The RBI on its part too announced various measures for MSMEs hit by the implementation of Goods and Services Tax (GST) by giving them additional up to 180 days to clear their dues to banks.
"All these measures are aimed at making the 63.3-million MSME enterprises growth engine for new India," Financial Services Secretary Rajiv Kumar told PTI.
Multiple initiatives are trying to address various issues inhibiting the growth of the sector, which is the largest job creator, he said.
First and foremost, the recapitalisation of the banks to enable them to enhance their lending capacity by Rs 5 trillion, a substantial chunk of this would go towards the MSME sector.
Besides, Finance Minister Arun Jaitley in his Budget speech lowered the corporate tax rate to 25 per cent from 30 per cent for companies with a turnover of up to Rs 2.5 billion, benefiting the entire MSME sector, he said.
As part of alignment with the new taxation regime, the Union Cabinet last week also approved the change in criteria for classifying MSMEs from 'Investment in Plant & Machinery' to annual turnover.
As per the new classification, enterprises having annual turnover of less than or equal to Rs 50 million fall under the 'micro' category.
Units having turnover between Rs 50 million to Rs 750 million will be classified as small enterprises, whereas those having turnover between Rs 750 million and Rs 2.5 billion will be classified as enterprises.
The move will encourage ease of doing business, make the norms of classification growth- oriented and align classification norms to the new tax regime revolving around GST, an official statement after the Cabinet meet said.
Providing major relief to the MSME sector, the RBI last week also said that the formalisation of business through registration under Goods and Services Tax (GST) adversely impacted cash flows of the smaller entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and non-banking financial companies (NBFCs).
The central bank also removed credit caps on MSME in services sector under priority sector.
"In the light of feedback received from various stakeholders and in line with the increasing importance of services sector in our economy, it has been decided to remove the currently applicable loan limits of Rs 50 million and Rs 100 million per borrower to MSME (Services) respectively, for classification under priority sector," it said.
In order to achieve level-playing field in the priority sector lending guidelines for banks, the RBI said, "It was stipulated in April, 2015 that post 2018 (i.e., after three years from the issuance of guidelines), the sub-targets for lending to small and marginal farmers and micro enterprises shall be made applicable for foreign banks with 20 branches and above.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.