(MENAFN- KNN India)
New Delhi, Jan 15 (KNN) The government is poised to introduce a new credit guarantee scheme for Micro, Small, and Medium Enterprises (MSMEs) in the upcoming Budget, focusing specifically on boosting capital investments in the manufacturing sector.
The initiative, first announced in July, will be modeled after the successful Emergency Credit Line Guarantee Scheme (ECLGS) but with expanded coverage allowing guarantees of up to Rs 100 crore per beneficiary.
The scheme's structure will enable beneficiary units to scale up their operations through increased credit access, with higher loan eligibility thresholds compared to previous programs, as reported by FE.
By eliminating the need for collateral or third-party guarantees, the program aims to streamline the process of acquiring capital equipment for MSMEs while allowing for the pooling of credit risks among participating firms.
This initiative comes at a crucial time when MSME investments have remained subdued, despite robust public capital expenditure and increased investments from large corporate groups.
The government's primary objective is to elevate the overall investment rate in the sector, with officials indicating that MSMEs will be a central focus in the budget to promote job creation.
Finance Minister Nirmala Sitharaman, in her FY25 Budget speech, outlined that a self-financing guarantee fund would be established to provide coverage up to Rs 100 crore per applicant, with the possibility of even larger loan amounts.
Participants will be required to pay an upfront guarantee fee and annual fees based on the declining loan balance.
The success of the preceding ECLGS program, which was operational until March 31, 2023, demonstrates the potential impact of such initiatives.
The ECLGS, initially launched with a Rs 3 lakh crore guarantee corpus that was later expanded to Rs 5 lakh crore, issued 11.9 million guarantees worth Rs 3.68 lakh crore and reportedly saved approximately 14.6 lakh MSME accounts, with 93.8 percent being in the MSE categories.
Recent data shows significant growth in MSME sector financing, with credit outstanding from scheduled commercial banks and NBFCs increasing from Rs 18.48 lakh crore in March 2020 to Rs 31.7 lakh crore by March 2024.
However, an EY report highlights that India's MSME credit penetration remains at just 14 percent, compared to 50 percent in the US and 37 percent in China, indicating a substantial credit gap of Rs 25 trillion.
The MSME sector's strategic importance to India's economy is evident in its 27 percent contribution to GDP, 38.4 percent share in total manufacturing output, and 45 percent share in the country's exports.
The government is also considering revising the incentive structure for MSMEs, which is currently based on turnover thresholds that may be limiting growth potential.
Under existing classifications, enterprises are categorised as micro, small, or medium based on specific investment and turnover criteria, with thresholds ranging from Rs 1 crore to Rs 50 crore for investments and Rs 5 crore to Rs 250 crore for turnover.
(KNN Bureau)
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