How will the Union Budget Impact the SME and MSME industry
Author: Ashutosh Kharangate, Founder & Managing Director of MARC, a Management Consulting firm for SMEs and MSMEs
The Indian MSME sector is the backbone of the economy and has consistently delivered even through the pandemic, displaying its persistence and resilience. Approximately 63.4 million MSME’s are spread throughout the country, contributing around 6% of the manufacturing GDP, 25% of service activities and 33% of the manufacturing output. MSMEs provide employment to around 120 million persons and contribute around 45% of the overall exports from India. The sector has consistently maintained a growth rate of over 10%. In addition, 20% of the MSMEs are based out of rural areas, which contribute towards a more balanced and inclusive development of the country.
An MSME’s suffers from a couple of deficiencies. These being the lack of market potential for them in the Government sector. Most times the terms of the Government contracts are stringent and more in favour of the MNCs. The other issue is also in terms of Government payments. The need for the bank guarantees, earnest money deposits and delays in Government payments make it unviable for the MSMEs to apply for these Government opportunities, as they are perpetually starved for cash flows. This budget has made its best effort to recognize the issues faced by the MSMEs, especially during the difficult times of Covid 19.
Following are some of the measures in this regard:
Emergency Credit Line Guarantee Scheme (ECLGS):
ECLGS has provided the much-needed additional credit to more than 130 lakh MSMEs. The ECLGS has been extended up to March 2023 and its guarantee cover has been expanded by Rs. 50,000 crores to total cover of Rs. 5 lakh crores, with the additional amount being earmarked exclusively for the hospitality and related enterprises.
Credit Guarantee Trust for Micro and Small Enterprises:
Credit Guarantee Trust for Micro and Small Enterprises will facilitate additional credit of Rs. 2 lakh crores for Micro and Small Enterprises and expand employment opportunities.
Boost to start-ups and MSMEs:
Udyam, e-Shram, NCS and ASEEM portals will be interlinked. They will perform as portals with live, organic databases, providing G2C, B2C and B2B services. These services will relate to credit facilitation, skilling, and recruitment. This will help to solve problems related to skilled employee staffing.
Financing and Ease of doing business for MSMEs:
Rs. 6,000 crores have been allotted for the development of MSME’s, which will be rolled out in the coming five years, which will serve as a boost to support the growth of MSME’s in the country. There is also an emphasis on skill development, and credit facilitations for the MSME’s. This program ensures improvement in the competitiveness and productivity of the MSMEs. This is a good provision as the MSMEs which are deeply affected due to the covid pandemic.
Concessional Corporate Tax:
Concessional corporate tax rate of 15 per cent extended by one more year till March 2024 for newly incorporated manufacturing companies. This allows the MSMs to be more competitive and to withstand the competition from global players.
Impact of Defence budget on Start-ups and MSMEs:
The Defense budget has been sensitive to the need for establishing a technological framework to advance growth of a vibrant indigenous military manufacturing infrastructure. For this self-reliance initiative, 68 percent of the modernization budget would be reserved for domestic industry, up from 58% in 2021-22. Here, 25% of the R&D budget has been earmarked for private industry, start-ups, and academia. In addition, there has been an initiative to introduce surety bonds in place of bank guarantees for government procurements which augurs well for the insurance sector and infrastructure sector MSMEs. This is a very encouraging development that shall ensure the local MSMEs get assured business from the Government contracts. It will enable MSMEs achieve scale of operations that shall make them financially more stable.
Improvement of liquidity for MSMEs:
Increased focus on digital banking, payments and fintech will also provide opportunities for improving liquidity for MSMEs. Provision for an end-to-end platform to submit and manage e-bills for government contracts and commitment to pay 75% within 10 days for running bills will also improve liquidity for MSMEs serving government organizations.
Hence, Budget 2022 has had some promising takeaways for India’s hardworking MSME sector. We would hope there would be some Ache Din for them after the turmoil of the last 2 years.
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