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The announcement was made by Prime Minister Sri Narendra Modi during his address to the nation on the eve of the New Year.
The Prime Minister said, “For MSMEs, we have decided to increase credit guarantee for them to Rs two crore from Rs one crore.”
He added that Non-Banking Financial Company (NBFC) loans will also be covered under this scheme.
“Banks should give loans, we take guarantee,” he said adding that the government has told banks that cash credit limit for small enterprises should be increased to 25 per cent from 20 per cent.
During the course of his speech PM reiterated the government’s decision to give tax relief to small businessmen on cashless transaction.
Income of businesses with turnover of up to Rs 2 crores was calculated at 8 per cent of the turnover. Now, for such businesses income from digital transactions will be calculated at 6 per cent. This will effectively reduce their tax liability by 25 per cent, the PM said.“Now on their (small businessmen) digital transactions, tax will be calculated on six percent of their income (which was earlier calculated on eight percent),” the Prime Minister said. MSMEs happy with increase in credit limit, but say cost of lending still too high.
The Micro, Small and Medium Enterprises (MSME) are feeling a little relieved after Prime Minister Sri Narendra Modi announced to increase credit limit and working capital for them. The sector was facing slowdown due to cash crunch and low demand.
Expressing his happiness at the announcement, PIA President Sri R. Krishnamurthy said, “This measure of increasing the working capital limit will definitely help meet the immediate needs of MSMEs. However, Banks have to follow up this announcement and implement it without any hassle. The announcement needs to be implemented at the right speed and to all micro and small entrepreneurs. It also means that Banks should lend to MSMEs without demanding any collateral under CGTMSE,” he said.
Apart from the increase in the credit guarantee for micro, small and medium enterprises (MSME) from rupees one crore to rupees two crores, there is also an increase in the Maximum permissible Bank Finance for working capital (MPBF) from 20% at present to 25%.
The PIA President added that along with this relief, there should also be a cut in interest rates for MSMEs. “The cost of finance for MSMEs is very high and so that should be considered seriously by the government and RBI. Banks go to big corporate houses and they offer a competitive rate but in case of MSMEs they charge much more,” he pointed out.
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