How the MSME Sector has become ‘AatmaNirbhar’?

Micro, Small, & Medium Enterprises (MSME) and industries will begin to benefit from the Aatmanirbhar Bharat Abhiyan package from the government. It is a 2 million crore package to incentivize this sector. Equivalent to about 10 percent of the country’s gross domestic product, the package will be released in phases.

Why MSMEs are endangered and at risk?

Although MSMEs are one of the fastest growing sectors, there are many businesses that fail to leverage opportunities due to government policies, international competition, and lack of capital in the form of MSME loan products. MSMEs employ more than 40 percent of the total Indian workforce strength. MSMEs have a significant and important contribution to the country’s GDP.

MSMEs are considered at risk due to a variety of factors. Unfair foreign competition is one among them. It is especially true with competition from Chinese imports. Previously these imported goods were made in India at quality. But now they are imported from China at half the price and questionable quality. The import of such goods decreases the demand for services of MSMEs.

What are the benefits to MSMEs with the AatmaNirbhar program?

The following is a summary of changes under the AatmaNirbhar program.

Borrowing limits	Increased to 5% from 3% providing Rs. 4.5 lakh crore funds.
Collateral free loans	20 percent of their outstanding credit can be borrowed by MSMEs
Fund of Funds	Rs. 10,000 allotted for providing equity funding for MSMEs
EPF	Employee Provident Fund benefits will be extended to MSME workers
Street vendors	Street vendors will have access to easy credit. They can avail an initial capital of Rs. 10,000.
Global tender policies	Global tenders will be disallowed up to Rs. 200 crore for government procurement tenders.
MSME definition	Limits of investment have been increased so that MSMEs can expand their businesses.
Agri infrastructure funds	Agricultural infrastructure projects will receive in total funds up to Rs. 1 lakh crore.
Amendment to insolvency code	Insolvency threshold has been raised to Rs. 1 crore. Pandemic related debt will be removed from the default clause of the Insolvency and Bankruptcy Code.
Ease of doing business	Indian public companies can directly list securities in foreign jurisdictions. Debt instruments such as non-convertible debentures can be floated by companies to raise short and long term business capital in foreign jurisdictions.

Revision of investment potential

Previously, MSMEs were classified based on the investment made by them in plant, machinery and equipment. So to continue to enjoy benefits they had to stay invested in a particular range. In the manufacturing sector, micro, small and medium enterprises had an investment cap of Rs. 25 lakh, Rs. 5 crore, and Rs. 10 crore respectively. In the services sector, MSMEs had an investment cap of under Rs. 10 lakhs, Rs. 2 crore, and Rs. 5 crore respectively.

Under the revised scheme, MSMEs’ investment potentials in both the sectors have been increased four-fold. This revision will allow these industries to scale by taking MSME loan sources and yet retain their MSME status. It will not only allow them to enjoy the benefits offered to MSMEs but also to scale their businesses to generate higher profits.

Emergency line of credit

Research data showed that MSMEs were affected due to the pandemic. They needed funds for business continuity, purchase of raw materials, operational expenses etc and a lot of MSMEs sought information on loan products from Lendingkart. The government allotted Rs. 3 lakh crore for MSME’s under the AatmaNirbhar Abhiyan scheme so that MSME’s can resume their activities.

Importantly, the money was disbursed to the current accounts of MSMEs without the need for furnishing any collateral. Loan tenure was fixed at four years max and a moratorium was applied on the principal repayment for up to a year.

Subordinate debt

The government of India allotted subordinated debt to the extent of Rs. 20,000 crore. This money is to help MSMEs that were stressed due to debt to restore their activities. The Credit Guarantee Funds Trust for Micro and Small Enterprises was setup in this regard, which provided line of credit to banks that in turn provided the funds to MSMEs based on some specified criteria. The intent of the funds was to infuse debt equity into MSMEs and help them revive their businesses.

Equity infusion

The government setup a Fund of Funds (FoF) to provide equity and MSME loan instruments to MSMEs. The FoF was invested with funds up to Rs. 10,000 crore. The fund management was done with two sub-funds namely Mother and Daughter funds. Only those MSMEs that had potential for growth are identified. Equity funding is given to fund capacity and business expansion. With an increased capacity, there is a potential to increase turnover and get listed on the stock exchanges

Fair competition

The Aatmanirbhar Abhiyan scheme ensures that MSMEs are exposed to fair competition. This is especially true in the case of global tenders involving government procurement. Foreign companies had more advantage. MSMEs were often discouraged to participate in such tenders due to unfair competition.

Under this scheme, the government disallows participation of foreign entities in tenders for government procurement up to Rs. 200 crore. It allows MSMEs to participate and also supports the larger Make in India initiative of the government. MSMEs can utilize funding source information from lendingkart.com to rope in funds for business expansion.

Registration for the AatmaNirhar Abhiyan program?

Registration for the program was commenced from July 2020. MSME’s, the existing ones and newly formed ones are required to fill the Udyam form. It is an online form and provides the basis for self-certification. The mandatory KYC document for registration is the AADHAR no.

For an individual the AADHAR is of the individual
For a Hindu Undivided Family, the AADHAR number is that of the Karta’s.
In case of a partnered firm, the AADHAR of the managing partner is to be furnished.
In case of a limited liability company, partnership, trust, society, cooperative society, the AADHAR number of the relevant entity’s authorized signatory is to be provided.
After registering, the MSME receives an Udyam Registration Certificate. The registration process is optional.

FAQs

What is the AatmaNirbhar program?

It is a government of India initiative to protect the interests of MSMEs.

What is the package amount under the AatmaNirbhar program?

The package amount is Rs. 20 lakh crore.

What is subordinate debt program?

Stressed businesses with NPAs will be infused with equity and MSME loan products for business restructuring.

Will MSMEs receive impending payments from the government?

After registration for the AatmaNirbhar Abhiyan program, payments due to MSMEs from the government will be resolved with 45 days.

Up to what amount of investment are foreign entities prohibited from participating in tenders for government procurement?

Foreign entities are prohibited up to Rs. 200 crore.

What is AatmaNirbhar Bharat?

Bharat Abhiyan initiative is an overarching initiative for all businesses including MSMEs.

Apart from MSMEs who else is benefited from this program?

Farmers, real estate, salaried class, banks, NBFCs are benefited under the program.