In 2006, the Indian government came up with a significant idea i.e., the concept of Micro, Small, and Medium Enterprises. This idea was turned into law through the Micro, Small and Medium Enterprises Development Act. The primary aim of this law was to help MSMEs involved in making, producing, processing, or storing goods. It also wanted to make sure that small and medium-sized businesses could compete better in the market, while helping rural areas grow. To make these goals happen, the government created different plans just for the country’s progress. Among them, one of the most significant schemes is called the Interest Subvention Scheme for MSMEs.
Role of MSMEs in the Indian Economy
MSMEs serve as the foundation of the Indian economy, requiring essential support and protection from larger corporations due to their ongoing development, limited access to capital, and advanced technology. As a result, the Indian government is dedicated to crafting schemes, offering incentives, and providing guidance to nurture these businesses.
MSMEs are crucial to India’s economy. To further strengthen this critical sector, the government has introduced a new interest subvention scheme for the MSMEs. This initiative aims to fortify the sector’s growth and overall economic well-being.
Objectives of the Interest Subvention Scheme for MSMEs
The introduction of the Interest Subvention Scheme for MSMEs serves several key purposes. Primarily, it aims to incentivise manufacturing and service enterprises within the MSME sector to enhance their productivity. Additionally, the scheme seeks to provide incentives to MSMEs for their participation in the GST platform. This integration with the GST system is anticipated to contribute to the overall improvement of the economic landscape, leading to better organisation and efficiency, while simultaneously reducing credit costs for these enterprises.
Features of the Interest Subvention Scheme for MSMEs
The Government of India is committed to sustaining the economic development of the nation by supporting MSME registration. To further this goal, the Hon’ble Prime Minister has introduced a noteworthy initiative known as the 2% Interest Subvention Scheme for MSMEs. This scheme is exclusively designed for all GST registered MSMEs seeking fresh or incremental loans.
Key Features of the Interest Subvention Scheme
The major features of the Interest Subvention Scheme for MSMEs include:
1. 2% Interest Subvention: Under this scheme, MSMEs can benefit from a 2% per annum interest subvention on the outstanding loan balance. This benefit is calculated from either the date of loan disbursement or the date of scheme notification, whichever is later.
2. Adherence to Ethical Standards: MSMEs participating in this scheme are required to adhere to the Code of Ethics and Fair Practices Code in line with the guidelines established by respective financial institutions and the RBI.
3. Loan Classification: To qualify for the scheme, the loan should not be classified as a Non-Performing Asset (NPA) at the time of filing the claim amount.
Implementation and Duration
The Interest Subvention Scheme for MSMEs 2018 was there during the financial years 2018-19 and 2019-20, a decision made by the Ministry of MSME. This move truly showcases the Indian government’s dedication to strengthen the well-being and success of the crucial MSME sector in the country.
Eligibility Criteria for the Interest Subvention Scheme
When the Interest Subvention Scheme for MSMEs was initially introduced, certain eligibility criteria were in place.
Changes in the Eligibility Criteria
Nonetheless, the Indian government understood the necessity to modify the eligibility standards, making sure that the scheme’s advantages are accessible and put to good use. These changes in the scheme were carried out with the hope that they would help achieve the scheme’s goals effectively.
Revised Eligibility Criteria
The following changes were made to the eligibility criteria:
1. Removal of Udyog Aadhaar Number Requirement: The requirement for a Udyog Aadhaar Number for units eligible for GST has been eliminated. This change broadens the scope of MSMEs that can avail the scheme.
2. Non-Mandatory UAN and GSTN Numbers: Both the Udyog Aadhaar Number and the Goods and Services Tax Number are no longer mandatory for accessing the benefits of the scheme. This adjustment aims to simplify the process and ensure that a greater number of MSMEs can access credit.
3. Facilitating Credit Flow to MSMEs: These changes in eligibility criteria have been implemented to facilitate a smoother and more accessible flow of credit to MSMEs, thereby supporting their growth and development.
Latest Development: Extension of Validity for Interest Relief Under the Interest Subvention Scheme for MSMEs
In a significant move, the Government of India has taken measures to further extend the validity of the provision for interest relief at the rate of 2% per annum to Micro, Small, and Medium Enterprises under the Interest Subvention Scheme. This extension is now effective until March 31, 2021.
Scope of Extension:
This extension covers both fresh and incremental term loans as well as working capital limits made available under the scheme, which have been extended by cooperative banks. This extension became operational on March 3, 2020.
Originally, the government had declared on November 2, 2018, its intention to offer interest relief on loans up to Rs 1 crore. Now, this commitment will be upheld until March 31, 2021. This extension reaffirms the government’s persistent dedication to assist MSMEs and foster their progress and advancement.
The Implementing Authority of the Scheme
The exclusive national-level authority responsible for implementing this scheme is the Small Industries Development Bank of India. Lending institutions are entrusted with the responsibility of ensuring the accuracy of their own data submissions in accordance with the scheme’s guidelines.The Ministry of MSME, under the Government of India, holds the highest authority for all matters related to interest subvention. Their decisions are regarded as binding and final in this context.
Eligibility for Claim Submission
The following entities are eligible to submit claims under the scheme:
1. Nodal office of the lending institution.
2. Lending institutions should provide loans disbursed data and claims of interest relief in an Excel sheet soft copy format.
3. Lending institutions are responsible for submitting their claims for disbursed loans and interest relief every six months to the Small Industries Development Bank of India (SIDBI).
4. MSMEs seeking to avail the benefit must submit a notarised affidavit to their respective banks.
5. All claims should be certified by statutory auditors.
6. The Chief General Manager, Institutional Finance Vertical, SIDBI, serves as the appropriate authority to receive the half-yearly claims.
7. Payments to the respective institutions will be made only after the availability of funds from the Ministry of MSME.
Impact of the Interest Subvention Scheme in the 2021-2022 Budget
The expectation surrounding the 2021-2022 Budget was that the existing two percent interest subvention scheme for MSMEs on loans would be extended, offering improved coverage of up to three to four percent, with a cap of Rs. 300 lakhs. This was envisioned as a measure to further support and incentivise MSMEs.
Given the recent surge in unemployment attributed to the Covid-19 pandemic, there was a need for an increase in the interest rates within the scheme for MSMEs. This would not only have generated more employment opportunities but also attracted a larger number of MSMEs to participate. However, these expectations did not align with the outcome of the budget.
While the government had previously extended the application period for loans under the Interest Subvention Scheme for MSMEs until 31st March, the 2021 Budget did not introduce any further relaxations to the scheme.
Final Thoughts
The Interest Subvention Scheme for MSMEs in the 2021-2022 Budget fell short of the expectations for an extension and enhanced coverage. Despite the challenges brought about by the Covid-19 pandemic and the pressing need to boost employment and attract more MSMEs, the budget did not provide the anticipated adjustments in interest rates.
The extension of the application period for loans under the scheme until March 31st was a notable but limited step in support. However, the door remains open for the government to revisit and potentially enhance the scheme’s provisions, offering further assistance to the crucial MSME sector in the future. The scheme’s effectiveness in aiding the growth of MSMEs and contributing to economic recovery will continue to be a subject of interest and scrutiny in the coming years.
