India’s finance and banking sector serves as the backbone of the country’s economic growth and development. Recognizing its potential, the Indian government has actively introduced various initiatives, subsidies, and schemes to empower citizens and stimulate the growth of Micro, Small, and Medium Enterprises (MSMEs). In this blog, we delve into the government’s support for the finance and banking sector in the MSME ecosystem, explore key subsidies available to various stakeholders, and discuss some of the most significant schemes aimed at promoting financial inclusion, social security, and entrepreneurship. By understanding and leveraging these programs, individuals and businesses can contribute to a more robust and inclusive financial landscape in India.
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- Government Support for the Finance and Banking Sector in the MSME Ecosystem
The government plays a critical role in fostering the growth of the Micro, Small, and Medium Enterprises (MSME) sector, which significantly contributes to India’s manufacturing, exports, and job creation. To strengthen this sector, the government introduced a policy in 2005 aimed at boosting credit flow to MSMEs by a minimum of 20% annually, with a goal of doubling the credit supply within five years. The initiative successfully surpassed the target, maintaining over 20% yearly growth since 2007.
To further bolster the MSME sector, the government established two funds within the Small Industries Development Bank of India (SIDBI) during the 2008-09 Budget. These funds focused on risk capital financing and enhancing refinancing capabilities for the MSME sector, with a combined value of Rs. 4,000 crore. The Reserve Bank of India (RBI) also contributed to these funds, increasing the MSME (Refinance) Fund allocation.
Lastly, in 2008, the government unveiled a stimulus package to reinvigorate the economy, which included a Rs. 7,000 crore refinance facility for SIDBI. This measure aimed to streamline credit access for MSMEs, either directly or indirectly, via various financial institutions such as banks, non-banking financial companies (NBFCs), and state financial corporations (SFCs). This initiative showcases the government’s commitment to supporting the finance and banking sectors in India, particularly in relation to the MSME ecosystem.
Subsidies In Finance and Banking Sector
The Indian government offers various subsidies and financial assistance programs to encourage growth and development in the financial and banking sector. These initiatives aim to support entrepreneurs, MSMEs, export-oriented businesses, and various industries in their endeavors. The table below highlights some of the key subsidies available, their benefits, eligibility criteria, and how to apply for them.
| Subsidy Name | Benefits | Eligibility | How to Apply |
| Interest Subvention Scheme | Interest rate relief on short-term crop loans for farmers | Farmers availing short-term crop loans up to Rs. 3 lakhs | Apply at any public, private, or cooperative bank that offers short-term crop loans |
| Pradhan Mantri Mudra Yojana (PMMY) | Collateral-free loans for MSMEs: Shishu (up to Rs. 50,000), Kishore (Rs. 50,000-5 lakhs), and Tarun (Rs. 5-10 lakhs) | Any Indian citizen who runs a non-farm, income-generating business in the manufacturing, trading, or services sectors | Visit any MUDRA-authorized bank branch or financial institution and fill out the relevant loan application form |
| Stand-Up India Scheme | Bank loans between Rs. 10 lakhs and Rs. 1 crore for greenfield enterprises | At least one woman and one SC/ST entrepreneur per bank branch | Apply online through the Stand-Up India portal (www.standupmitra.in) or visit the nearest bank branch |
| Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) | Collateral-free credit facilities to new and existing MSMEs | New and existing MSMEs engaged in manufacturing or service activities | Apply through eligible Member Lending Institutions (MLIs), including scheduled commercial banks, and NBFCs |
| Priority Sector Lending (PSL) | Banks mandated to provide a certain percentage of their total lending to priority sectors, including agriculture, MSMEs, housing, and education | Borrowers from priority sectors, as defined by the Reserve Bank of India (RBI) | Approach banks or financial institutions offering loans under the PSL guidelines |
| Pradhan Mantri Jan Dhan Yojana (PMJDY) | Basic savings bank accounts, RuPay debit cards with inbuilt insurance, and access to overdraft facilities | Indian citizens without a savings account or with minimal access to banking services | Visit the nearest bank branch or banking correspondent, and submit the required documents to open a PMJDY account |
| Pradhan Mantri Vaya Vandana Yojana (PMVVY) | Guaranteed returns for senior citizens on their investment for a policy duration of 10 years | Indian citizens aged 60 years and above | Apply through the Life Insurance Corporation (LIC) of India, either online or at any LIC branch |
| SIDBI Make in India Soft Loan Fund for MSMEs (SMILE) | Soft loans and term loans to MSMEs for setting up new enterprises or expanding existing ones in the manufacturing and services sectors | Existing and new MSMEs in the manufacturing and services sectors | Apply through Small Industries Development Bank of India (SIDBI) or its authorized branches |
| Mudra Loan Scheme (Pradhan Mantri Mudra Yojana) | Loans for micro-units in the non-farming sector to support their growth and expansion | Small businesses, micro-units, and entrepreneurs in the non-farming sector | Apply through any public or private sector bank, regional rural bank, or microfinance institution |
| Stand Up India Scheme | Loans for greenfield enterprises set up by women, SC, and ST entrepreneurs | Women, SC, and ST entrepreneurs starting greenfield enterprises in manufacturing, services, or trading sectors | Apply through any Scheduled Commercial Bank, either online or at a bank branch |
| National Small Industries Corporation (NSIC) Subsidy | Credit support, raw material assistance, and marketing support for MSMEs | Micro, Small, and Medium Enterprises (MSMEs) registered in India | Apply through the NSIC portal or visit the nearest NSIC office |
| Credit Linked Capital Subsidy Scheme (CLCSS) | Capital subsidy for technology upgradation in MSMEs | MSMEs in the manufacturing sector undertaking technology upgradation | Apply through the nodal agencies or banks associated with the scheme |
| Interest Subvention Scheme for MSMEs | Interest relief on loans taken by MSMEs for incremental or fresh credit | MSMEs having a valid Udyog Aadhar Number (UAN) and GST registration | Approach the bank or financial institution where the credit is availed |
| Market Development Assistance (MDA) Scheme | Financial assistance for MSMEs to participate in international trade fairs and exhibitions | MSMEs with a valid Udyog Aadhar Number (UAN) and engaged in export-oriented activities | Apply through the MDA portal or approach the Office of Development Commissioner (MSME) |
| Technology Acquisition and Development Fund (TADF) | Support for technology acquisition and upgradation for MSMEs | MSMEs in the manufacturing sector | Apply through the Technology Development Board website or approach the Technology Development Board |
III. Important Schemes
Pradhan Mantri Jan Dhan Yojana (PMJDY)
The Indian Prime Minister launched the PMJDY in August 2014 as a mission for financial inclusion. The goal is to provide every household in the country with access to banking services. The program allows individuals without a savings account to open one without a minimum balance requirement. If they don’t possess the necessary documentation, they can open a “small account” with self-certification.
PMJDY offers easy access to banking services and financial literacy programs. Account holders also receive a RuPay debit card with accident insurance of up to Rs. 2 lakh and the possibility of overdraft facilities after six months of good account management. Additional social security benefits include access to personal accident insurance, life insurance, and guaranteed minimum pension.
As of August 2021, PMJDY had more than 28.7 crore accounts, with 66.69% in rural areas and 55.47% held by women. The deposit balance reached Rs. 1,46,230.71 crore, with the average deposit per account tripling from Rs. 1,064 in March 2015 to Rs. 3,397 in August 2021.
Social Security Schemes Launched in 2015
To create a universal social security system for all Indians, especially the poor and underprivileged, the Prime Minister introduced three Social Security Schemes in insurance and pension sectors on May 9, 2015:
- Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
PMJJBY offers life insurance coverage of Rs. 2 lakh for individuals aged 18 to 50 with a bank account and Aadhar as primary KYC. The annual premium is Rs. 436, auto-debited from the subscriber’s bank account. As of June 2022, over 13.11 crore people had enrolled.
- Pradhan Mantri Suraksha Bima Yojana (PMSBY)
PMSBY provides accident insurance for individuals aged 18 to 70 with a bank account and Aadhar as primary KYC.Insurance coverage includes Rs. 2 lakh for fatalities or complete disabilities resulting from accidents and Rs. 1 lakh for partial disabilities. The annual premium is Rs. 20, auto-debited from the subscriber’s bank account. As of June 2022, over 29.01 crore people had enrolled.
- Atal Pension Yojana (APY)
APY offers a guaranteed minimum monthly pension for subscribers aged 18 to 40 with a savings bank or post office savings bank account. The government guarantees a minimum pension, and if returns on investment are higher, subscribers receive enhanced benefits. As of July 2021, over 321.02 lakh subscribers had enrolled.
Pradhan Mantri Mudra Yojana
Launched in April 2015, this program provides loans up to Rs. 50,000 under the “Shishu” sub-scheme, between Rs. 50,000 and Rs. 5 lakh under “Kishore,” and between Rs. 5 lakh and Rs. 10 lakh under “Tarun.” No collateral is required. As of August 2021, Rs. 16,22,203 crore had been sanctioned in 30.7 crore accounts.
Stand Up India Scheme
Initiated in April 2016, Stand Up India encourages financial institutions to provide loans ranging from Rs. 10 lakh to Rs. 1 crore for a minimum of one SC/ST applicant and one female applicant per bank branch, with the objective of establishing greenfield enterprises.
. This program is carried out by all Scheduled Commercial Banks, with the goal of assisting a minimum of 250,000 borrowers. As of August 2021, Rs. 26,688 crore had been sanctioned in 1,18,462 accounts.
Stand Up India aims to promote entrepreneurship among women, SC & ST individuals by providing mentorship, advice, and timely credit. The Credit Guarantee Fund for Stand Up India (CGFSI) provides collateral-free coverage. Handholding support, convergence with Central/State Government schemes, and an online application portal (www.standupmitra.in) are also part of the program.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Launched to protect elderly individuals (60 years and above) from uncertain market conditions and provide social security during old age, PMVVY is implemented through the Life Insurance Corporation of India (LIC). The scheme is open for subscription until March 31, 2023.
PMVVY offers an assured annual return of 7.40% for the financial year 2020-21, with a policy duration of 10 years. In subsequent years, the assured rate of return is reset annually, up to a ceiling of 7.75%. Pension disbursement options encompass monthly, quarterly, semi-annually, or yearly intervals, subject to the preference of the subscriber. The minimum purchase price is Rs. 1,62,162 for a pension of Rs. 1,000 per month, while the maximum purchase price is Rs. 15 lakh per senior citizen for a pension of Rs. 9,250 per month.
IV. Digital India Initiative and Financial Inclusion
The Digital India Initiative, launched by the government in 2015, is a transformative program aimed at empowering citizens by leveraging digital technologies. The initiative focuses on three core components: digital infrastructure, digital services, and digital literacy. The finance and banking sectors play a pivotal role in realizing the goals of this initiative, particularly in the area of financial inclusion.
One of the flagship programs under Digital India is the promotion of digital payments, which has led to a substantial increase in the use of digital financial services. The government has introduced several digital payment platforms, such as the Unified Payments Interface (UPI), BHIM app, and Aadhaar Enabled Payment System (AePS), to facilitate swift and secure transactions. These digital payment systems have not only made financial transactions more accessible and convenient for millions of Indians but have also reduced the dependence on cash and helped combat issues like black money and corruption.
To further support the adoption of digital finance, the government has incentivized digital transactions through initiatives like the Digital India Awards, which encourage businesses and individuals to embrace digital payments. This shift towards digital finance has significantly impacted the banking sector, with many traditional banks now offering a wide range of digital services, such as mobile banking, internet banking, and digital wallets, to cater to the changing preferences of customers.
Financial Literacy and Capacity Building
Financial literacy is essential for individuals to make informed decisions about their personal finances and fully benefit from the various government schemes and financial services. To enhance financial literacy, the government, along with the Reserve Bank of India (RBI) and other financial institutions, has launched several capacity-building initiatives targeted at different segments of the population.
One such initiative is the National Strategy for Financial Education (NSFE), which provides a framework for creating financially aware and empowered citizens. The NSFE aims to strengthen financial education across different stages of life, from school to retirement, by integrating financial education into the school curriculum, organizing financial literacy camps, and conducting training programs for various target groups.
Another critical capacity-building initiative is the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), which focuses on providing market-relevant skills to India’s youth. Under this scheme, financial literacy training is offered as a part of the skill development process, helping to equip the youth with essential knowledge to manage their finances effectively.
The government also collaborates with various non-profit organizations and NGOs to conduct financial literacy programs, especially in rural and remote areas, where access to formal financial services is limited. By improving financial literacy and capacity-building among the population, the government aims to foster a financially inclusive society where citizens can effectively utilize financial services to improve their lives and contribute to the nation’s overall economic growth.
Conclusion:
India has shown significant commitment to fostering the growth and development of its finance and banking sector, particularly for the MSME ecosystem. Numerous government initiatives, subsidies, and schemes have been introduced to provide financial assistance, credit access, and social security for Indian citizens. By understanding these programs and their benefits, entrepreneurs and individuals can leverage them to fulfill their financial needs and contribute to India’s economic growth.
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