Govt may approve setting up Rs 5,000-crore stressed asset fund for MSMEs

With no promise of additional requisite funding, MSME ministry plans to cut existing schemes

The government may approve setting up a Rs 5,000-crore stressed asset fund for small businesses, as suggested by a Reserve Bank of India committee. But the tight financial condition of the Centre may mean existing schemes for micro, small and medium enterprises (MSMEs) will face a funding cut, sources said. 

The U K Sinha Committee for MSMEs had in June suggested the fund along with a broad range of MSME reforms for small firms still reeling under the after effects of demonetisation and a liquidity crisis. But a lack of available ways to finance it has delayed the implementation. Case in point, MSME Minister Nitin Gadkari had in early September said the government will seek to implement the recommendations within 15 days.

“Talks are ongoing and the government will take a call on how the fund will be used and the parameters on which firms will be categorised as stressed,” a senior government official said. He added that the Prime Minister’s Office has repeatedly asked the MSME ministry to assess the viability of the scheme.

But the PMO hasn’t promised the requisite additional funding for rolling out the initiative and has instead asked how existing schemes can be ‘rationalised’, MSME ministry sources clarified. Now, the ministry believes cutting the scope of existing schemes including its largest — the Prime Minister Employment Generation Programme (PMEGP) — may be the only option left.

Possible cutbacks

According to ministry data reviewed by Business Standard, the number of new MSMEs being registered through the PMEGP doubled to 73,427 in 2018-19, from 48,398 in 2017-18. Direct employment generated as a result was 570,000, up from 387,000 the year before. 

“These are sustainable employment generation, with relatively low level of exposure to business shock and high potential for growth, mostly in the rural areas,” the official said.

According to a ministry study, Rs 96,000 is the mean investment currently entering a unit. On average, a unit employs 7.62 people.

Aimed at setting up micro enterprises in the non-farm sector, the PMEGP allows manufacturing units to get a loan up to Rs 25 lakh from the Centre. The Cabinet has since approved a second dose of loan up to Rs 1 crore, on a maximum interest rate of 15 per cent a year, for units paying back in time, senior sources confirmed. 

The new rules are under implementation, they added.

The ministry is also targeting the setting up of 400 MSME clusters, in both manufacturing and services, up from 98 last year. According to official statistics, the overall sector comprises nearly 63.39 million units, according to the 73rd round of the National Sample Survey (2015-16). It had created 111 million jobs (49.8 million in rural areas and 61.2 million in urban areas).