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In a move to boost the country's second largest employer, the small and medium enterprise (SMEs) sector, the government has decided to launch a new fund to provide refinance for lenders. The latter in turn will disburse the funds to these enterprises to meet their capital requirements - the leading challenge in the current environment.
In a reply to a question in the Lok Sabha last week, K H Muniyappa, the minister of state for MSMEs, said his ministry has proposed to set up a dedicated fund named 'India Inclusive Innovation Fund', which will promote grass-root innovations that will deliver social returns as well as modest economic returns.
The Cabinet has approved the setting up of the fund, which will start with an initial Union government contribution of Rs 100 crore, while the total corpus of this fund is proposed to be an initial minimum of Rs 500 crore and a maximum of Rs 5,000 crore.
"This fund would operate as a for-profit entity with a social investment focus," the minister said, adding that it would back enterprises developing innovative solutions primarily for citizens who live in the lower half of India's economic pyramid, with limited physical and institutional access to basic services.
In another initiative, the Reserve Bank of India (RBI) has decided to provide refinance of Rs 5,000 crore to the Small Industries Development Bank of India (Sidbi). This is in view of the need to ease the liquidity stress of micro and small enterprises (MSE) sector, which is employment-intensive and contributes significantly to exports, according to RBI.
The latest census has revealed that MSMEs employ around 80.5 million people in the country.
RBI said the refinance will be provided under the provisions of Section 17(4H) of the Reserve Bank of India Act, 1934. It will be available for direct liquidity support by Sidbi to MSEs to finance receivables, including export receivables, or for liquidity support to MSEs through selected intermediaries, such as banks, non-banking financial companies and state finance corporations.
The refinance will be available against receivables, including export receivables, outstanding as on November 14, 2013 onward. The facility will be available at the prevailing 14-day term repo rate for a period of 90 days. During this 90-day period, the amount can be flexibly drawn and repaid. At the end of the 90-day period, the drawal can also be rolled over. The refinance facility will be available for a period of one year up to November 13, 2014. The utilisation of funds will be governed by the policy approved by the board of SIDBI.
The liquidity support comes in the wake of the slowdown in the economy, which has resulted in liquidity tightness in a large number of MSEs in the manufacturing and services sector, particularly due to delayed settlement of receivables from large companies, public sector enterprises and government departments.
Major issues relating to the MSME sector highlighted in the Twelfth Five Year Plan document include credit and finance, technology upgradation, marketing assistance, infrastructural support, skill development and institutional structure. Rs 24,124 crore has been allocated to the MSME ministry during the Twelfth Plan to implement various programmes for development of this sector.
The minister's reply also revealed that since the inception of the Prime Minister's Employment Generation Programme (PMEGP) in 2008-09, more than 221,000 new entrepreneurs have been assisted up to March 31, 2013, more than two million employment opportunities have been created across the country, and margin money subsidy of Rs 5,037 crore has been released under this scheme.
