund providing coverage of up to INR 100 crore per applicant

Finance Minister of India, Nirmala Sitharaman, on Tuesday, presented the Budget for 2024-25 facilitating Micro, Small, Medium Enterprises (MSMEs) in coverage funds. This budget provides special attention to MSMEs and manufacturing, particularly labour-intensive manufacturing; formulating a package covering financing, regulatory changes and technology support for MSMEs to help them grow and also compete globally, as mentioned in the interim budget.

"For facilitating term loans to MSMEs for purchase of machinery and equipment without collateral or third-party guarantee, a credit guarantee scheme will be introduced. The 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 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," declared Nirmala Sitharaman.

Public sector banks are to build their in-house capability to assess MSMEs for credit, instead of relying on external assessment. They will also take a lead in developing or getting developed a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy. This is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. It will also cover MSMEs without a formal accounting system.

The budget includes a new mechanism for facilitating continuation of bank credit to MSMEs during their stress period. While being in the SMA (special mention account) stage for reasons beyond their control, MSMEs need credit to continue their business and to avoid getting into the NPA (non-performing assets) stage. Credit availability will be supported through a guarantee from a government promoted fund. For this, the limit of Mudra loans is announced to be enhanced to INR 20 lakh from the current INR 10 lakh for those entrepreneurs who have availed and successfully repaid previous loans under the 'Tarun' category.

"This budget is a game changer for the mobile industry and the MSME segment under the 'Made in India' initiative. The enhanced credit guarantee scheme and the facilitation of term loans for machinery purchases are set to invigorate the manufacturing sector. The tailored package for technology support and the new bank credit mechanism will significantly enhance digital capabilities and financial stability for new businesses and investments. By unlocking working capital and expanding the Mudra loan to INR 20 lakh, the government is empowering manufacturers to scale up operations without the burden of collateral. These measures will not only drive growth but also reinforce India's position as a global manufacturing hub for mobile devices," said Kannav Thukral, managing director, BlackZone mobiles.

For facilitating MSMEs to unlock their working capital by converting their trade receivables into cash, the Budget proposes to reduce the turnover threshold of buyers for mandatory onboarding on the TReDS (trade receivables electronic discounting system) platform from INR 500 crore to INR 250 crore. This measure will bring 22 more CPSEs (central public sector enterprises) and 7000 more companies onto the platform. Medium enterprises will also be included in the scope of the suppliers.

SIDBI (small industries development bank of India) will open new branches to expand its reach to serve all major MSME clusters within three years and provide direct credit to them. With the opening of 24 such branches this year, the service coverage will expand to 168 out of 242 major clusters. Financial support for setting up of 50 multi-product food irradiation units in the MSME sector will be provided. Setting up of 100 food quality and safety testing labs with NABL accreditation will be facilitated.

To enable MSMEs and traditional artisans to sell their products in international markets, e-commerce export hubs will be set up in public-private-partnership (PPP) mode . These hubs, under a seamless regulatory and logistic framework, will facilitate trade and export related services under one roof.

"We recognize the transformative potential of this scheme. Our experience shows that access to finance is a critical barrier for many MSMEs looking to scale their operations and modernise their production processes. We advise MSMEs to leverage this opportunity to invest in state-of-the-art machinery and equipment, which can lead to enhanced operational efficiency and better market positioning," stated Abhishek Gupta, founder and managing partner, Pierag Consulting LLP.