Decoding Budget 2020: MSMEs and small businesses react to schemes, debt restructuring, and more

Finance Minister Nirmala Sitharaman on Saturday presented the Union Budget 2020 in Parliament and announced a range of schemes and measures for micro, small, and medium enterprises (MSMEs) and small businesses. 

Here are the key highlights of the Budget 2020 for MSMEs:

·      Uplift the manufacturing sector 

·      National logistics policy to be released 

·      Scheme to provide higher insurance cover for exports 

·      New scheme NIRVIK announced for export tax disbursement 

·      Scheme to provide subordinate debts to MSME entrepreneurs  

·      App-based invoice financing loans product to be launched 

·      Rs 2.83 lakh crore allocated for agro and allied sectors

Click here for our complete coverage on what the Budget 2020 had in store for MSMEs and small businesses.

So what do small businesses and other MSME stakeholders think of Budget 2020’s proposals? Here's what some of them said.

Focus on boosting manufacturing and healthcare

Budget 2020 proposed to boost the manufacturing of mobile phones, electronic equipment, and semiconductor packaging. MSMEs and large enterprises in the manufacturing sector are positive about the announcement as it seeks to bolster the Make in India initiative.

“We welcome the steps taken by the government in the Budget 2020 towards boosting electronics manufacturing in the country. The electronic industry has huge potential both in terms of manufacturing in India and job creation and will provide a major impetus for growth. This will further enhance the exports of networked products,” says Rajesh Uttamchandani, Director at manufacturing company Syska Group.

Bishan Jain, Director at Goldmedal Electricals, a manufacturer of switches and electrical products, agrees.

He says, “Budget 2020 has provided enormous opportunities for companies looking to set up manufacturing facilities in the country. The steps taken by the government towards making India a manufacturing hub by providing impetus on electronics manufacturing in India will give a further fillip to the Make in India initiative.”

In her Budget 2020 speech, Sitharaman said the manufacturing boost could also be used to uplift medical devices manufacturing. In January 2020, Union MSME Minister Nitin Gadkari had said his department plans to set up five parks to manufacture low-cost medical devices in the country.

The Finance Minister also allocated Rs 69,000 crore to the health sector, inclusive of Rs 6,400 crore already directed towards the Pradhan Mantri Jan Arogya Yojana. 

Needless to say, the healthcare and medical devices companies are positive about this announcement.

“The Government’s gesture will open hospitals in Tier II and III cities, which still do not have an Ayushman-empanelled hospital. This is a step in the right direction for improving health and timely diagnosis,” says Arjun Ananth, CEO at Medall Diagnostics, India’s largest integrated diagnostic service provider.

GSK Velu, Chairman and MD at medical devices company Trivitron Healthcare, is also thrilled. He believes the Budget 2020 is visionary and in accordance with the policy of improving and expanding the reach of healthcare services. 

“Make in India initiative for the medical devices industry has been given a big boost. Further, imposing health cess on the import of medical devices will help domestic manufacturing companies,” he says.

NBFCs and debt restructuring: the right step?

Sitharaman announced a scheme to subordinate debt to MSMEs, asking banks to extend restructuring MSME NPAs for one more year, which initially had a deadline of March 2020. 

She also said an app-based invoice financing loans product will be launched to alleviate the problem of delayed payments and cash flow mismatches for MSMEs. The Minister added that amendments will be made to enable NBFCs to extend invoice financing to MSMEs.

NBFCs have taken this in their stead and feel it will benefit the MSME sector.

“The long due necessary amendments to the Factor Regulation Act 2011 will enable NBFCs to formally provide working capital credit to MSMEs. This will help to finance invoices of MSME enterprises, which are supplying goods and services to corporates with risk profiles not commensurate with banks’ defined appraisal process,” says Sundeep Mohindru, CEO, at M1xchange, a TReDS platform.

Ritesh Jain, Co-founder of digital lending platform FlexiLoans, maintains the Budget 2020 is holistic and supports MSME-focussed fintech players. According to him, steps taken in the right direction include extending provisions of subordinate debt to MSME entrepreneurs, an extension of provisions in the CGTSME scheme, and improved mechanisms to solve the liquidity crunch for NBFCs.

Despite the measures taken, some believe invoice financing should also be applicable to non-registered MSME units.

MSME Export Promotion Council Chairman DS Rawat told PTI:

"The invoice financing by the NBFCs will help greatly the MSME sector, but it should be applicable to all registered as well as non-registered units. The government should make it applicable to all units operating from conforming as well as non-conforming areas. In case it becomes applicable to only registered ones, over 60 percent of the units will be left behind.”

Not all that glitters is gold

However, several MSMEs and small businesses are not convinced by the Budget 2020, especially those in the gold and gems and jewellery sector.

As the economy grapples with liquidity crunch, sales of gold jewellers are taking a hit. They hoped the Union Budget 2020 could address high import, customs duties, and bring stability to the market. But, they feel it did not meet their expectations.

Shreyansh Kapoor, Vice President, Kashi Jewellers, says, “So far, I have not heard anything favourable for the gems and jewellery industry. The industry is still dominated by small retailers and family-owned setups who don’t fall under the corporate category. The likes of Tanishq and Malabar forms one percent in this industry. There are no tax reforms for the small players. No policy changes have been announced to boost our exports as well.”

Budget 2020 also disappointed Saurabh Gadgil, Chairman and Managing Director at PNG Jewellers.

"The Budget 2020 has no announcements for the gems and jewellery sector and that is a big disappointment. It seems to be strategic and long term but no cognisance has been taken of problems on the ground. Our requests for reduction of import duty and other measures to increase consumption have gone unheard and that is disappointing,” he says.

Besides gold, MSMEs and small businesses in other sectors are also voicing their concerns. While they believe the Budget 2020 had positive intentions, it missed the mark in reducing compliance burdens and boosting the Digital India initiative.

Rishi Agrawal, Co-Founder and CEO, Avantis Reg Tech, says, “I expected to see greater action on reduction in regulatory compliance burden on Corporate India. There was hardly any mention of a regulatory overhaul, structural reforms by way of rationalisation, simplification and digitisation. MSMEs and startups are necks deep in managing the day-to-day complexity of multiplicity of licenses, registrations, renewals, maintaining registers, managing returns among others.”

Shakir Ebrahim, Founder, GoBisbo Broadcasting Network, is critical of the Budget 2020 and believes it will not help build India’s strengths and capabilities for reaching the $5 trillion economy target.

"The Budget 2020 has been disappointing and lacking resolve towards digital India. We expected infrastructural support for Indian companies to come up to speed with servers, which support more substantial streaming services like Netflix and YouTube. Instead of looking at Digital India, the Budget cut custom duty on newsprint by half,” he says.

MSMEs remain divided over the Budget 2020’s impact on the small business sector, a segment Nirmala Sitharaman said is “pivotal in keeping the wheels of our economy moving”. Over the next year, more announcements beneficial to the MSME sector could be made by Union MSME Minister Nitin Gadkari and Commerce Minister Piyush Goyal.

(Edited by Saheli Sen Gupta)

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