MSP hike, equity scheme for MSMEs and more: Key takeaways from Cabinet briefing

The Union Cabinet on June 1 cleared equity infusion for MSMEs through a Fund of Funds, and a subordinate debt scheme, among other decisions.

These decisions were announced at a Cabinet briefing — the first after the Narendra Modi government completed one year of its second term in office.

Union Minister Prakash Javadekar said the decisions taken in the Cabinet meeting today will bring about a "transformative change".

Here are the key highlights from the announcement:

> The Centre approved revision in the definition of MSMEs.

> The Union Cabinet cleared a credit scheme for street vendors.

> Hike in the minimum support price (MSP) for 14 kharif crops by 50-83 percent over cost, was approved by the Cabinet.

> Distressed assets fund - Subordinate debt scheme for MSMEs

Guarantee for fund raising for revival: Government of India has said that it will provide guarantee coverage of up to 85 percent for loans of up to Rs 5 lakh, and 75 percent for loans beyond Rs 5 lakh to MSMEs for them to raise funds from financial institutions.

The Centre has said that the quasi-equity provision with the guarantee balances the risks and rewards between the lender (bank) and the customer in a situation where an outright loan is too risky, quasi-equity with guarantee will provide the requisite financing to the company.

Subordinate debt will be of substantial help in sustaining and reviving the MSMEs which have either become a non-performing assets (NPAs) or are on the brink of becoming an NPA.

Provision for sub debt will be of Rs 20,000 crore, which is likely to benefit two lakh MSMEs, according to the government.

Who can apply: Functioning MSMEs which are NPA or are stressed will be eligible; promoter(s) of such units can apply.

How to apply: Promoter(s) of MSMEs meeting the eligibility criteria may approach scheduled commercial banks to avail benefit under the scheme.

> Equity infusion for MSMEs through Fund of Funds

Growth funding to MSMEs through equity financing: The Government of India will support VC/PE firms in investing in commercially viable MSMEs in meeting their growth requirements.

The proposed fund of funds will encourage private sector investments in the MSME sector and leverage Rs 50,000 crore, according to the government.

Under the scheme, there would be a Mother Fund, where the Centre will be the anchor investor.

The Mother Fund can invest daughter funds which can deploy the investments in targeted MSMEs.

This will create a partnership with MSMEs in their growth journey and enable them to grow bigger and get listed on stock exchanges.

The scheme is expected to facilitate equity financing of Rs 50,000 crore in the MSME Sector, the Centre has said. All MSMEs are eligible to apply.