According to the MSME ministry’s annual report of 2019, there are 6.33 crore MSMEs (Medium, small and micro enterprises) in India. Out of these, 3.31 lakh are small enterprises, and 6.30 crore are micro-enterprises. Small and medium enterprises collectively contribute 6% to the manufacturing GDP and 24% to the service sector GDP. The segment employs close to 120 million people and has consistently maintained a growth rate of almost 10%. (Source: CII)
The Start-up culture in the country has seen tremendous growth in the number of start-ups in the last few years. Immense market potential and government reforms have made Indian markets extremely conducive for start-ups and small businesses.
The government’s support in the form of various initiatives and schemes has played a crucial role in helping these businesses in the initial years. Although the government has launched numerous initiatives for new businesses, it is worth mentioning five initiatives.
Promoted by the Micro Units Development and Refinance Agency (MUDRA), these loans provide financial assistance to non-corporate and non-farm micro and small enterprises. Distributed under the government scheme PMMY (Pradhan Mantri Mudra Yojana), these loans are categorized as Shishu loans of up to Rs 50000, Kishor loans of up to Rs 5 lakhs and Tarun loans of up to Rs 10 lakhs. The categorization is based on funding needs at various life stages of a new venture.
Mudra loans are collateral-free loans for a variety of manufacturing, retail, and service segments. Enterprises involved in agri-allied non-farm activities such as poultry, bee farming, fish farming, dairy, animal clinics, etc. are also eligible for these loans. Mudra loans can be availed in the form of terms loans, working capital loans, or overdraft facilities through different channels, such as commercial banks and MFIs (microfinance institutions).
Credit Guarantee Fund Scheme for Micro and Small Enterprises
Banks and other lending institutions often resist lending to new and small businesses because of higher chances of default. Such companies also lack assets to provide as security for the loans availed. Hence, they are devoid of crucial financial aid during the initial years.
Launched in the year 2000, Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE) offers collateral-free credit facilities to first-generation entrepreneurs. The scheme, backed by SIDBI (Small Industries Development Bank of India), offers working capital of up to Rs 10 lakhs without any collateral to eligible enterprises. A maximum of Rs 2 crores can be availed as loans under this scheme through any of the member lending institutions such as commercial banks, regional rural banks, NBFCs, and small finance banks.
The scheme provides credit relief to micro and small enterprises by guaranteeing repayment of up to 50%-75% in case of default on loan. This reduces the lending institutions’ resistance in extending loans to these enterprises, thereby ensuring reliable credit assistance.
CGTMSE can be availed by micro and small businesses involved in manufacturing and retail services. However, the scheme does not include retail trade, educational and training institutes, agriculture, and self-help groups.
Stand Up India Scheme
To encourage SC/ST and women entrepreneurs, Stand-Up India Scheme was launched by the government in the year 2016. The scheme facilitates loans between Rs 10 lakhs to Rs 1 crore to set up greenfield enterprises. Greenfield ventures refer to venturing into a field for the first time without any external support.
SC/ST and/or women entrepreneurs engaged in manufacturing, trading, and service sector enterprises are eligible for financial aid through Stand Up India Scheme. These loans can be backed by CGTMSE for qualified customers. The scheme also offers rehabilitation support in case of the enterprise’s failure due to reasons beyond the management control.
In the last few years, Start-ups have played a critical role in generating employment at the grass-root level and boosting the country’s economy. Start-Up India, launched in 2016, is an exhaustive program to handhold start-ups through financial aid, guidance, incubation facilities, and other crucial support activities. The government set aside a dedicated fund of Rs 10,000 crore as economic aid to boost the start-up culture in the country.
Start-Up India recognizes enterprises registered in India for less than seven years (10 years for biotech ventures) and an annual turnover of less than Rs 25 crores as start-ups. Close to 27,000 start-ups have been registered under the scheme and have generated close to 1.50 lakh jobs through their enterprises.
Start-Up India registered enterprises can avail of multiple benefits under the scheme. Along with a provision to get an 80% refund on the patent costs, registered start-ups are also eligible for income tax exemptions for a period of 3 years since inception. Start-ups can opt for the composition scheme under the GST laws for further tax benefits. A simple online GST registration of the business on the GSTN portal is required to avail these benefits. They get preference while applying for government tenders and grasp more business opportunities. Incubation facilities for the start-ups provide the necessary guidance, assistance, and infrastructure for the new enterprises enrolled under the scheme.
AIC (Atal Incubation Centre)
Niti Ayog’s Atal Innovation Mission (AIM) aims at fostering a culture of innovation and entrepreneurship in the country. AIM has initiated developing AICs (Atal Incubation Centre) across the country’s length and breadth to facilitate and assist young business enterprises. AICs are funded by AIM to cover the infrastructural and operational costs.
AICs provide a host of services to the incubation beneficiaries, such as guidance in business planning, seeking seed capital avenues, essential industry partnerships, training, and mentorship under the incubation program. AICs are designed to cater to specific industry segments such as manufacturing, health, biotech, Internet of Things, information technology, cybersecurity, etc.
Handholding the Small Businesses
Indian market is booming with innovative business ideas. However, the dearth of guidance and support is a massive roadblock for these new and young ventures. Realizing the contribution of small businesses for the economy, the government has been actively working on providing a robust support system to this segment.
Small businesses and start-ups in the country have benefitted tremendously through various government schemes. The processes are simple, fast, and transparent, and are specially designed, keeping in mind the needs of small businesses.