The Union Budget 2022-2023 turned out to be a hit for MSMEs in India with several announcements made by Finance Minister Nirmala Sitharaman for the sector in her budgetary speech.
With the pandemic and the new Omicron wave looming large over the country, the FM announced measures to boost the 6.3 million units and 11 crore Indian Population that works under the MSME Sector.
Access to credit and ease of doing business have been some of the long-standing concerns of the sector which had high expectations from this year’s budget.
What benefits were announced for MSMEs in the Budget?
Let’s take a look at what announcements were made in the budget for MSME Sector -
Extension of Emergency Credit Line
In a move welcomed by the industry, the FM announced the extension of ECLGS or Emergency Credit Line Guarantee Scheme till March 2023. Moreover, the guarantee cover under this scheme has also been extended by an additional ₹50,000 crore. Now the total allotment under the scheme is ₹5 Lakh Crore, with a focus on the hospitality sector.
The ECLGS Scheme was introduced in 2020 to combat the ill effects on 26 sectors induced by the Coronavirus pandemic in India. It provided liquidity to the MSMEs in the COVID pandemic with an initial cover of ₹3 Lakh Crore and had a total corpus of ₹20 Lakh Crore as ‘Atmanirbhar’ package. The Scheme was expanded further under ECLGS 2.0 and ECLGS 3.0 with the last extension till March 2022. So far, ECLGS has helped 1.3 crore MSMEs beat the COVID impact.
MSMEs portals to be interlinked
Government portals for small and medium enterprises which include Udyam, e-Shram, National Career Service (NCS) and Atmanirbhar Skilled Employee-Employer Mapping (ASEEM) will be interlinked to widen their scope and provide ease of doing business to the MSMEs.
In her budget speech, FM said that the portals would function as “live, organic databases, providing G2C, B2C and B2B services. These services will relate to the facilitation of credit, skilling, and employment with an aim to further formalise the economy and enhance entrepreneurial opportunities for all,”
Interlinking of these portals have the following advantages:
- Reduction of paperwork
- Easier access to information
- Seamless approach
- Helpful to banks for getting information
Increase in allocation
MSMEs contribute to over 28% of the GDP. Thus, it is imperative to allocate a considerable amount of budgetary resources for their development especially in the times of the pandemic. Raw, material, input costs, infrastructure, skill development and access to credit are the major issues concerning small and medium businesses.
In her Budgetary allocation for MSMEs, Sitharaman announced Gatishakti Infrastructure investment which includes multi-model logistics parks to enhance global connectivity and ease of doing business.
The government also announced 1.5 lakh additional physical banking facilities will be provided through post offices. Moreover, 75 digital banking units would be set up in 75 remote rural districts by Scheduled Commercial Banks. These steps are in the right direction to promote financial inclusion and fusing liquidity into the system.
Reduced import and custom duties
In a move that would help MSMEs in business expansion and foster competitiveness, the Finance Minister reduced import tariffs on inputs and increased/imposed tariffs on end products. Exemption on inputs such as steel scrap and reduced tariffs for sectors such as textile, leather products and handicrafts will result in enhanced growth of the MSME and global competitiveness in sourcing the inputs.
Credit Guarantee Scheme Revamped
In a major announcement related to MSMEs, Nirmala Sitharaman announced the revamping of the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme with the required infusion of funds. An additional credit of ₹2 lakh crore for micro and small enterprises (MSEs) would be provided for the expansion of employment opportunities.
The 2022 Union Budget announced a ₹6000 crore programme to rate MSMEs that will be rolled out over the next 5 years. The Programme called RAMP (Raising and Accelerating MSME Performance) was also approved by The World Bank in June 2021 with the assistance of US$500 million provided to support MSMEs hit by COVID. According to the FM, the RAMP initiative will help MSMEs become resilient, efficient and competitive. RAMP was rolled out as a part of the MSME Competitiveness – A Post COVID Resilience and Recovery Programme (MCRRP) by the government.
Among other announcements in the Budget for MSMEs, a National skill qualification framework, and a Nabard startup initiative were also notable. The Finance Ministry announced establishing a fund with blended capital under the co-investment model facilitated through NABARD, which will focus on providing financing to startups in agriculture and rural enterprises across the entire farm produce supply chain. Moreover, to support MSME suppliers and work contractors, surety bonds as a substitute for bank guarantees will be made acceptable in government procurements which will reduce indirect costs.