Lifeline for MSMES dragged down by pandemic

The pandemic and ensuing economic crisis have disproportionately impacted micro, small and medium enterprises (MSMEs). A large number of them face dire operational and financial constraints including a shortage of working capital, difficulty in recovery of amounts from debtors, limited availability of raw materials, and a labour crunch, leading to an existential crisis for some of them.

To support MSMEs and help them survive the pandemic, the government has introduced a host of measures under the Atma Nirbhar Bharat Scheme. This update summarizes and analyses the key changes introduced under the scheme and looks at their implications for MSMEs.

Eligibility criteria and threshold

An enterprise qualifies as an MSME depending upon the amount of investment made with respect to: (1) plant and machinery, in case it undertakes manufacturing; or (2) equipment, in case it provides services. In addition to this existing investment condition, a new criterion for turnover has been introduced, and the prescribed investment thresholds for being included within the definition of MSME have been increased. Additionally, the distinction between manufacturing and services industries has been done away with.

Financing measures

The government has announced several financial measures to help bring additional liquidity and stimulus to MSMEs. Key measures include:

(1) Emergency credit line guarantee scheme. To help MSMEs meet their operational liabilities, purchase raw materials and restart their business, the government has announced the emergency credit line guarantee (ECLG) scheme. This scheme is being operationalized through the National Credit Guarantee Trustee Company (NCGTC).

The guaranteed emergency credit line under the ECLG scheme is a loan to be made available by member lending institutions (MLIs) to MSMEs, for which 100% guarantee would be provided by the NCGTC to the MLIs. All scheduled commercial banks, as well as non-banking financial companies (NBFCs) and financial institutions that meet the prescribed criteria, are eligible to be MLIs.