MSME Budget 2024-25
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Reason for discussion
The recent Union Budget 2024-25 introduced several measures to strengthen the Micro, Small and Medium Enterprise (MSME) sector.
These initiatives include introduction of a new MSME credit assessment model, increase in credit limit, expansion of SIDBI branches, creation of e-commerce export centers and reduction of onboarding limit for Trade Receivables Discount System (TReDS).
What is MSME?
MSME stands for Micro, Small and Medium Enterprises, which are businesses involved in the production, processing and preservation of goods and commodities. They are generally classified on the basis of their investment in plant and machinery for manufacturing or equipment for service enterprises as well as their annual turnover.
Present Status of MSME Sector
- The MSME manufacturing sector contributes 40.83% to India's total manufacturing gross value added (GVA) and accounts for 45.56% of the country's total exports.
-Of the estimated 633.88 lakh MSMEs in India, 51.25% are located in rural areas, of which 66.27% are owned by socially disadvantaged groups.
- According to the 73rd round of the National Sample Survey (NSS), the MSME sector has created 11.10 crore jobs.
New provisions related to MSME sector in Budget 2024-25
Credit Guarantee Scheme
Enables MSMEs to avail term loans for machinery and equipment without any third party guarantee.
Extended credit guarantee
A self-financed fund offers a guarantee of up to Rs 100 crore per borrower, requiring an upfront and annual fee from the borrower.
New evaluation model
Public sector banks will adopt digital footprint-based credit assessment for MSMEs, deviating from traditional asset and turnover norms.
Lower turnover limit for TReDS
The mandatory onboarding turnover limit on the TReDS platform will be reduced from Rs 500 crore to Rs 250 crore, thereby encouraging greater participation of MSMEs.
Major initiatives and schemes for the MSME sector
RAMP scheme
The Ramping Up and Accelerating MSME Performance (RAMP) scheme aims to increase market and credit access, strengthen institutions and governance at both the central and state levels, improve centre-state cooperation and address issues such as delayed payments and environmental sustainability for MSMEs. is designed to address
FIRST
Forum for Internet Retailers, Sellers and Traders (FIRST) aims to raise awareness and support for MSMEs in India to embrace digitization and become self-reliant.
It advocates for MSMEs involved in online sales, representing their interests before government officials and policy makers.
Champions Portal
Launched in 2020, the portal is a technology-driven platform that helps MSMEs address their grievances, provide support and boost their growth by providing single-window solutions.
MSME Solutions
A monitoring system for delayed payments, MSME Solution allows MSME suppliers to directly file cases related to delayed payments with Central Ministries, Departments, CPSEs or State Governments.
Invigoration plan
The objective of the Fund Scheme for the Revival of Traditional Industries (संदर्भी) is to organize traditional industries into clusters to make them more productive and competitive, thereby supporting their long-term sustainability and economies of scale.
MSME relations
This public procurement portal monitors the implementation of public procurement policy for MSMEs and tracks the procurement of Central Public Sector Enterprises from MSMEs.
Challenges related to MSME sector
Access to credit
Limited access to formal credit remains a significant challenge for MSMEs. Only 16% of MSMEs have access to formal credit and according to the report of the Standing Committee on Finance 'Strengthening Credit Flow in the MSME Sector', the credit gap in the MSME sector is around Rs 20-25 lakh crore.
Technology adoption
Many MSMEs face difficulties in adopting modern technologies due to lack of awareness and financial constraints. Especially in rural areas, MSMEs often lack access to digital tools and platforms required for e-commerce and modern business practices.
Skill development
The MSME sector suffers from a critical shortage of skilled workers. According to the report on National Policy on Skill Development and Entrepreneurship, only 4.7% of India's workforce has received formal skills training, compared to 52% in the US, 80% in Japan and 96% in South Korea.
Delayed payment
Delayed payments from large companies and government agencies create financial stress for MSMEs. It is estimated that the amount of delayed payments to MSMEs is Rs 10.7 lakh crore annually.
Next steps
Increase access to credit
Expand and simplify credit guarantee schemes by encouraging banks to create financial products specifically tailored for MSMEs.
Accelerating Technology Adoption
Launch a comprehensive digital literacy program for MSMEs and provide financial incentives to acquire new technologies.
Overcoming skill shortages
Develop sector-specific skill development programmes, encourage MSMEs to join apprenticeship schemes and match workforce skills with industry needs.
