New government MSME support package offers broadened definition of ‘small business’, financial support

By

Isabelle Crossley

Published
May 14, 2020

Union Finance Minister Nirmala Sitharaman has announced new government measures to aid micro, small, and medium enterprises and widened the definition of the term to encourage MSMEs to keep growing. 

 
On May 13, Sitharaman introduced 15 new measures to help businesses during the coronavirus crisis and six of these were introduced for MSMEs, Livemint reported. “Essentially, this is to spur growth and to build a very self-reliant India,” said Sitharaman on Wednesday.
 
The measures widened the definition of a MSME to include a higher investment limit which is designed to encourage businesses to grow. “Some MSMEs felt if they outgrow [as per current definition], they will lose the benefit [given to them],” said Sitharaman. “That is the reason for a change.”

MSMEs in micro manufacturing and service sectors’ investment limit has been raised to Rs 1 crore ($135,000) up from Rs 25 lakh for micro manufacturing and Rs 10 lakh for the service sector. The new MSME definition will also not distinguish between manufacturing and service sectors.
 
Before lockdown began, the Union Government had championed MSMEs as the driving force behind India’s next phase of economic growth. However, MSMEs have been hit especially hard by the lockdown as they often have less cash reserves to fall back on and less support. The country has around 63 million MSMEs which employ millions of workers.
 
Some of the new measures introduced by Sitharaman include the provision of loans to promoters of MSMEs that have defaulted of up to 15% of their stake in the business. This is designed to encourage promoters to give funding injections to MSMEs to keep them afloat. The government has also set up a Rs 10,000 crore fund to offer equity funding support to MSMEs and plans to continue to raise funds for the initiative to reach Rs 50,000 crore. 
 
The measures aim to offer both short- and long-term support to MSMEs. As some businesses are beginning to restart operations under the extended lockdown, the extent to which the coronavirus crisis has affected the economy will slowly become clear.