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Govt doubles credit guarantee limit for small businesses to Rs 2 crore, to also cover loan given by NBFCs

To give a boost to the small entrepreneurs and job creation, the government on Saturday doubled the credit guarantee limit for small and medium businesses to Rs 2 crore to help them tide over the liquidity problems.

Addressing the nation on the eve of the new year, Prime Minister Narendra Modi said that just like the agriculture sector, the micro, small and medium enterprises (MSME) is vital for the economy. He said that the government has taken certain decisions in the interest of small and medium businesses, which will also boost employment. “Government underwrites loans given by banks to small businesses through a trust. So far, loans were covered upto one crore rupees. This limit is now being enhanced to Rs 2 crore,” he said while addressing the nation during the eve of the New Year.

Earlier, the scheme only covered bank loans. But now, he said, “it will cover loans given by NBFCs (non-banking financial companies) as well”. This decision will enable better access to credit for small shop-owners and small enterprises, the Prime Minister said, adding banks and NBFCs “will not” levy high interest on these loans, as the government is bearing the cost of underwriting them. MSME sector, which provides bulk of employment, accounts for 45% of India’s manufacturing; 40% of exports and nearly 8% to the country’s GDP. He said that the government has also asked banks to raise the credit limit for small industry from 20% of turnover to 25%.

“Banks have also been asked to increase working capital loans from 20% of turnover to 30%, for enterprises that transact digitally,” he said. Modi also said that many people connected with this sector have made cash deposits in the last few weeks and banks have been asked to take this into account when deciding on working capital. “A few days back, government announced a major tax relief for small businesses. Income of businesses with turnover of up to Rs 2 crore was calculated at 8% of the turnover.

Now, for such businesses income from digital transactions will be calculated at 6%. This will effectively reduce their tax liability by 25%,” he added. Talking about the progress of the MUDRA Yojana, Modi said it was as encouraging as last year, with nearly 3.5 crore people benefiting from it. The government now aims to double this, giving priority to dalits, tribals, backward classes and women,” he added.