Up to 100% of loans given to MSMEs would be sovereign-backed under the new scheme so that national credit pours into MSMEs.

The Micro, Small and Medium Enterprises in India, the MSMEs is a sector in the country which comprised 30.3% of the gross domestic product (GDP) in the Financial Year 2019. In 2018 too, it comprised 29.7% of the GDP, as per the data collected by LiveMint. 

Notwithstanding the fact that India depends in an enormous way on its small-scale industries, the flow of credit to these companies had been slack in the past few years. The reason was that the small-scale industries are started with a high risk. Also, the COVID-19 emergency has made most of the small-scale workers and industrialists its casualties, and the death toll is rising every day.

Hence, negotiations were being made by banks all across the country, making pleas to the government to sanction these loans at hundred per cent guarantee from the government. 

RBI data shows that as of 28th February 2020, banks have lent a total of 4.78 trillion rupees to small businesses. However, with the threat of COVID-19 lurking around, the operations of small businesses in India are under increased risk and some of them are at the edge of closure not having even working capital to continue. Therefore, the banks requested the Union government to fully guarantee these loans of at least 50,000 crore. The request was made through the Indian Banks’ Association (IBA) and the proposal was under examination. This will be a step to contain the pandemic. 

The current Credit Guarantee Fund Trust for MSMEs (CGTMSE) scheme guarantees between fifty and eighty five per cent of loans up to 2 crore, whereas the lender banks now want the guarantee to be given for the entire loan and not be restricted to 2 crore. The original scheme was introduced in the year 2000 and enabled the small-scale industries to borrow at cheaper rates from banks and non-banks. 

The government has approved the proposal in order that the economy gets the required boost after the lockdown ends. A top government official who was acquainted with the situation remarked, “Up to 100% of loans given to MSMEs (micro, small and medium enterprises) would be sovereign-backed under the new scheme so that national credit pours into MSMEs.” (Source: Business Today)

The size of the funds has not been clearly declared yet, but the guarantee offered by the government will be from 25 to 100 % depending upon the risk categorization by the lending institutions. The scheme is going to be revealed soon according to the government officials. 

In lieu of the proposal, the small firms will be eligible to borrow an additional 20% of their credit limit as a part of their working capital. The extra debt will be fully backed by Prime Minister Narendra Modi’s administration. The government will set up a special fund to pay for any defaults. (Source: Economic Times)

It has been done keeping in view the fact that our agro-based economy should not shatter after the lockdown, and that the flow of credit to the MSMEs will ensure we get a flying start once the crisis ends.

It is also being predicted that the cut off could be 25 to 30 crore but as the government is still in talks nothing can be determined as of now. 

The meeting chaired by the Prime Minister in this regard also ensured that the various laws that may restrict the credit flow to farmers be revoked. 

"Chaired a meeting on strengthening our MSME sector, which plays a pivotal role in economic development," the Prime Minister wrote on Twitter.

The ideology of the government is to make the agricultural sector, which accounts for 15 per cent of the country’s economy, more “vibrant” in the Prime Minister’s own words. 

Acts like the Model Agricultural Land Leasing Act (2016) and the Essential Commodities Act were taken into the discussion. Changes are to be emanated as per the needs of the current time in the acts. New incentives to the MSMEs, infusion of new technology in farming and generating capital will be the main objectives of the modifications in the acts, other than ease of credit flow.

Talks of strengthening the Farmers Producer Organisation (FPO) also arose with the aim to make the access to farmers more transparent and to mete out maximal benefits to farmers. 

The government of India is gradually coming up with schemes for the welfare of every sector amid the greatest lockdown the world has ever seen. The fiscal policies need to be based keeping in view the sufferers. Hence, we have all reasons to praise this scheme launched by the Union government. 

We can only hope that these businesses flourish and we have more people venturing out to become entrepreneurs, for the good of the economy. That apart, the credit flow must be transparent and should reach the needy. In these times, there can be no room for selfish motives or corruption. 


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