Credit Potential for Micro Small and Medium Enterprises

1. Introduction
The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socio-
economic development of the country. In India, the sector has gained significant importance
due to its contribution to Gross Domestic Product (GDP) of the country and exports. The
sector contributes immensely with respect to entrepreneurship development especially in
semi-urban and rural areas of India. The sector has the potential to market ‘'Made in India”
vision brand globally. India has approximately 6.3 crore MSMEs. The Indian MSMEs sector
contributes about 29% towards the GDP through its national and international trade.

Micro, Small & Medium Enterprises (MSMEs) form an important and growing segment of
Karnataka's industrial sector. As per the ‘Micro, Small and Medium Enterprises Development
Act, 2006 (27 of 2006) amendment with effect from 1 June 2020, the criteria for classification
of micro, small and medium enterprises, has been as under:
(i)a micro enterprise, where the investment in Plant and Machinery or Equipment does
not exceed
one crore rupees and turnover does not exceed five crore rupees;
(ii) a small enterprise, where the investment in Plant and Machinery or Equipment does
not exceed ten crore rupees and turnover does not exceed fifty crore rupees;
(iii) a medium enterprise, where the investment in Plant and Machinery or Equipment
does not exceed fifty crore rupees and turnover does not exceed two hundred and
fifty crore rupees.
Bank loans to MSME are eligible to be classified under priority sector. MSMEs have been
accepted as the engine of economic growth and the major advantage of the sector is its
employment potential at low capital cost.

MSMEs are being encouraged to market their products on the e-commerce site, especially
through Government e-Marketplace (GeM), owned and run by the government, wherefrom
Ministries and PSUs (public sector undertakings) source their procurement.

2. Policy Interventions of Central / State Government / Reserve Bank of India:

The Government of India has designed various policies for the growth of MSMEs in the
country.

 Budget allocation for MSMEs in FY22 more than doubled to Rs. 15,700 crore vis-à-vis
Rs. 7,572 crore ( in FY21.
 Rs. 10000 crore corpus for provision of guarantee for borrowings - a huge relief to the
sector;
 Provisions for earlier announced Atma Nirbhar schemes (viz. Credit Guarantee
Scheme for Subordinate Debt to MSMEs and Fund of Funds) to provide much needed
financial succour and accessibility.
2.1 State Government important budget initiatives for entrepreneurs - 2021-22

Women entrepreneurs in hospital, wellness and other service sectors will be

provided with loan facility upto Rupees two crore at a subsidised rate of 4%
through Woman Development Board/Karnataka State Financial Corporation to
encourage women entrepreneurs.
 To encourage women working with licence obtained from Agricultural Produce
Market Committees, they will be given 10% reservation in the allotment of site,
godown, shop-cum-godowns in the APMC yard.
 To support women entrepreneurs in the State, a programme called Elevate
Women Entrepreneurship (Elevate WomEN) will be implemented with an
outlay of Rupees five crore. Under this programme, facility of finance,
nurturing/speedy support, global connectivity and counselling will be given.
 Support will be provided under State Rural Livelihood Mission ‘Sanjeevini’
covering rural women self help groups to start 6,000 micro enterprises in
catering, cleanliness work, poultry, sheep rearing, solid waste management,
hygiene, construction and other sectors through Panchayat Raj institutions.
With this, 60,000 women are expected to get the opportunity of self
employment.
 A total grant of Rs. 37,188 crores has been provided in the year 2021-22 for
women oriented programmes.
 A subsidy of 35% is provided for various activities such as construction of cold
storage plants and establishment of post-harvest management and processing
plants under the Atma Nirbhar Bharat Abhiyan scheme, Prime Minister’s
Regularisation of Micro Food Processing Units Scheme and other schemes. To
increase this subsidy to 50%, the State Government is going to provide an
additional subsidy of 15% with an outlay of Rs. 50 crore.
3. MSME - Status in Karnataka State
Top 10 States (UP(14%), WB, TN, Maharashtra, Karnataka, Bihar, AP, Gujjarat,
Rajasthan and AP) accounted for a share of 74.05% of the total estimated number of
MSMEs in the country. Karnataka is 5th among them with the share of 6%. In the year
2020-21 82,227 micro, small and medium enterprises registered in the state with an
investment of Rs. 18084.42 crores and employment of 5,42,890 people.

No of Investment Employment
Period
Units Rs.in lakhs Nos.
Cumulative up to 2019-20 7,75,252 81,43,135 53,69,688
82,227 18, 08,442 542890
During 2020-21 (upto Feb .
2021)

Cumulative upto (Feb. 2021) 857479 9951557 5912578

As compared to 2019-20, there is a 11.06% increase in the number of units registered, 12.20%
increase in investment and 11.01 % increase in number of persons employed during 2019-20.
Target amount of Rs.111826 crore has been fixed for disbursement during the year 2021-22
under MSME. (Coop Rs.3712 cr., RRBs Rs.3762 cr. , CBs Rs.10419 and SFB Ts.223 cr.)
3.1 The main mission of Industrial Policy 2020-25
The Karnataka Industrial Policy 2020-25 is aimed at the states holistic development and the
promotion of Tier II and Tier III cities.

Features of the new industrial policy in Karnataka are:

Create at least 2 million jobs; Facilitate investments in advanced R&D, manufacturing and
innovation; Maintain an annual industrial growth rate of 10%; Attract investments of at least
5 lakh crore; Reach the 3rd rank amongst Indian states for merchandise exports in the next 5
year The new industrial policy categorizes the state’s districts into zones. This is aimed at
developing industrially backwards areas. Zone 1 and 2: industrially backward districts. Zone 3
and 4: industrially developed districts like Bengaluru and Mysore. The key sectors identified
by the policy include Automobiles and auto components, Electric vehicles, Pharmaceuticals
and medical devices, Knowledge-based industries, Engineering and machine tools, Logistics,
Aerospace, Renewable energy and Defense. The new policy encourages local hiring and as
much direct employment as possible. At least 70% of the workforce should ideally comprise
of locals. In the case of Group F employees, i.e. non-technical staff, drivers, housekeeping
staff, etc. 100% of the employees should be hired locally.

MSMEs To Get Subsidies

Micro, Small, and Medium-Sized Enterprises (MSMEs) will be given production turnover-
based subsidies to encourage innovation. The subsidy will be based on 10% of their turnover
each year for five years and will be limited to 20 – 30 percent of the value of their fixed assets
(VFA) based on the zone. Other incentives include: Exemption from stamp duty and
concessional registration charges, Tax exemption on electricity tariff, Interest subsidy on
loans for technology upgradation taken from public service banks, Reimbursement of land
conversion fee, Subsidies for sustainable operations strategies, Power subsidy.

3.2.Micro, Small and Medium Enterprises – Supporting Eco-system

MSME Ministry has four statutory bodies namely, Khadi and Village Industries Commission
(KVIC), Coir Board, National Small Industries Corporation Limited (NSIC), National Institute for
Micro, Small and Medium Enterprises, (NI-MSME) and Mahatma Gandhi Institute for Rural
Industrialisation (MGIRI). New online system of MSME/Udyam Registration launched by the
Union MSME Ministry, w.e.f. July 01, 2020, successfully registered >1.1 million MSMEs until
November 2020.
3.3 MSME- Development Institute
Under the Ministry of MSME, Government of India, MSME- Development Institute has been
established as an apex body at the Centre that formulates programmes and policies for Micro,
Small and Medium Enterprises. The policies formulated by the organizations are aimed at
creating new generation of entrepreneurs with modern technological innovations.
MSME – Development Institute, Bangalore was set up in the year 1957 and currently has one
branch Institute at Mangalore and they provide a comprehensive range of facilities and
services such as techno-managerial services, training needs, common facility workshop and
laboratories, statistical and economic information etc. MSME - Development Institute,
Bangalore maintains close liaisons with State Government Departments and other agencies
involved in the promotional and development activities of the State. At present, MSME -
Development Institute, Bangalore is covering 17 Districts of Southern part of the State, i.e.
Bangalore Urban, Bangalore Rural, Chamarajanagar, Chickmagalur, Chitradurga, Dakshina
Kannada, Davangere, Hassan, Kodagu, Kolar, Mandya, Mysore, Shimoga, Tumkur, Udupi,
Ramnagar and Chikkaballapur.
3.4.Trade Related Entrepreneurship Assistance and Development (TREAD)
As per the modified guidelines, the application for financial assistance under this TREAD
Scheme is to be submitted on online.
3.5 Marketing Assistance and Technology Upgradation (MATU) Scheme
The Ministry of MSME operates schemes for enhancing marketing capabilities of the Micro,
Small & Medium Enterprises. The assistance has been given to encourage the MSME units for
participation in National and International level Exhibitions to exhibit their products and to
enhance their marketing avenues. The assistance will be in the form of reimbursement of stall
charges paid by the units to the exhibitions/trade fairs organised at National and International
Level and also to meet certain incidental expenditure. It also conducts workshops on export
marketing, awareness Programme on Bar coding, vendor Development Programme.
3.6 Support For Entrepreneurial & Managerial Development of SMEs through Incubators
The main objective of the scheme is to promote emerging technological and knowledge based
innovative ventures that seek the nurturing of ideas from professionals beyond the traditional
activities of Micro, Small & Medium Enterprises (MSMEs). Such entrepreneurial ideas have to
be fostered and developed in a supportive environment before they become attractive for
venture capital. Hence the need arises for incubation centres. The State of Karnataka has 13
incubation centers.
MEME DI also conducts awareness programmes on Zero Effect Zero Defect certification,
Quality Management Standards and Quality Tech. Tools, Learn Manufacturing
competetiveness, Design Clinic Scheme, Technology and Quality upgradation Support,
promotion of ICT in Indian Manufacturing Sector, Intellectual Property Rights.
3.7 Cluster Development Programme (CDP)
Cluster is defined as a group of enterprises located within the identifiable and as far as
practicable, contiguous area and producing same/similar products/services. The geographical
bounds of a cluster may constitute a mohalla, village, block etc., a combination of village
towns or blocks and even a smaller district/union territory, if easily administered under the
programme, may also qualify as a cluster. To assist cluster, the Government of India, State
Government and SPV formed for specific purpose will make investment for development of
common facility centre. The land has to be provided by State Government or Implementing
Agency. KCTU, Bangalore, is the Nodal Agency for implementation of cluster Programmes.

The Ministry of Micro, Small and Medium Enterprises has also approved a list of clusters under
the Scheme of Fund for Regeneration of Traditional Industries (SFURTI) and Micro and Small
Enterprises Cluster Development Programme (MSE-CDP) located in 121 Minority
Concentrated Districts. Accordingly, banks have been advised to take appropriate measures
to improve the credit flow to the identified. clusters. Banks have also been advised that they
should open more MSE focused branch offices at different MSE clusters which can also act as
counseling Centres for MSMEs. It is envisaged that lead bank of each district in the State may
adopt at least one cluster. As of 2020, there are 24 cluster projects are implemented under
SFURTI.

3.8 Karnataka State Coir Co-operative Federation Limited was established during 1961 for the
development of Coir Industry in Co-operative Sector. It has 29 affiliated Primary Coir Co-operative
Societies as Members, providing continuous employment to Rural Artisans, of which, majority are
women and belongs to SC/ST.

The Federation is running 17 production centres all over Karnataka, manufacturing coir fibre,
curled rope, mats and mattings, geo-textiles and also rubberized coir mattresses, pillows,
cushions etc., The Federation has 15 sales outlets and 5 mobile sales vans for sales of coir
products.

3.9 Implementation of Food parks

The state is known for its 10 agro-climatic zones and 9 distinct soil types enabling it to grow
virtually every kind of agri and horticultural produce.

In a major boost to the Karnataka agriculture sector, the Central government has sanctioned
Rs 4,000 crore for the setting up of food parks.

Food parks play an important role in motivating the entrepreneurs to take up food processing
activities / agro processing activities under MSME sector in the designated food parks with
assured infrastructural support services and concessions provided by the state/central
government.

Food Karnataka Ltd., has been nominated as the nodal agency to look after the
implementation at the following Food Parks in the State. Ministry of Food Processing
Industries, Govt of India,had approved the establishment of food parks in Malur (Kolar
District) Hiriyur (Chitradurga District) Bagalkot (Bagalkot District) and Jewargi (Gulbarga
District) to give impetus to value addition to agriculture and horticulture produce.
4. Other policy initiatives relating to MSME
4.1 Stand Up India Scheme
The objective of Stand Up India Scheme announced by Hon’ble Prime Minister on 5 April 2016
is to facilitate bank loans between`.10 lakh and `1 crore to at least one SC/ST borrower and
at least one woman borrower per bank branch for setting up Greenfield enterprise. The
enterprise may be in manufacturing, trading sector or services sector. In case of non-
individual enterprise at least 51% of the holding should be held by either an SC/ST or woman
entrepreneur. The scheme was evolved realizing the challenges faced by SC/ST and woman
borrowers in accessing bank loan and other support needed for setting up enterprises and
succeeding in business. The scheme covers all scheduled commercial Banks and RRBs. As per
the budget announcement for the year 2021-22, amendment of SUI scheme was made i.e.
the extent of margin money to be brought by the borrower has been reduced from 'upto 25%'
to 'upto 15%' of the project cost. However, the borrower will continue to contribute at least
10% of the project cost as own contribution. Further, Loans for enterprises in 'Activities allied
to agriculture' e.g. pisciculture, beekeeping, poultry, livestock, rearing, grading, sorting,
aggregation agro industries, dairy, fishery, agriclinic and agribusiness centres, food & agro-
processing, etc. (excluding crop loans, land improvement such as canals, irrigation, wells) and
services supporting these, shall be eligible for coverage under the Scheme.
4.2 Interactive portal
A portal (www.standupmitra.in) developed by SIDBI through which borrowers can submit
online application for loans including handholding support needed for setting up the
enterprise. Handholding support available through various Institutions listed in the portal.
The portal is interactive which benefits banker and borrower both. The uniqueness of the
scheme is the bank can select the borrower and borrower can select the bank of his/her
choice. To help the borrower with the required support, SIDBI offices, LDMs, DDMs have been
made as Stand Up India Connect Centres (SUCCs) and provided a link in the portal. The
potential borrower can avail the support of any SUCC for further guidance. To ensure and
enhance lending under the Stand Up India Scheme, a Credit Guarantee Scheme for Stand Up
India (CGSSI) has been notified by GoI vide notification dated 25 April 2016.The broad
objective of the Fund would be to guarantee credit facilities of over ` 10 lakh & up to ` 100
lakh sanctioned by Scheduled Commercial Banks under the Stand Up India Scheme and other
Lending Institutions.
4.3 Technical Consultancy Services Organization of Karnataka (TECSOK)
TECSOK provides basic information on potential products, suitable location, policy and
procedures of the Government and other related organizations, incentives and concessions
offered under Industrial Policy 2014-19 and also other facilities offered by the Government
to entrepreneurs. TECSOK focuses more on promotion of entrepreneurship amongst rural
entrepreneurs and entrepreneurs belong to SC/ST/Backward Community and other under
privileged classes utilizing various special schemes available for such entrepreneurs. TECSOK
has registered with Standup India Portal of SIDBI for providing handholding services. TECSOK
is regularly responding to the requirements of entrepreneurs through this portal.
4.4 Startup India
Hon’ble Prime Minister of India, Shri Narendra Modi during his Independence Day speech on
15 August 2015 announced the “Start-up India” initiative. This initiative aims at fostering
entrepreneurship and promoting innovation by creating an ecosystem that is conducive for
growth of Start-ups. The objective is that India must become a nation of job creators instead
of being a nation of job seekers. GoI has created a website www.startupindia.gov.in wherein
the list of incubators and funds available for startups are listed. A format for applying as
startup is also uploaded in the website.
5 Other Initiatives
 As per RBI Circular on Revised Priority Sector Guidelines, a separate sub limit of 7.5% of
ANBC has been set for lending to Micro Enterprises under Priority Sector
 Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small
Enterprises (CGTMSE). The Credit Guarantee scheme (CGS) seeks to reassure the lender
that, in the event of a MSE unit, which availed collateral free credit facilities, fails to
discharge its liabilities to the lender, Guarantee Trust would make good the loss incurred
by the lender up to 75 / 80/ 85 per cent of the credit facility. The guarantee cover is
available upto maximum extent of ` 100 lakh.
 With a view to simplifying the registration process and promote ease of doing business,
the UDYAM Registration was launched on 1st July 2020, which triggered the
reclassification for all MSMEs existing on 30th June 2020.
 Skill Training under the Ministry of MSME is conducted through various organizations
under the Ministry i.e. MSME-Tool Rooms, Technology Centre Systems Programme
(TCSP), National Small Industries Corporation (NSIC) Ltd., Khadi and Village Industries
Commission (KVIC), etc.
 Under the Skill loan scheme & loans ranging from ` 5,000 to ` 1.5 lakh will be made
available to 34 lakh youth of India seeking to attend skill development programmes for
the next five years.
 GoI has introduced new scheme viz., PMMY (Pradhan Mantri Mudra Yojana)under which,
loans willbe provided by banks under 3 broad categories viz., Shishu, Kishore and Tarun.
Under Shishu loans will be provided to beneficiaries up to ` 50,000 under Kishore from `
50,001 to ` 5.00 lakh and under Tarun `5.00 lakh to ` 10.00 lakh for setting up various
income generating activities under non-farm sector.
 Self-Employment and Talent Utilization (SETU) to be established as Techno-financial,
incubation and facilitation programme to support all aspects of start-up business. `
1,000.00 crore to be set aside as initial amount in National Institution for Transforming
India (NITI).
 Pradhan Mantri Kaushal Vikas Yojana a reward- based skill training scheme will incentivize
skill training by providing financial rewards to candidates who successfully complete
approved skill training programmes. Under the Skill Loan scheme, loans ranging ` 5,000-
`1.5 lakh will be made available to 34 lakh youth seeking to attend skill development
programmes over the next five years.
6. Prime Minister’s Employment Generation Programme (PMEGP)
Prime Minister’s Employment Generation Programme (PMEGP) is under implementation
from the year 2008-09. The objective of the scheme is to provide employment to the
educated unemployed youth by setting up industries in rural and urban areas under
Manufacturing and Service Sectors, based on the local resources. Demand oriented Industries
such as packaged drinking water, food processing units and vehicle repairs are being taken up
by the entrepreneurs adopting latest technologies, resulting in producing quality products.
Under this scheme financial assistance to the projects upto Rs. 25 lakh for manufacturing
sector and to the projects upto Rs. 10 lakh for Service Sector is extended in the form of loan
through various banks. At the State level, the Scheme is implemented through State KVIC
Directorates, State Khadi and Village Industries Boards (KVIBs) and District Industries Centres
(DICs) and banks. The Government subsidy under the Scheme is routed by KVIC through the
identified Banks for eventual distribution to the beneficiaries / entrepreneurs in their Bank
accounts.

7. Critical interventions required & actions points to be addressed

 Development of appropriate technologies for various manufacturing processes will lead
to substantial reduction in cost of manufacturing, enhanced labour productivity, reducing
material, wastage and minimising energy consumption.
 Development of health sector in production of pharmaceutical items and employment
generation in the field is the need of the hour.
 Development of Handloom Sector through effective linkages, extension of credit and
training needs to be addressed urgently.
 Power and other infrastructure facilities need to be ensured for development of MSME
sector in the State
 Bank may provide adequate and timely working capital for micro enterprises. The working
capital requirements may be met by issuing SCC.
 Encourage venture capital fund for small and medium enterprises.
 Marketing of goods produced by SHGs and other craftsmen is an area of concern. Need
to put in place a structured marketing arrangement for retail sales of small producers.
 Awareness and handholding support may be provided to young entrepreneurs through
incubation support. Handholding institutes may be identified for the same. Incubation
funds may be created in identified technical institutes.
 Development of appropriate technologies for various manufacturing processes will lead
to substantial reduction in cost of manufacturing, enhanced labour productivity, reducing
material, wastage and minimising energy consumption.
 Keeping in view the district specific potential and local skill, the RSETIs may prepare
suitable training modules covering demand based, skill based and resource based
activities that can be taken up by unemployed persons to set up micro enterprises.

Grant based training programme of NABARD for FPOs/ SHGs/ JLG and Skill Development
initiative for rural youth & programme by RSETI

Training on processing, grading, sorting, packaging, branding and marketing can be extended
to the FPO members under grant support of NABARD. Further, the FPOs, matured SHGs, SHG
Federations have also been sanctioned Rural Marts, the products of Rural Marts can be
brought under one brand one district and training for branding and marketing of the products
of Rural Marts can be given to members of the Rural Mart.
As regards skill development for SHGs/JLGs/rural youth there are lot of scope under micro
enterprises viz., catering, cleanliness work, poultry, sheep rearing, solid waste management,
hygiene, construction and other sectors like repairing of agricultural inputs, electricians,
plumbers, house hold appliances repair work, etc., can be covered under NABARD grant
support through various stakeholders including RESITs/RUSETIs. Especially, in present
scenario, health care sector is to be given much focus and there is a need to create workforce
of healthcare professionals like health technicians, general duty assistants, health aide,
medical records assistant, Phlebotomist for science students, front office management in
hospitals, etc., can be covered for rural youth with NABARD grant support.

Agri-Startup

Agriculture sector in India has a variety of problems like the use of outdated equipment,
improper infrastructure, and farmers unable to access a wider range of markets with ease
while making just limited profits on crop sales. Proper infrastructure and supply chain
management are the more pressing concerns.

But, with improvement in areas of technology, digitization, etc., Agri startups started
connecting the missing links in the agricultural value chain and deliver efficient, innovative
products, technologies and services to farmers and consumers.
The Agri startups in India are providing information, techniques and efficiencies to farmers
under various sectors viz., Upstream (Input) Marketplace model (Matching Agri-input sellers
to farmers), Downstream (Output) ‘Farmto-Fork’ supply chain model (Matching farmers to
businesses or retail customers for fresh produce, processed food) Farming as a service,
IoT/Big Data led innovation, Engineering led innovation, Miscellaneous (Innovation in agri
products, dairy farming).

There are around 1000 agri tech start ups in India. Karnataka has 250 Agri-Tech startups. To
develop congenial eco-system for agri startups in Karnataka, a committee had been
constituted to formulate a policy framework on agri startups and operational guidelines.
The government is in the process of releasing it shortly.

Scope for Agristart ups

Students having degree of agronomy, plant breeding, post-harvest technology, horticulture,
Agri-extension and communication and animal husbandry could be trained with ICT
knowledge and they can be motivated to start counselling and guidance centers at village,
block or district levels. Later, on these centers could also provide services like soil testing,
compost making and plant nursery.
Building a suitable value chain is another need for the development of agriculture, farmers
and every other stakeholder. Startups can focus on inclusive market system development
approach which could be focused on building capacity and resilience of the local market and
business scenario, supporting incentives resources of the farmers and agri-businesses,
ensuring beneficial inclusion of the small farmers and stimulating change and innovation that
continues to grow. The services like farmer’s landholding and cropping pattern especially
which are useful for the farmers, type and quality of farm produce, timeline of quantity
production and the suitable supply chain management from farm to retail store can also be
added as service provider startups.
There are several opportunities available for entrants to start a business for the welfare of
farmers and development of agriculture sector. College graduates, especially those in
agriculture science, agriculture technology, animal husbandry, post-harvest technology,
biotechnology and agri-business management could explore business ideas that can be
further developed as business models, aimed for the betterment of the agriculture sector in
India.