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Expectations of MSME Sector from the Union Budget 2022-23

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Micro, Small and Medium Enterprises (MSMEs) make up 95% of India’s businesses. This sector has been severely disrupted due to the ongoing COVID-19 pandemic that has caused numerous operational roadblocks. MSMEs are in dire need of some relief in order to stabilise in the months to come.

According to data from the MSME Ministry, India is home to 6.3 crore MSMEs, of which 94.34% are micro-enterprises, 5.09% are small enterprises, and the remaining 0.57% are mid-sized enterprises.

In the previous budget, a whopping Rs 15,700 crore was allocated to the MSME sector, which is twice the amount apportioned to the sector in 2020-21. What will things look like this year? As we inch closer to the Union Budget, let’s look at the MSME sector’s take on what it needs.

Need for a robust fiscal stimulus

Local businesses require a robust fiscal stimulus from the government and financial institutions to maintain adequate liquidity, over and above subsidised loans for capital expenditure to spur growth. Most MSMEs that managed to ride two painful waves of the pandemic are now scrambling to repay loans. Views of the MSME sector on the budget are still echoing the sentiments from the first wave.

The Emergency Credit Line Guarantee Scheme (ECLGS) proved extremely helpful when it was launched back in 2020 at the height of the pandemic. Under the ECLGS scheme, 100% credit guarantee is borne by the National Credit Guarantee Trustee Company for loans disbursed by banks and NBFCs to distressed MSMEs. This kind of relief is needed right now too and will continue to be necessary in the months to come. An uninterrupted credit flow could provide much relief to many MSMEs and allow them to navigate the third wave a little more easily.

It is worth noting that in May 2020, Rs 3 lakh crore worth of collateral-free automatic loans had been extended to MSMEs by Finance Minister Nirmala Sitharaman under the Mega Fiscal Stimulus package. It was aimed at helping MSMEs remain afloat during the first wave of the pandemic. However, lack of access to credit lines and dry cash wallets continue to plague the MSME sector.

Incentivisation of debt instruments

Debt instruments must be incentivised by the government in order to extend lines of credit to MSMEs where bank funding cannot be provided. For instance, AAA-rated organisations and banks can raise capital at a mere 5-6%, whereas companies rated A or lower are compelled to do the same at 10% or more. Business owners are hopeful that the Union Budget of 2022 for MSMEs will consider these woes and address them.

Over half a billion Indians are still unbanked, which is a sizeable chunk of the Indian population. To reach it, NBFCs and FinTechs in the MSME lending space will require sufficient debt capital. Creating a provision for the same will not only lead to job creation but also credit flow.

Improved ease of doing business

The MSME sector needs expedited approvals and relevant compliance norms to enhance the ease of doing business in India. It also needs to be incentivised to accelerate its adoption of technology. The entrepreneurial spirit can be encouraged through incubation/mentorship programs and regulatory guidance.

This will also ease the burden of rapid urbanisation off the shoulders of metro cities. Tax exemptions can also play a major part in easing things out for the MSME sector.

A reduction in GST might be a good start at providing much-needed relief.

An important factor worth considering is that MSMEs hire ~90% of the labour force, but sluggish or diminished growth prevents them from entering the formal sector. This also means that employees cannot avail the benefits of social security. The Budget 2022 must also consider such shortcomings and lay down a plan to ensure sustainable growth of the MSME sector.

Read more about the different government schemes that the Union Budget may have to offer here.

* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.


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