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Budget likely to unveil ‘Fund of Funds’ for MSME sector

It would be modeled on the lines of FoF suggested by former Sebi chairman-headed panel on MSME.

, ET Bureau|
Last Updated: Jan 15, 2020, 08.51 AM IST
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The MSME ministry has also sought a budgetary allocation of Rs 12,000 crore for financial year 2020-21, a jump of 70% of the allocation for the current fiscal.
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NEW DELHI: India could unveil a ‘fund of funds’ for micro,small and medium enterprises (MSME) sector in the upcoming budget to provide funding line to the sector.

“A fund is on the cards,” a government official told ET. It would be modeled on the lines of FoF suggested by former Sebi chairman U K Sinha headed committee on MSME.

The committee had in June 2019, recommended setting up of a government-sponsored fund to help the sector.

“A government sponsored Fund of Funds (FoF) of Rs 10,000 crore to support VC/PE firms investing in the MSME sector that will support crowd funding from venture capital and private equity firms, which focus on investing in the MSME segment on modified term sheets developed by SIDBI. This would encourage innovation in term-sheets and product structures,” the report of the RBI committee had said.

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The government is also likely to extend the interest subvention scheme for MSMEs, announced by Prime Minister Narendra Modi ahead of the Lok Sabha elections, in November 2018.

“We will continue with the interest subvention scheme,” one of the officials quoted above said.

The prime minister had announced 2% interest subvention for all GST registered MSMEs on fresh or incremental loans.

The scheme, operational over 2018-19 and 2019-20, aims at encouraging both manufacturing and service enterprises to increase productivity and provides incentives to MSMEs for onboarding on GST platform.

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A JUMP IN ALLOCATION IN FY21
The MSME ministry has also sought a budgetary allocation of Rs 12,000 crore for financial year 2020-21, a jump of 70% of the allocation for the current fiscal.

MSME ministry's allocation in FY20 stood at Rs 7,011 crore in FY 20 — which is its highest till date. The ministry has utilised around 78% of the funds allocated in the current fiscal.

“We have sought an allocation of Rs 12,000 crore this year,” a second government official said. “The focus is on spurring investments in the rural, economic activity in rural, backward and tribal areas,” the official said.

The ministry will also focus on developing MSME clusters, the official added.

Union Minister of MSMEs Nitin Gadkari has maintained that the ministry wants to create maximum jobs in the agriculture, rural and tribal areas, and the industry must also shift focus from urban to rural areas.

MSMEs contribute around 29% to the country’s GDP, and the ministry has targeted taking this figure to 50% in five years.

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