MSME Budget 2024-25 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

MSME Budget 2024-25

Why in the News?

• In the Union Budget 2024-25, the government introduced several initiatives aimed at bolstering the Micro, Small, and Medium Enterprises (MSME) sector. These include a new MSME credit assessment model, enhanced Mudra loan limits, expanded SIDBI branches, the creation of e-commerce export hubs, and the reduction of the onboarding threshold for the Trade Receivables Discounting System (TReDS).

What are MSMEs?

MSME refers to Micro, Small, and Medium Enterprises, which are involved in producing, processing, and preserving goods. They are classified based on their investment in plant and machinery for manufacturing or equipment for service enterprises, as well as their annual turnover:

• Micro Enterprise: Up to Rs 1 crore investment, up to Rs 5 crore turnover.
• Small Enterprise: Up to Rs 10 crore investment, up to Rs 50 crore turnover.
• Medium Enterprise: Up to Rs 50 crore investment, up to Rs 250 crore turnover.

Current Status of the MSME Sector

According to the Ministry of Statistics & Programme Implementation, MSMEs contribute 40.83% to India’s total manufacturing Gross Value Added (GVA) and 45.56% of total exports. As per the 2023-24 Annual Report of the Ministry of MSME, micro-enterprises make up over 99% of MSMEs, while small and medium enterprises constitute 0.52% and 0.01% respectively. Among the 633.88 lakh estimated MSMEs, 51.25% are in rural areas, and 66.27% are owned by socially backward groups. The National Sample Survey’s 73rd round reported that MSMEs have created 11.10 crore jobs.

Key Provisions in the Budget 2024-25 for MSMEs

• Credit Guarantee Scheme: Facilitates MSME loans for machinery and equipment without collateral or third-party guarantees.
• Expanded Credit Guarantee: Provides guarantees up to Rs 100 crore per borrower through a self-financing fund, with fees required from the borrower.
• New Credit Assessment Model: Public sector banks will adopt digital footprint-based assessments for MSMEs instead of relying on asset and turnover criteria.
• Stress Period Support: Offers continued credit to stressed MSMEs, increases the Mudra loan limit from Rs 10 lakh to Rs 20 lakh for those who have repaid Tarun category loans.
• Lowered TReDS Threshold: Reduces the mandatory turnover threshold for onboarding MSMEs on the TReDS platform from Rs 500 crore to Rs 250 crore.
• SIDBI Branch Expansion: Plans to open 24 new SIDBI branches this year to expand service to 168 major MSME clusters.
• Financial Support for Quality & Export: Provides funds for 50 irradiation units, 100 NAB-accredited testing labs, and the establishment of e-commerce export hubs for MSMEs.

Major Schemes for MSMEs

• RAMP Scheme: Enhances market and credit access for MSMEs and addresses delayed payments and environmental sustainability.
• FIRST: Promotes awareness of digitalization and self-reliance for MSMEs involved in online sales.
• TReDS Scheme: Facilitates financing of MSME trade receivables through multiple financiers.
• CHAMPIONS Portal: Assists MSMEs with grievances and growth via a single-window technology platform.
• Udyam Registration: Simplifies MSME registration, replacing the Udyog Aadhaar system.
• MSME Samadhan: Monitors delayed payments to MSMEs and allows them to directly register cases.
• SFURTI Scheme: Organizes traditional industries and artisans into clusters to enhance productivity.
• CLCSS: Provides a 15% subsidy for MSMEs upgrading technology.
• SCLCSS: Offers a 25% subsidy on machinery for SC-ST MSEs to encourage public procurement.
• MSME Innovative Scheme: Supports MSME innovation through incubation, design, and intellectual property rights.
• MSME SAMBANDH: Monitors public procurement from MSMEs.
• ASPIRE Scheme: Promotes innovation and entrepreneurship in rural areas.
• PMEGP: Provides subsidies for setting up micro-enterprises to generate employment.
• CGTMSE: Offers collateral-free credit to MSMEs by providing credit guarantees to financial institutions.
• MSE-CDP: Supports the growth of MSMEs through the establishment of common facility centers.

Challenges Faced by MSMEs

• Credit Access: Only about 16% of MSMEs have formal credit access, with a credit gap estimated at Rs 20-25 lakh crore.
• Technology Adoption: Many MSMEs face difficulties in adopting modern technologies due to a lack of awareness and financial constraints.
• Skill Development: There is a shortage of skilled labor, with only 4.7% of the workforce having formal training.
• Market Access: MSMEs struggle to access domestic and international markets due to limited resources and knowledge.
• Regulatory Compliance: Complex and changing regulations increase the compliance burden on MSMEs.
• Infrastructure Constraints: Inadequate infrastructure, including unreliable power and poor transportation, hampers MSME productivity.
• Delayed Payments: MSMEs face significant issues with delayed payments from buyers, with an estimated Rs 10.7 lakh crore owed annually.

Way Forward

• Enhancing Credit Access: Streamline credit guarantee schemes and develop MSME-specific financial products.
• Accelerating Technology Adoption: Promote digital literacy and offer incentives for technology acquisition.
• Addressing Skill Shortage: Implement sector-specific training programs and align skills with industry needs.
• Improving Market Access: Increase awareness of market opportunities and reduce barriers to international trade.
• Tackling Delayed Payments: Enforce timely payment provisions under the MSME Development Act, 2006, more strictly.