On May 12th 2020, Prime Minister Narendra Modi announced the ‘Atmanirbhar Bharat Abhiyaan’: an economic package designed by the Government to counter the economic distress caused by the COVID-19 pandemic. The package prima facie is of the quantum of 20 lakh crores, which is equivalent to 10% of the GDP for the fiscal year 2020. On 13th May 2020, Finance Minister Nirmala Sitharaman began releasing the specific details of the scheme via tranches. The very first tranche catered to aiding our Micro Small and Medium Enterprises (MSMEs). The key takeaways from the announcements can be summarized as follows:

Change in the definition of MSMEs

The definition of MSMEs under the MSME Development Act 2006 hitherto classified enterprises into two divisions being Manufacturing or Service. Furthermore, specified quantum of investments into plant and machinery for manufacturing enterprises and investments into equipment for service enterprises were the criteria in classifying MSMEs. However, that has been changed. The distinction in classifying enterprises has been removed and annual turnover has been conjoined with investment in defining MSMEs.

The revised definition allows MSMEs to grow bigger and not lose the benefits availed by MSMEs as provided under the MSME Development Act. Furthermore, the revised definition extends to startups as well. Therefore, startups will need to register under the Udyog Aadhar portal in order to claim benefits under the schemes announced by the Government.

1. Rs. 3 Lakh crores Collateral Free Loans

The Government has set up an Emergency Credit Line under which it will provide 100% guarantee to MSMEs for up to 20% of their outstanding credit as on 29.02.2020. MSMEs with an outstanding credit of Rs. 25 crores and an annual turnover of Rs. 100 crores will be eligible to obtain this loan. This means eligible MSMEs can avail loans up to 20% of their outstanding dues and in case they fail to pay back, the Government will step in to unconditionally guarantee the payment of the loan to the lending bank. There will be no guarantee fee charged by the Government. Additionally, there will be no requirement for MSMEs to furnish any collateral to avail the loan. The term of repayment of the loan will be for 4 years with no compulsion (moratorium) to make any repayment on the principal amount for the 1st year.

The credit line will be guaranteed by the Government through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) which is the Trust established jointly by the Ministry of MSMEs Government of India and Small Industries Development Bank of India (SIDBI). The CGTMSE was launched in August 2000 for the facilitating collateral free credit to entrepreneurs in the MSME sector and will be the central instrument in actualizing this scheme. The Government estimates that around 45 lakh MSMEs will benefit from the scheme.

2. Rs. 20,000 crores Subordinated Debt for Stressed MSMEs

The 3 lakh crore fund will largely be available to those category of MSMEs that were not struggling to repay debts prior to the onset of the pandemic. Thus, in order to cater to those MSMEs that are either NPAs or stressed and struggling to pay back their loans, the government will provide a Rs. 20,000 crore fund. Under this fund, Rs. 4000 crores will be set aside exclusively to CGTMSE, which will provide partial Credit Guarantee support to banks. Lastly, promoters of companies will also be allowed to raise debts from banks in consideration of equity and thus infuse cash into their businesses. Around 2 lakh MSMEs are expected to qualify under this category.

3. Rs. 50,000 crores Fund of Funds for Equity Infusion

The Fund of Funds (FoF) was first announced in the Union Budget for FY 2020-2021 on February 1st 2020 for up to Rs. 10,000 crores. The same scheme has been remodelled and expanded to Rs. 50,000 crore. The FoF will be structured as a large parent fund comprising of several daughter funds. The MSMEs in nascent stages or with shortage of growth capital and with no access to other means of fund raising (e.g. venture capital) will be covered under this scheme. They will stake equity in return for cash infusion. The FoF will regain its investment when the MSMEs expand and grow in revenue and in the most ideal scenario are listed on the stock market. However, several clarifications are yet to be provided with regards to who will be the fund manager, which daughter funds will be chosen and on what basis, what investments can be made by the daughter funds etc.

4. Global Companies Restricted from Bidding for Government Procurement Tenders below Rs. 200 crores

An indirect policy support for the MSMEs has been provided by disallowing global companies from bidding for any Government tenders below the value of Rs. 200 crores. This essentially means that the Government will only buy goods and services from indigenous and local firms up to the said value. Prior to this, Government policy only required local sourcing for goods and services less than 50 lakhs. Thus, this moves furthers of one of the central ideological pillars of the Atmanirbhar Bharat Abhiyaan being “Self Reliance.” It also protects MSMEs from unfair competition. It is to be noted that this measure is a more long term policy change and will not result in any immediate relief granted to the MSMEs.

5. E-Linkage and Clearance of Dues by the Government

MSME business is supported by periodic trade fairs and exhibitions where buyers and MSME sellers converge and transact. Thus, owing to physical travel restrictions, the Government has announced an E-linkage market to be created to facilitate online trade fairs and exhibitions so that MSME outreach is not impacted. Furthermore, the Government has assured to clear any existing dues it has to MSMEs within 45 days.

6. IBC Changes and Effect on MSMEs

The announcement by the FM on 17.05.2020 outlined changes to be brought to the IBC. In particular, the FM said that the Ministry will notify a ‘Special Insolvency Resolution Framework’ under Section 240A with respect to MSMEs. Section 240A specifies how the IBC is applied with respect to MSMEs. The notification is awaited and will clear the air of doubt around what amendments will be brought to 240A. Furthermore, the decision to suspend initiation of all insolvency proceedings for up to 1 year coupled with the raising of minimum threshold for default from Rs. 1 lakh to 1 crore will provide some respite to MSMEs. Without the apprehension of facing insolvency proceedings in tandem with the economic relief package announced, MSMEs will have an opportunity to focus on survival and growth. However, a grey area that arises is the decision to exclude ‘covid related debt’ from the scope of ‘debt’ for the purposes of default. Misuse of such relaxation could be made by all enterprises alike. Further clarifications are awaited in order to ascertain the practical nuances of these measures.

7. Other Measures

The FM also announced a 3 month action plan to aid and bolster MSME post the lockdown period. In particular, the Government emphasized how priority will be given to MSMEs for the production of COVID-19 related items such as masks, gloves, sanitizers, PPE kits, ventilators, thermometers, testing kits etc. Moreover, the setting up of Common Facility Centres (CFCs) for manufacturing and exporting COVID related items will be encouraged. Lastly, the action plan also postulates easing and fastening necessary approvals for the manufacturing of medical items.


MSMEs are the bedrock of the economy. They employ up to 12 crore people. The share of MSMEs in contributing to total Gross Value Added (GVA) during 2016-17 was 31.8%.[1] The share of MSME related Products in total export from India during 2018-19 was 48.10%.[2] Thus, the slew of measures announced by the FM are targeted to ensure the survival of the MSME sector. The bulk of the proposed measures are in the form of credit guarantees by the Government to ideally ensure that MSMEs are not starved of working capital and requisite funds to run their business. What remains to be seen is how the implementation of these proposed policies are carried out there are always discrepancies that arise in the implementation stage. However, the fact that the majority of the economic package is addressed towards our MSMEs shows that the need of the hour is to support our local businesses. The government has announced its measures but it is also upon us consumers to strive to actively support our local industries and enterprises in whatever manner we can.

[1]Gadkari, Nitin. “MSME Sector Contributes Significantly to Indian Economy.” 22 July 2019, 5:00 pm, [2] Ibid.

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