Q. “The government plays most vital role for Micro, Small and Medium Enterprises (MSMEs) development by way of policy formulation and implementation.” In light of the above statement, elaborate on the package ‘Atmanirbhar Bharat’ announced by government for MSMEs development.
The development of
Micro, Small, and Medium Enterprises (MSMEs) is crucial for fostering economic
growth, job creation, and promoting innovation within a nation. In India, MSMEs
play a critical role in contributing to employment, exports, and GDP. Given
their significance, the government’s proactive policies and initiatives for the
sector’s development are essential to creating an enabling environment for
growth. In line with this, one of the most notable policy interventions
introduced in recent years is the ‘Atmanirbhar Bharat’ (Self-Reliant India)
initiative, which was announced by the Indian government in May 2020 as part of
the economic stimulus package in response to the challenges posed by the
COVID-19 pandemic. The Atmanirbhar Bharat package is a comprehensive and
multi-dimensional strategy aimed at boosting the MSME sector’s growth by
addressing its structural issues and promoting self-reliance in a globalized
world.
Overview of
Atmanirbhar Bharat and its Focus on MSMEs
Atmanirbhar
Bharat, translated as Self-Reliant India, was launched by Prime Minister
Narendra Modi as a vision for making India more self-sufficient, resilient, and
competitive in a post-pandemic world. The initiative’s objective is to reduce
dependency on imports, increase domestic production, and promote local
businesses, with MSMEs being a central focus area. Atmanirbhar Bharat is based
on five pillars: Economy, Infrastructure, System, Vibrant Demography, and
Demand. Within this framework, MSMEs are seen as critical to India’s economic
recovery and long-term sustainable growth.
In the context of
MSMEs, Atmanirbhar Bharat focuses on enhancing their competitiveness, improving
access to finance, addressing liquidity challenges, fostering innovation, and
improving their overall productivity and efficiency. Recognizing the challenges
that MSMEs face, the government announced a series of measures under the
Atmanirbhar Bharat package to provide relief and support to the sector. These
measures span across financial support, regulatory reforms, infrastructure
development, and capacity building.
Key Measures for
MSME Development under Atmanirbhar Bharat
Rs 3 Lakh Crore
Emergency Credit Line Guarantee Scheme (ECLGS)
One of the most
significant components of the Atmanirbhar Bharat package for MSMEs was the
introduction of the Emergency Credit Line Guarantee Scheme (ECLGS), aimed at
providing financial relief to MSMEs struggling with liquidity issues due to the
COVID-19 pandemic. Under the scheme, the government announced a credit
guarantee of up to ₹3 lakh crore for businesses, including MSMEs. This credit
was to be provided without the requirement of additional collateral or
guarantees, ensuring that even small businesses with limited access to formal
credit channels could avail of this benefit.
The scheme allowed
MSMEs to take loans to meet their operational needs, pay wages, and cover other
expenses. The government assured 100% guarantee on the principal amount of loans
extended under this scheme, which made it easier for banks and financial
institutions to lend to MSMEs with higher confidence. The ECLGS was expected to
provide immediate relief to around 45 lakh MSMEs across the country.
The ECLGS was
instrumental in addressing the liquidity crunch faced by MSMEs, especially in
the early stages of the pandemic, when demand collapsed, and businesses were
forced to halt or scale down operations. This infusion of working capital
helped MSMEs stay afloat, retain workers, and maintain continuity in production
and services.
Subordinate Debt
Scheme for Stressed MSMEs
In addition to the
ECLGS, the government also introduced a Subordinate Debt Scheme for stressed
MSMEs. This scheme aimed to support viable but stressed MSMEs by providing them
with a special credit facility. The government announced a provision of ₹20,000
crore for this purpose, targeting MSMEs that were facing financial difficulties
but had the potential for revival.
Under this scheme,
a subordinate debt facility was provided to promoters of MSMEs to help them
clear their debts or meet their working capital requirements. The government
provided a 90% guarantee on the loans extended under the scheme, reducing the
risk for lenders and encouraging them to provide financial assistance. This
move was expected to bring much-needed liquidity to MSMEs that were facing
financial distress and needed capital for operational revival.
Equity Infusion
for MSMEs through Fund of Funds (FoF)
A significant
measure for MSMEs under Atmanirbhar Bharat was the introduction of a Fund of
Funds (FoF) scheme to promote MSME equity participation. The government
announced an allocation of ₹50,000 crore to this fund, which was designed to
provide equity financing to MSMEs, particularly those that were growing rapidly
and needed capital infusion to scale their operations.
The Fund of Funds
operated by supporting venture capital funds, which, in turn, provided equity
financing to MSMEs. The objective was to provide long-term capital to MSMEs
that were unable to access equity capital through traditional avenues, such as
the stock market. By providing equity-based financing, the government sought to
reduce MSMEs' dependence on debt, which often results in financial strain and
high interest burden.
This measure also
aimed to encourage innovation and entrepreneurship within the MSME sector by
promoting the development of startups and high-growth businesses. The equity
infusion was expected to provide MSMEs with the financial strength to invest in
technology, expand capacity, and compete globally.
Amendments to
MSME Definition and Classification
As part of its
efforts to reform and modernize the MSME sector, the government made
significant amendments to the definition and classification of MSMEs. These changes
were aimed at simplifying the classification system and making it more
inclusive, enabling a larger number of businesses to benefit from the
advantages and incentives available to MSMEs.
The key change in
the definition was the introduction of an investment-based and turnover-based
classification system for MSMEs. The new criteria allowed for a more
comprehensive categorization of businesses and included the turnover of the
business along with its investment in plant and machinery. The revised classification
was as follows:
- Micro enterprises: Investment
up to ₹1 crore and turnover up to ₹5 crore
- Small enterprises: Investment
up to ₹10 crore and turnover up to ₹50 crore
- Medium enterprises: Investment
up to ₹50 crore and turnover up to ₹250 crore
This amendment
allowed more businesses to qualify for MSME status, thereby increasing their
access to government schemes, funding, and policy support. By revising the
criteria for MSMEs, the government aimed to ensure that smaller businesses did
not fall out of the MSME category as their turnover or investment grew, which
would have restricted their access to essential support and services.
Support for
Digital Transformation and Technology Adoption
The Atmanirbhar
Bharat package also focused on promoting the digital transformation of MSMEs.
The pandemic highlighted the importance of digital tools for business
continuity, and the government recognized that MSMEs needed to adopt technology
to remain competitive in the global market.
To this end, the
government announced several measures to assist MSMEs in adopting digital
solutions. These measures included the provision of funds for the development
of digital platforms, training programs, and advisory services for MSMEs.
Additionally, the government launched initiatives to help MSMEs build their
online presence, sell products on e-commerce platforms, and digitize their
operations. By supporting MSMEs in embracing digital technologies, the
government sought to enable them to reach global markets, improve operational efficiency,
and increase productivity.
Easing Regulatory
Framework for MSMEs
The government
also took steps to ease the regulatory burden on MSMEs, which often face
difficulties in complying with complex and cumbersome regulatory procedures.
The Atmanirbhar Bharat package included measures to simplify the regulatory
framework, reduce compliance costs, and enhance ease of doing business for
MSMEs.
One of the major
initiatives was the introduction of the ‘Udyam Registration’ portal, which
aimed to simplify the registration process for MSMEs. The portal allowed
businesses to self-declare their eligibility for MSME classification,
streamlining the process and reducing paperwork. Additionally, the government
announced measures to ease the tax and labor law compliance burden for MSMEs,
providing them with more flexibility to focus on growth and innovation rather
than regulatory complexities.
Financial Support
for Export-Oriented MSMEs
MSMEs that engage
in export activities were also provided with targeted support under Atmanirbhar
Bharat. Given the challenges posed by global trade disruptions during the
pandemic, the government focused on providing financial assistance and
promoting exports for MSMEs.
The government
introduced schemes to support MSMEs in gaining access to international markets,
such as enhancing the quality of products, improving packaging, and providing
assistance for participation in international trade fairs. The aim was to
increase the share of MSME exports in global markets and encourage them to diversify
their export portfolios.
Infrastructure
Development and Support for Clusters
Infrastructure
development was another key pillar of the Atmanirbhar Bharat initiative, with a
special emphasis on MSME clusters. MSME clusters are regions where multiple
small and medium-sized businesses operate in close proximity, often in
specialized industries such as textiles, handloom, and handicrafts.
The government
announced the development of dedicated industrial parks and clusters to promote
MSME growth. These clusters would provide MSMEs with access to shared
infrastructure, such as transportation, warehousing, and utilities, thereby
reducing the cost of doing business. In addition, the government planned to
provide subsidies and grants to these clusters to promote innovation, skill
development, and capacity building.
Impact of
Atmanirbhar Bharat on MSMEs
The Atmanirbhar
Bharat package for MSMEs was designed to address both the immediate challenges
posed by the COVID-19 crisis and the long-term structural issues faced by the
sector. While the pandemic disrupted the entire economy, MSMEs were
particularly hard-hit due to their limited access to financial resources,
fragmented operations, and vulnerability to market fluctuations.
The measures
outlined under Atmanirbhar Bharat provided a lifeline to struggling MSMEs by
ensuring financial support through ECLGS, equity infusion, and subordinate debt
schemes. Moreover, the policy changes, such as the revision of MSME
classification and regulatory reforms,
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