Published: Feb 23, 2023
In her 2023 budget speech, Finance Minister Nirmala Sitharaman called MSMEs the “growth engines of the economy”, and seeing how far the sector has spread, generating crores of employment opportunities in the country, it isn’t hard to see why. The MSME sector accounts for about 33% of India’s GDP.
The COVID-19 pandemic hit the MSME segment pretty hard, because of which there is still a lot of turbulence in the segment. In the last two budgets, several provisions were announced by the government to aid recovering MSMEs, from the easy availability of MSME loans in India or ensuring a competitive interest rate for the MSME business loan. This theme has been carried forth into this year’s budget as well. Apart from introducing new provisions, the 2023 budget also built upon some of the measures that had previously been announced to boost the recovery, stability, and growth of the MSME sector.
Budget 2023: Reforms, Measures, and Provisions for the MSME Sector
Even as the economy is slowly returning to its normal course, several MSMEs have reported a recovery of up to 90% of their pre-COVID sales. However, there is still scope for improvement and development, especially if you think about the significance the MSME sector holds for India’s economic growth.
Strengthening the Credit Guarantee Scheme for MSMEs
It has been observed in recent years that there has been a significant increase in MSME credit offtake as many MSMEs have been opting to apply for MSME loan schemes. This increase can majorly be attributed to the introduction of the MSME ECLGS, or the Emergency Credit Guarantee Scheme for MSMEs, which was announced by the government in 2020 in response to concerns raised by the pandemic. It is estimated that around 1.2 crore businesses [source] are backed by the ECLGS, with MSMEs forming a whopping 95% of the same.
Measures included in the 2023 budget help further strengthen the premise of this scheme, funnelling an additional ₹9000 crore in the ECLGS for MSMEs. This will make it even more convenient for MSMEs to avail a business loan from any finance company as this move translates into another ₹2 lakh crore worth of collateral-free loans being added to the overall budget for small businesses to avail.
Apart from a 1% decrease in credit costs is also expected, which will go a long way in helping enhance the credit penetration of available financial solutions in the MSME sector, encouraging entrepreneurship.
Provision for Forfeited Performance Due to the Pandemic
The Vivad se Vishwas Scheme is another budget provision that was announced to aid the MSME sector. This scheme has been introduced to provide some amount of relief to the MSMEs that have been struggling because of the economic disruptions left in the wake of the COVID-19 pandemic. Under this scheme, any MSME that failed to complete their contracts because of the pandemic will be granted an amount of up to 95% of the bid amount that was forfeited or of the performance security by the government and its undertakings.
Enabling Presumptive Taxation for Micro Units
Earlier, micro-enterprises with turnovers of less than ₹2 crores were allowed to file their taxes under presumptive taxation. Budget 2023 extended this turnover limit to ₹3 crores, given that the cash receipts of the MSME are not more than 5%. So, account maintenance requirements and statutory audits are now discounted for several small businesses under Budget 2023 provisions.
Payment Delay Issues
At present, outstanding payables towards the MSME sector in India stand at more than ₹10.7 lakh crore [source], which has had quite an adverse impact on the debt repayments and cash flows of MSMEs. Keeping this in mind, the government put forth the proposal that any deductions that are to be claimed for expenses of making payments to MSMEs can only be availed once the payment has been made. This measure has been put in place to help ensure that MSMEs are paid on time, which will in turn help improve the competitiveness and financial health of the sector.
Augmenting the “Ease of Business”
Aiming to support the development of the MSME business environment, the budget included several measures, including:
●The reduction and decriminalisation of about 39,000 compliances and 3400 legal provisions.
●Announcing the PAN card as the common identifier that MSMEs can use for all digital transactions at government agencies to enable a simplified KYC procedure with a reduced compliance burden.
●Introduction of the ‘National Data Governance Policy’ to improve data access, usage, quality, and management to empower inclusive development while reducing privacy breaches.
DigiLocker Updates
An Entity DigiLocker has been set up to make it easy for businesses to save their documents safely online and share them with business entities or government agencies as and when required.
Skill India
Supporting the Skill India Mission, a unified digital platform has been introduced for the upskilling of India’s youth. It will also enable linking the youth to employers, which includes MSMEs. Apart from this, the platform will also educate the youth about the many government schemes that are in place to foster the entrepreneurial spirit.
PM VIKAS
The PM Vishwakarma Kaushal Samman aims to facilitate financial inclusion and benefit enterprises that are led by women or by other socially disadvantaged groups. The components of the scheme include providing financial support to traditional and local craftspeople and artisans, along with offering them easy access to skill training, educating them about advanced digital techniques and green technologies, linking them with global and local markets, helping with their brand promotion, integration of digital payment modes, etc. The main focus of PM VIKAS is to help these entrepreneurs improve their product quality and in scaling their operations, while also enabling them to integrate into the value chain of the MSME sector.
A record ₹22,138 crores has been allocated in this year’s budget for small businesses, which is bound to have a positive impact on India’s MSME sector.
