Credit support for MSMEs; Mudra loan limit raised to ₹20 lakh

• The Union Budget has a package of support measures for the micro, small, and medium enterprises (MSMEs) and the labour-intensive manufacturing sector.

Highlights:

• According to the Economic Survey tabled on Monday, the contribution of MSMEs to all-India manufacturing output in FY22 was 35.4% and the share of MSME-made products in exports in FY24 was 45.7%.
• “This Budget provides special attention to MSMEs and manufacturing, particularly labour-intensive manufacturing. We have formulated a package covering financing, regulatory changes, and technology support for MSMEs to help them grow and also compete globally,” Finance Minister Nirmala Sitharaman said.
• The Budget proposes a credit guarantee scheme that will work on pooling of credit risks of MSMEs to facilitate term loans for purchase of equipment without collateral or third-party guarantee. A separately constituted self-financing guarantee fund will provide, to each applicant, a guarantee cover up to ₹100 crore, while the loan amount may be larger. The borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reduced loan balance.
• Public sector banks will build in-house capabilities to assess MSMEs for credit. They will take the lead in developing a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy so that those without a formal accounting system are also covered.
• The limit of Mudra loans will be enhanced to ₹20 lakh from ₹10 lakh for those who have repaid previous loans under the ‘Tarun’ category.
• E-commerce export hubs will be set up on public-private-partnership mode so that MSMEs and traditional artisans sell their products in the international markets.
• An investment-grade energy audit of traditional MSMEs will be done in 60 clusters and financial support will be provided to shift them to cleaner forms of energy. Rental housing with dormitory type accommodation for industrial workers will also be facilitated on PPP mode.

Prelims Takeaway:

• MSME
• Mudra Loans