Budget 2024: The game changer for MSMEs

The Union Budget 2024 brings a focused and strategic approach to supporting one of our key growth pillars, the innumerable Micro, Small, and Medium Enterprises (MSMEs), with an emphasis on bolstering India’s overall manufacturing credentials, especially in labour-intensive sectors.

Enhanced Financial Support for MSMEs: This Budget could very well be a game changer for MSMEs, addressing several key pain points and offering a comprehensive support package. The funding gap, estimated to be between $390 billion to $530 billion, needs to be addressed if India is to fulfil its dreams of becoming a developed nation with a significant manufacturing base. Thus, one of the standout features of the Budget is the increase in the MUDRA loan limit under the ‘Tarun’ category from ?10 lakh to ?20 lakh – intended to help entrepreneurs who have successfully repaid previous loans. This would enable them to secure larger loans for business expansion.

To support MSMEs further in acquiring machinery and equipment, the government has introduced an innovative credit guarantee scheme. This scheme will pool the credit risks associated with MSMEs, offering a self-financing guarantee fund that provides a cover up to ?100 crore per applicant, even if the loan amount exceeds this limit. This new mechanism is set to significantly improve The credit access for MSMEs, removing the barriers of collateral and third-party guarantees.

Revamping Credit Assessment: In a major shift, public sector banks will now enhance their in-house capabilities to assess MSMEs for credit, reducing reliance on external evaluations. A new credit assessment model, based on the digital footprints of MSMEs, will be developed. This model is expected to be a substantial improvement over the traditional assessments, which often rely solely on asset or turnover criteria. It will also include MSMEs that lack formal accounting systems, thereby broadening the scope of credit availability. These initiatives will also benefit formal lenders like banks and NBFCs to support MSMEs.

Similarly, the move to provide financial support for establishing 50 multi-product food irradiation units and 100 food quality and safety testing labs with NABL accreditation is aimed at being par with global food safety standards.

Succour in financial distress: The Government has been extending vital support to MSMEs during the financial and economic distress as seen in the past. The move to designate MSMEs in the ‘special mention account’ (SMA) category had helped them avoid the NPA status and get further credit. The Budget has conceived a guarantee from a government-promoted fund, providing financial support to MSMEs to sustain the operations, especially in times of crises and stress. Such enhanced loan limit will facilitate continued bank credit.

Expansion of SIDBI branches: To improve the access of MSMEs to direct credit through the Small Industries Development Bank of India (Sidbi), the Budget proposes to open 24 new branches this year across major MSME clusters. With this, there will be a Sidbi presence in 168 out of 242 major clusters within three years. The move to lower the turnover threshold of buyers for mandatory onboarding (on the TReDS platform) from ?500 crore to ?250 crore will bring 22 more Central PSEs and 7,000 additional companies on to the platform, thereby enhancing its efficiency and viability.

The Budget has created an atmosphere of growth, relevance and scale of MSMEs by focusing on functional and operational aspects of respective sectors. MSMEs must utilise the opportunity to become globally viable manufacturing units.