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| October 31, 2022

A Complete Guide To Liquidity Boost For MSME Sector

Micro, small, and medium-sized enterprises (MSMEs) play an important role in our country’s economic growth. This labour-intensive sector provides considerable employment and is a significant contributor to India’s GDP. Despite being such an important contributor, MSMEs have not been getting the kind of industry exposure and government support they deserve. Lack of financing options, standardized infrastructure, and sudden economic reforms has impacted their operations. Another aspect has been the lackluster approach to digitization. Businesses today cannot ignore the value of online presence and the consequences due to its absence. Crippled by a severe liquidity crunch and plunging demand, this sector needs a major overhaul in terms of reforms and policies.

The Ministry of MSME has taken cognizance of these challenges and has initiated a slew of measures; the issue of liquidity and financing topping the list. The main reason for the drop in revenue from this sector is largely due to low efficiency, mismanagement, and poor workplace conditions. These are serious issues that demand immediate attention. One of the most notable reforms has been the migration of the old MSME Registration via the Udyog Aadhar system to the new Udyam Registration. It is now mandatory to migrate to Udyam Registration even if you have already obtained MSME Registration. With an eye on providing all necessary support to this valuable sector, we are sure this industry will flourish.

What is an MSME?

MSME stands for Micro, Small, and Medium Enterprises. It was introduced by the Government of India in agreement with the MSMED (Micro, Small, and Medium Enterprises Development) Act of 2006. As per this act, MSMEs are the enterprises involved in the processing, production, and preservation of goods and commodities. The enterprises under MSME are classified into two divisions.

  • Manufacturing enterprises: engaged in the manufacturing or production of goods in any industry.

  • Service enterprises: engaged in providing or rendering services

Given the diverse range of operations that MSMEs handle, it has a great impact on the country’s economy.

How are Units Classified Under MSMEs?

After a change in regulations in 2018, MSMEs are now categorized as per their annual turnover.

Micro Enterprises Up to Rs 5 crore
Small Enterprises Above Rs 5 crore and less than Rs 75 crore
Medium Enterprises Above Rs 75 crore and less than Rs 250 crore

What is MSME Registration/Udyog Aadhar?

Under the old system, MSME units needed to get an MSME Registration done. The units had to apply for a Udyog Aadhar post which a UAM Number was generated for confirmation. With effect from 1st July 2020, the MSME Registration/Udyog Aadhaar has been migrated to the new system called Udyam Registration. It is mandatory to migrate to Udyam even if you have already obtained MSME Registration.

Benefits of Udyam Registration

Udyam registration is a general certification that allows micro, small, and medium enterprises to register themselves with the government. This registration provides the MSME with a commendation certificate and a unique identity number.

It comes with many benefits-

  • Access to collateral-free loans from banks

  • Easy access to legal registrations, regulatory approvals, and government licenses

  • Subsidy on Patent Registrations, Industrial Promotions, barcode registration, credit rating, and NSIC performances fees

  • Access to Overdraft Facility along with Interest Rate Exemption

  • Concession on various bills, such as electricity bills

  • Special consideration of units involved in international trade

  • Reimbursement of ISO Certification charges

  • Protection against delayed payments or supplied services

  • Direct Tax exemptions

  • Different reservation policies for manufacturing units

Budgetary and Policy Reforms to Boost MSME Liquidity

No longer is the MSME sector the inefficient, ill-managed, and crippled by challenges it once was. The RBI and the Ministry of MSME have initiated many measures to help this significant sector revive and recover.

  • Fiscal Policy Support from RBI: The RBI has issued two important notifications regarding liquidity impetus.

    • Banks have been exempted from maintaining cash reserve ratios for loans disbursed from January 1 to October 2021to for first-time MSME borrowers.

    • NBFC has been allowed NBFC has been allowed to provide a credit lifeline to financially drying MSMEs.


  • Budgetary and Policy Support: The Union Budget 2021-22 infused Rs 15,700 crores to battle the liquidity crunch. Furthermore, the Ministry of MSME has brought in a large number of micro and small units under its umbrella to enable them to benefit from their various measures.

  • National Company Law Tribunal (NCLT) Framework for MSMEs: The NCLT has taken cognizance of the draining of resources owing to legal proceedings. It has created a special framework for MSMEs as well as introduced alternate ways of debt resolution via e-courts.

  • Atmanirbhar Bharat Abhiyan: This ambitious scheme from the government of India has bolstered the revival of this sector by infusing Rs 20,000 crore as subordinate debt for MSMEs and Rs 50,000 crore as equity infusion through MSME funds of funds.

  • Emergency Credit Line Guarantee Scheme (ECLGS): This collateral automatic loan for businesses has been a savior for many business owners in the sector.

  • Government Loan Schemes: The government and the Ministry of MSME have launched several loan schemes to provide easy financing for this sector.

    • MSME Loan in 59 minutes: Launched by SIDBI, this loan is approved in 59 minutes flat. The disbursal takes about 8-9 days. Under this scheme, Small businesses and MSMEs can get loans up to Rs 10 crore, under refinance schemes.

    • MUDRA Loan: It is an innovative government scheme for non-corporate, non-farm small/micro-enterprises. MUDRA is also a type of refinance loan, which is approved and dispersed via public sector or Govt banks. Loans up to Rs 10,00,000 are provided under this scheme.

    • Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE): Launched by the Ministry of MSME and SIDBI, this scheme provides collateral-free loans up to Rs 10 lakh to small enterprises and businesses without any collateral.

    • National Small Industries Corporation (NSIC) Credit Facilitation Through Bank: Under this scheme, NSIC has signed MoU with several Private and Govt banks to provide fast, easy, and special-purpose loans to MSMEs in India.

    • Credit Link Capital Subsidy Scheme (CLCSS) for Technology Upgradation: This scheme has been designed to enable MSMEs to upgrade to the latest technology seamlessly and to remain competitive in the domestic and global markets. Loans up to Rs 15 lakh are provided for this purpose.

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