While the Centre has hiked the Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE) by three times to ₹7,500 crore, analysts and industry watchers claim it will not be enough.

Amarjeet Singh, Partner (Tax), KPMG in India, notes the sheer number of MSMEs that vie for this fund will make the hiked amount seem inadequate.

He explains, “As per data available on website of Ministry of MSME, the corpus of CGTMSE up to May 31, 2016, was about ₹2,500 crore. This scheme had cumulatively approved 24,31,490 proposals from MSMEs for guarantee cover for aggregate credit of ₹1,13,500.61 crore till May 31, 2016.”

Singh explains that data sourced from the Planning Commission (now Niti Aayog), reveals the MSME sector was estimated to have around 32.2 million enterprises with average credit offtake of ₹ 7.16 lakh as on March 31, 2012. He notes, “As seen from the same, the number of enterprises comprising of MSME sector is very large as against present coverage of the CGTMSE scheme.”

Federation of Indian Chamber of Commerce notes, “The effective disbursement of funds needs to be looked at as banks officials still insist on collateral-based financing to safeguard the risk of NPAs.”

In order to boost prospects of MSMEs, KPMG India recommends a tax holiday for new SMEs starting their businesses on or after April 1.

Further, they suggest extending benefits for investment allowance under section 32AC of the Income Tax Act to MSMEs by reducing the threshold for investment in new plants and machinery.

The industry bodies and analyst also recommend extending benefits under the amended section 44AD of the IT Act to incentivise businesses to pro-actively accept payments by digital means beyond financial year 2016-17.

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