Union Budget 2024-25: MSME Boost, Bigger Loans, New Export Hubs

The Union Budget 2024-25, unveiled by the Ministry of Finance, has introduced a comprehensive set of measures designed to support and advance the Micro, Small, and Medium Enterprises (MSME) sector, which is a vital part of India’s economy. This year’s budget aims to provide critical relief and create new growth opportunities for MSMEs, enhancing their capacity to compete globally. Key provisions include increased Mudra loan limits, improved credit mechanisms, and regulatory adjustments such as the reduction of TReDs onboarding thresholds.

Additionally, there is a focus on technological and infrastructural support, including financial aid for food irradiation units and the establishment of E-Commerce Export Hubs to expand international market access. These measures collectively represent a strategic effort to boost MSME growth and strengthen their global presence.

Finance Minister Nirmala Sitharaman has outlined several initiatives to tackle the challenges faced by MSMEs. Below is an in-depth overview of the key provisions introduced and their broader implications for the sector.

Enhanced Credit Access

The Union Budget for 2024-25 has unveiled a new mechanism designed to support the continued provision of bank credit to MSMEs experiencing financial stress. This initiative aims to ensure that businesses grappling with economic challenges can still access essential funding. In a move to further bolster small enterprises, the limit for Mudra loans has been raised from ₹10 lakh to ₹20 lakh, thereby providing enhanced financial resources.

Additionally, a new Credit Guarantee Scheme will be introduced to aid MSMEs in acquiring machinery and equipment without the need for collateral or third-party guarantees. This scheme will aggregate the credit risks of participating MSMEs, offering a strong support system for these businesses.

Streamlined Trade Receivables:

To enhance liquidity and financial access for businesses, significant adjustments have been made to the Trade Receivables Discounting System (TReDs) platform and Mudra loans. The turnover threshold for mandatory onboarding on the TReDs platform has been lowered from ₹500 crore to ₹250 crore, aiming to streamline the receivables discounting process and extend its benefits to a broader range of businesses. Additionally, the limit for Mudra loans under the Tarun category has been increased from ₹10 lakh to ₹20 lakh for entrepreneurs who have successfully repaid previous loans. These changes are expected to bring 22 more Central Public Sector Enterprises (CPSEs) and an additional 7,000 companies onto the TReDs platform, further supporting financial growth and accessibility.

Support for Food Irradiation Units:

The budget includes financial support for the establishment of 50 multi-product food irradiation units within the MSME sector. This initiative is designed to enhance food safety and extend the shelf life of products, which will benefit both producers and consumers by improving the quality and longevity of food items.

Ensuring Bank Credit Continuity for MSMEs During Stress Periods

A new system will be introduced to ensure MSMEs receive uninterrupted bank credit during financial difficulties, even if they are categorized under the Special Mention Account (SMA) due to factors outside their control. This initiative is designed to prevent MSMEs from becoming Non-Performing Assets (NPAs) by securing continued access to credit, supported by a government-backed fund.

E-Commerce Export Hubs:

In a bid to expand market access, E-Commerce Export Hubs will be set up through public-private partnerships (PPP). These hubs are intended to help MSMEs and traditional artisans reach international markets, providing a platform for their products to be showcased and sold globally. This initiative aims to boost exports and enhance the global presence of Indian enterprises.

Enhanced Self-Financing Guarantee Fund:

The recently established Self-Financing Guarantee Fund is designed to provide each applicant with a guarantee cover of up to INR 100 crore, irrespective of the loan amount. To access this cover, borrowers are required to pay an upfront guarantee fee along with an annual guarantee fee, which will be calculated based on the reduced loan balance.

Enhanced Model Skill Loan Scheme: Increased Support for Students

One of the notable updates is the overhaul of the Model Skill Loan Scheme. The government plans to revamp this program, increasing the loan amount to INR 7.5 lakh, supported by a government-backed fund guarantee. This revision is expected to assist 25,000 students each year by providing essential financial support for skill acquisition.

Introducing a New MSME Credit Assessment Model

Public sector banks will enhance their in-house capabilities to evaluate MSMEs for credit, shifting away from dependence on external assessments. This new model will leverage digital footprints to offer a more thorough assessment of MSME creditworthiness.

Expanding Internship Opportunities for Youth

Under the Prime Minister's initiative, a new internship scheme will be introduced, offering placements at 500 leading companies for 1 crore young individuals over the next five years. This program will provide interns with hands-on experience in real-world business settings and diverse professions, including a monthly allowance of INR 5,000 and a one-time support payment of INR 6,000. Companies will finance the training costs and contribute 10% of the internship expenses through their CSR funds.

SIDBI Expands Branch Network and Enhances Food Quality Testing

SIDBI will enhance its presence by opening new branches in key MSME clusters, aiming to extend direct credit services. This expansion will increase service coverage to 168 of the 242 major clusters, with 24 new branches set to open this year. Furthermore, the government will support the creation of 100 NABL-accredited food quality and safety testing labs to benefit MSME units.

Conclusion:

In conclusion, the Union Budget 2024-25 presents a transformative package of measures aimed at revitalizing and advancing India's MSME sector. By expanding access to credit, streamlining trade receivables, and providing targeted support for technology and infrastructure, the budget addresses the multifaceted challenges faced by MSMEs. Enhanced provisions for Mudra loans, financial aid for food irradiation units, and the establishment of E-Commerce Export Hubs reflect a strategic focus on fostering growth and global competitiveness. The introduction of new credit assessment models and expanded internship opportunities further underscores the commitment to nurturing both financial stability and workforce development. Collectively, these initiatives represent a robust framework designed to strengthen the MSME sector, ensuring its continued contribution to India's economic vitality and international presence.