The move is aimed at boosting India’s 63 million MSMEs. Manufacturing sector contributes approximately 17% to India’s GDP and its growth is essential to the progress of the nation
At the post-budget press conference, the government clarified that the idea for the scheme came from MSMEs. Typically, MSME credit is for working capital, but they sometimes also need to invest. The proposal in this scheme — which has also been discussed by the working group chaired by the chief economic advisor, RBI and credit guarantee institutions — is a self-financing mechanism where an MSME that wants to avail of a credit guarantee facility for the term loan will have to pay an initial upfront guarantee fee, followed by an annual top-up fee based on the reducing balance of the loan.
So, there is no subsidy from the government, unlike in the CGTMSE, which is a working capital loan scheme where the government provides the corpus. In this case, the corpus itself is self-financing, which would include pooling of the upfront fees. The government has said it will have to provide a second level backstop guarantee in case defaults exceed a particular level.MSMEs tell ET Digital that this is a welcome step but there is confusion over how it will play out on the ground to modernise the manufacturing sector. Industry observers say greater clarity is needed on how “pooling of risks” will take place. Also, investment up to Rs 50 crore is categorised as medium firms, so the figure of Rs 100 crore pushed the threshold beyond the definition of MSME.There is a chance that such money could be misused if there aren’t strong monitoring systems in place, says Mukul Goyal, Co-Founder, Stratefix Consulting. “Additionally, the plan doesn’t specifically address the major problem of obtaining raw materials, which continues to be a major concern for MSMEs engaged in manufacturing. Notwithstanding these obstacles, there is no denying the programme’s ability to support the manufacturing environment and modernise the MSME sector,” he adds.MSMEs state that this will have to be complemented with other measures as well to support the manufacturing ecosystem. Jayanth Mutha, Director of agri-electrical company Himlite Products, suggests that there should be more clarity on the number of MSMEs that would be targeted. “Just talking about figures does not work. There needs to be a very deep, insightful, and practical hand-holding measure for any technological growth,” he states.
Others say the credit guarantee scheme will play a role in modernising the manufacturing sector by enabling MSMEs to invest in advanced technologies and infrastructure.
Sriram Kanuri, CEO & Founder of Arteria Technologies which works in the supply chain and manufacturing space, says, “This initiative positions India to move towards becoming a global manufacturing powerhouse, as it equips businesses with the resources necessary to expand their capabilities and enhance their global presence.”
However, he is of the view that establishing common centers for MSMEs to access parts at subsidised costs will be a valuable addition to the scheme. “These centers would enable companies to procure essential components more affordably, significantly enhancing efficiency and productivity from within. By reducing costs and streamlining access to vital resources, these centers would empower MSMEs to innovate and grow, ultimately strengthening the manufacturing sector,” he adds.
Su Piow Ko, CEO of AET Displays, says the Union Budget 2024-25 provides significant support to the manufacturing sector, particularly through its focus on MSME clusters. “The introduction of easy financing and credit guarantee schemes, along with the facilitation of collateral-free term loans for the purchase of machinery and equipment, will greatly enhance the manufacturers and suppliers’ network. These measures act as catalysts for the entire supply chain, driving growth and innovation,” he states.
For manufacturers like us, he says, this initiative promises enhanced financial security, enabling technological modernisation and innovation. “This, in turn, will fortify the manufacturing ecosystem, contributing significantly to India’s development and positioning the industry for global competitiveness.”
