With pandemic and the subsequent lockdown delivering a blow to the economy, the government has advised startups to reinvent and change their line of business to tap new opportunities.
Devendra Kumar Singh, additional secretary in the micro, small and medium enterprises (MSME) ministry and MSME development commissioner, reportedly said that small firms will be backed by the government in their efforts.
“MSMEs have that capability. A few months ago, nobody knew about personal protection gear—there was little production in India. Today, we are in a position to export. That is the strength of Indian MSMEs. In such a short time, people can redesign businesses, bring in a new supply chain methodology and stand up on their feet,” Singh said.
Singh added that the government was now working on the finer details of the equity support scheme announced by finance minister Nirmala Sitharaman in May, for which the Small Industrial Development Bank of India (SIDBI) has submitted draft guidelines.
The development comes after the finance minister Nirmala Sitharaman announced the economic stimulus package. This includes setting up the INR 20,000 Cr ($2.64 Bn) subordinated debt for stressed MSMEs and equity infusion of INR 50,000 Cr ($6.62 Bn) through a Fund of Funds. “We are working on the guidelines and we had a consultation with investment companies. SIDBI has prepared a draft guideline. The scheme will work in the manner of mother and daughter fund as per SEBI regulations,” said Singh.
Further, the Fund of Funds with a corpus of INR 10,000 Cr, which will provide equity funding support for MSMEs has also been approved. It shall be operated through a Mother and a few Daughter funds. It is expected that with leverage of 1:4 at the level of daughter funds, the Fund of Funds will be able to mobilise equity of about INR 50,000 Cr. The Fund of Funds is expected to benefit over 25 lakh MSMEs under stress.
According to the MSME ministry’s annual report for 2019, India has currently over 63 Mn MSMEs out of which 99.4% are micro-enterprises. An estimated 32.4 Mn lakh MSMEs (51.25%) are in rural areas and 31Mn lakh MSMEs (48.75%) are in urban areas. However, till the end of May 2019, only 68.25 lakh MSMEs had registered as MSMEs on the UAM (Udyog Aadhar Memorandum) self-declaring platform.