Top 5 Government Schemes for MSMEs in India

MSMEs (Micro, Small, and Medium Enterprises) are the backbone of the Indian economy, contributing significantly to GDP growth, employment generation, and exports. The Indian government has implemented various schemes to support and encourage the growth of MSMEs. This blog examines the top 5 government schemes for MSMEs in India, providing detailed information on their eligibility criteria, benefits, application process, and recent updates.  

Top 5 Government Schemes for MSMEs in India @advisorprabhash

1. Pradhan Mantri Mudra Yojana (PMMY)

Launched in 2015, the Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme that provides access to affordable credit for micro and small enterprises. It offers loans up to ₹10 lakh without the need for collateral, security, or a third-party guarantee. The scheme has been instrumental in promoting financial inclusion and empowering small businesses, particularly women entrepreneurs, who account for over 68% of PMMY loans.  

PMMY offers three categories of loans to meet diverse business needs:  

Loan Category	Loan Limit	Purpose
Shishu	Up to ₹50,000	For startups and micro-enterprises.
Kishore	₹50,001 to ₹5 lakh	For businesses in the growth stage.
Tarun	₹5,00,001 to ₹10 lakh	For well-established enterprises seeking higher funding.

These categories are designed to cater to the different stages of business development and funding needs of entrepreneurs.

Eligibility Criteria

To be eligible for a Mudra loan, borrowers must meet the following criteria:  

• Age: Between 18 and 65 years.

• Indian citizenship: The applicant must be an Indian citizen.

• Business ownership: Individuals applying for the loan should own a micro, small-scale, or start-up business in sectors like retail, manufacturing, services, trading, and agriculture.

• Good credit history: A good credit history is crucial for Mudra loan eligibility.

  
  

Benefits Offered

PMMY offers several benefits to small businesses:  

• Credit facilities to micro and small enterprises.

• No security or collateral required.

• No processing charges.

• Can be used for a variety of purposes.

• No minimum loan amount.

  
  

Application Process

The application process for PMMY is straightforward:  

Applicants need to provide the following documents, categorized for clarity:

Identity Proof:

• Aadhaar card

• PAN card

• Driving License

• Passport

• Voter ID card

• Government-issued photo ID

Address Proof:

• Latest utility bill

• Aadhaar card

• Voter ID card

• Passport

• Bank account statement

Business Proof:

• Udyog Adhar

• Licenses

• Registration Certificates

• Deed Copy

Other Documents:

• Latest photographs of the applicant(s)

• Proof of SC/ST/OBC/minority, if applicable

• Proof of loan requirement (e.g., equipment quotations, vendor details)

• Any other document as per sanction terms

  
  

Contact Information

For assistance, contact your nearest bank or financial institution offering Mudra loans. You can also visit the(https://www.udyamregistration.gov.in/) or call the toll-free number 1800 180 1111/1800 11 0001.  

Recent Updates

The government has been actively promoting the PMMY scheme and has set annual targets for loan disbursement. Lending institutions have consistently surpassed these targets, indicating the scheme's success and popularity. The scheme has disbursed loans amounting to ₹27.75 lakh crore, benefiting over 47 crore micro, small, and medium enterprises (MSMEs) since its launch in 2015.  

2. Prime Minister's Employment Generation Programme (PMEGP)

The Prime Minister's Employment Generation Programme (PMEGP) is a credit-linked subsidy program aimed at generating self-employment opportunities in the non-farm sector. Launched in 2008, it is a merger of the Prime Minister's Rojgar Yojana (PMRY) and the Rural Employment Generation Programme (REGP). The scheme is implemented by the Khadi and Village Industries Commission (KVIC) at the national level and by State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs), District Industries Centers (DICs), and banks at the state level.  

Objectives

The PMEGP scheme has the following objectives:  

• Generate employment opportunities in rural and urban areas of the country.

• Support traditional artisans and unemployed youth by providing self-employment opportunities.

• Create sustainable employment and reduce migration from rural to urban areas.

• Increase the earning potential of artisans and boost the growth rate of rural and urban employment.

  
  

Eligibility Criteria

Individuals above 18 years of age are eligible for PMEGP. They should have at least passed the eighth standard. Self Help Groups, Section 8 Companies, and Production-based Co-operative Societies are also eligible.  

Benefits Offered

PMEGP provides financial assistance to unemployed youth and traditional artisans to set up micro-enterprises. The maximum project cost is ₹25 lakh for the manufacturing sector and ₹10 lakh for the service/business sector. Subsidies range from 15% to 35% of the project cost, varying by category and location (urban/rural, general/special). The per capita investment limit is ₹1 lakh in plain areas and ₹1.5 lakhs in hilly areas.  

Application Process

The application process involves submitting an application form along with a detailed project report and other required documents to the respective KVIC/KVIB/DIC office or applying online through the KVIC website.  

Contact Information

For more information, contact the KVIC head office or your nearest KVIC/KVIB/DIC office. You can also visit the(https://www.kviconline.gov.in/pmegp) or call their helpline number.  

Recent Updates

Jammu & Kashmir has taken the lead in job creation under PMEGP, with over 356,336 employment opportunities generated through the scheme between 2021 and January 2024. This achievement highlights the scheme's effectiveness in promoting entrepreneurship and employment in the region.  

3. Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE)

The Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE) was established by the Ministry of MSME and SIDBI to facilitate collateral-free credit to micro and small enterprises. It provides a guarantee cover to lenders for loans up to ₹5 crore, encouraging them to lend to MSMEs without the need for collateral or third-party guarantees.  

Eligibility Criteria

Both new and existing enterprises are eligible for the CGTMSE scheme.  

Benefits Offered

CGTMSE offers several benefits to MSEs:  

• No collateral requirement: MSEs can access loans without pledging any assets.

• Guarantee coverage: CGTMSE provides a guarantee cover of 75% to 85% of the loan amount in case of default.

• Increased fund availability: Eligible MSEs can borrow loans of up to ₹5 crore.

• Easy to apply: The application process is simple and straightforward.

  
  

Application Process

To apply for a CGTMSE loan, businesses need to approach a participating lender (bank or financial institution) and submit a loan application along with the required documents.  

Contact Information

For more information, contact the CGTMSE head office or your nearest participating lender. You can also visit the(https://www.cgtmse.in/).  

Recent Updates

In FY24, CGTMSE approved guarantees worth ₹2 lakh crore, the highest ever in a single financial year. This signifies the increasing reliance on the scheme by both lenders and borrowers, highlighting its crucial role in supporting the MSME sector.  

4. Credit Linked Capital Subsidy Scheme (CLCSS)

The Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Upgradation aims to facilitate technology upgradation in MSEs. It provides a 15% upfront capital subsidy on institutional finance of up to ₹1 crore for the induction of well-established and improved technology in specified sub-sectors/products. The maximum subsidy amount under the scheme is ₹15 lakhs.  

Eligibility Criteria

Any MSME unit operating in the manufacturing sector is eligible for the CLCSS scheme.  

Benefits Offered

CLCSS offers several benefits to MSMEs:  

• Substantial subsidy: 15% subsidy on the purchase of advanced technology.

• Increased efficiency and decreased expenses: Modern technology can boost productivity and reduce production costs.

• International competitiveness: Enables MSMEs to manufacture goods that meet international standards.

• Boosting rural industries: Creates jobs and raises living standards in rural areas.

• Simplified application process: Easy application and access to information.

Application Process

To apply for CLCSS, MSEs need to apply online through a Primary Lending Institution (PLI) where they have obtained a term loan.  

Contact Information

For more information, contact the Ministry of MSME or any of the 12 nodal agencies implementing the scheme. You can also visit the(https://clcss.dcmsme.gov.in/).  

5. Equity Infusion through Fund of Funds

To address the equity shortage faced by MSMEs, the government launched the Self Reliant India (SRI) Fund in 2020. This scheme offers equity funding through venture capital and private equity funds. With a fund size of ₹50,000 crore, it aims to help MSMEs with growth potential get listed on stock exchanges and attract private investments.  

Challenges Faced by MSMEs in Accessing Equity

MSMEs in India often face challenges in accessing equity funding due to various factors, including:  

• Legal structure: The legal structure of many MSMEs may not be conducive to external equity infusion.

• Smaller investment size: The smaller investment size per enterprise can increase transaction and management costs for equity investors, making the segment less attractive.

• Information asymmetry: There may be information asymmetry between promoters, investors, and other stakeholders.

• Concerns about control and management: Entrepreneurs may have concerns about losing control and management of their businesses.

• Low probability of non-linear returns: The low probability of non-linear returns can discourage venture capital funding.

  
  

Benefits Offered

The scheme offers several benefits to MSMEs:  

• Growth funding: Provides equity financing to support the growth and expansion of MSMEs.

• Private funding leverage: The SRI Fund leverages private equity and other funds to multiply the impact of the initial budgetary infusion. This attracts private sector investments in the MSME sector.

• Improved corporate governance: Partnering with experienced equity investors can lead to better corporate governance.

• Technology upgradation: Facilitates access to funds for technology upgradation.

• Market expansion: Helps MSMEs expand their market reach.

Investment Criteria and Process for Daughter Funds

Under the SRI Fund, daughter funds are required to invest at least 5 times the amount of capital contribution received from the Mother Fund. This ensures that the government's investment has a multiplier effect in attracting private capital and supporting a larger number of MSMEs.  

Application Process

MSMEs can apply for equity infusion through Investor Funds onboarded and registered with the SRI Fund.  

Contact Information

For more information, contact the Ministry of MSME or visit the(https://champions.gov.in/).  

Recent Updates

As of November 30, 2024, the SRI Fund has invested ₹9,612 crore in 523 MSMEs. This demonstrates the scheme's growing reach and impact in providing equity support to MSMEs.  

Expert Analysis

Experts recognize the significant role of government schemes in supporting the growth and development of the MSME sector in India. They highlight the positive impact of these schemes on key metrics such as GDP contribution, employment generation, and export performance. However, they also point out certain challenges and areas for improvement.  

One key challenge is the need for greater awareness among MSMEs about the available schemes and their benefits. Many MSMEs, particularly those in the informal sector, are not aware of the various government initiatives that can support their growth.  

Another challenge is the complexity of application procedures and documentation requirements. Simplifying these processes and making them more user-friendly can encourage greater participation from MSMEs.  

Experts also emphasize the importance of continuous monitoring and evaluation of these schemes to ensure their effectiveness and relevance. Adapting the schemes to the evolving needs of the MSME sector and addressing emerging challenges is crucial for their long-term success.  

Impact and Effectiveness

The government schemes for MSMEs have had a significant positive impact on the Indian economy. They have contributed to increased credit flow to the MSME sector, promoted technology upgradation, and facilitated access to equity funding. These initiatives have fostered entrepreneurship, created employment opportunities, and supported the growth of various sectors, including manufacturing, services, and agriculture.

However, there is still a need for greater awareness and outreach to ensure that all eligible MSMEs can benefit from these schemes. Simplifying application procedures and providing more support and guidance to MSMEs can further enhance the impact and effectiveness of these initiatives.

Conclusion

The Indian government has implemented various schemes to support the growth and development of the MSME sector. The top 5 active government schemes for MSMEs discussed in this blog provide a range of benefits, including access to affordable credit, technology upgradation, and equity funding. These schemes have been instrumental in promoting entrepreneurship, creating employment opportunities, and driving economic growth.

While these schemes have been successful in achieving their objectives, there are still challenges and opportunities for improvement. A significant awareness gap exists among MSMEs, particularly in the informal sector, regarding the availability and benefits of these schemes. The complexity of application procedures and documentation requirements can also be a deterrent for some MSMEs.

To maximize the impact and effectiveness of these schemes, the government needs to focus on greater awareness creation, simplification of procedures, and continuous monitoring and evaluation. Adapting the schemes to the evolving needs of the MSME sector and addressing emerging challenges will be crucial for their long-term success. By proactively leveraging these schemes and working together with the government, MSMEs can overcome challenges and achieve sustainable growth, contributing to the overall development of the Indian economy.