The Reserve Bank of India (RBI) may enhance the limit of collateral-free loans for micro & small enterprises (MSEs) to Rs 20 lakh from Rs 10 lakh under the Centre’s Credit Guarantee Scheme (CGS), two government officials have told Moneycontrol.
The move will enable the MSEs to access more capital at a time when the sector is likely to bear the brunt of higher US tariffs.
"The department of financial services recently held meetings with the RBI, and the central bank is on board with the enhancement of the scheme limit," one the two officials said, adding meetings with banks are on.
“No cabinet approval is required – only a notification is needed to modify the scheme,” the official added. Other than doubling the limit, rest of the scheme will remain the same, the official added. "It is in favour of the MSMEs and will be a good move."
The scheme is expected to be notified after the Parliament session ends on August 21.
The CGS, managed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), was introduced in 2010. It seeks to reassure the lender that in the event of a MSE unit, which availed collateral-free credit facilities, fails to pay the money back, the trust would make pay 75-90 percent of the outstanding amount, the RBI website says.
"There is a need to support the MSEs at this time… the government is conducting inter-ministerial discussions to come up with steps to help them grow amidst external uncertainties," the second official said.
Both officials spoke on condition of anonymity, as they are not authorised to speak to media.
US President Donald Trump has raised tariffs on Indian goods to 50 percent. While the 25 percent tariff, which was announced first, came into effect from August 7, the so-called penalty for buying Russian oil will kick in from August 27.
Moneycontrol has reported that the finance ministry is working on an export strategy scheme to incentivise diversification for export to Europe, the UK, Peru, Chile, Argentina and Brazil.
The incentive will potentially focus on labour-intensive exports and the requirement for the same depend on if and how quickly Washington and New Delhi secure a trade deal, potentially lowering the massive tariffs rates.
India and the US have held five rounds of talks for a bilateral trade agreement (BTA) but have failed to make a breakthrough, with opening of India’s agriculture and dairy sectors emerging as a major sticking point
Prime Minister Narendra Modi on August 7 said he won't compromise on farmers' interests and was ready to pay a “heavy personal price”, hours after the US imposed the 25 percent Russia penalty on India.
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