Budget 2021 has broad-based measures that will benefit MSMEs too

The Union Budget 2021 was presented in by Finance Minister Nirmala Sitharaman on February 1. For the first time, a “digitised” Budget was put forth, with the traditional bahi khata replaced by a made-in-India tablet. The Budget presentation covered multiple schemes for different sectors, including micro, small and medium enterprises (MSME) and startups.

The Budget focused primarily on six pillars: health and well-being; physical and financial capital and infrastructure; inclusive development for an aspirational India; reinvigorating human capital; innovation and research and development (R&D); minimum government, maximum governance and promotion of Aatmanirbhar Bharat.

The pandemic had greatly impacted the MSME sector, along with all other industries, leading to the shutdown of several businesses and loss of employment. The prevailing challenge of liquidity and access to loans for small business owners and MSMEs, clubbed with the challenge of lockdown, put a huge question mark on their survival.

Also, with rapid digitisation, several of these businesses were threatened due to absence of an online presence. While the pandemic has not come to an end yet, small businesses have slowly begun to rise from the ashes, which is why Budget 2021 was all the more an important event for them. Let us now try and understand what the Budget had in store for MSMEs.

One of the initial and primary points stated that the government will introduce the Aatmanirbhar Swasth Bharat Yojana with an outlay of ₹64,180 crore to support and facilitate economic growth. Strengthening of “Sankalp of Aatmanirbhar Bharat” was also proposed.

In addition to the Aatmanirbhar Bharat schemes, the government proposed to launch seven textile parks over three years to boost production and investment. This initiative aims to generate employment, encourage domestic production, and make India a global champion in exports.

Boosting production could imply a possible increase in dependence on small businesses for producing goods and, thus, generation of more employment opportunities.

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Financial boost for MSMEs and startups

The government will allocate over ₹15,700 crore for the MSME sector — more than double of last year. A data analytics and artificial intelligence framework will be launched to assist the MSME sector, along with strengthening of the National Company Law Tribunal (NCLT) framework in order to quicken resolution of cases through systems such as e-courts and alternative modes of debt resolution.

There are also proposed changes to help MSMEs with regard to customs duty on khadi, leather, gemstones, etc. to encourage domestic processing. The government will also raise customs duties on cotton and silk to benefit farmers.

In a big boost for startups, the government incentivised incorporation of one-person companies. Such companies will be allowed to grow without any restriction on paid-up capital or turnover and can convert into any other type of company at any time, according to details provided by the government.

Debt recovery schemes for NBFCs to improve credit discipline

To improve credit discipline and protect the interest of small borrowers, non-banking financial companies (NBFC) can recover loans that are over ₹100 crore only. Also, the Budget announced several alternative methods of debt resolution for MSMEs.

Change in definition of small companies

The Budget announced that the definition of small companies under Section 2(85) of the Companies Act, 2013 will be amended.

The government proposes to do this by increasing the thresholds of paid-up capital from ₹50 lakh to ₹2 crore, and turnover from ₹2 crore to ₹20 crore.

Through this, many companies are covered under the definition of “small companies”, which ensures ease of compliances under the Companies Act. At the time of the pandemic, this will be a great helping hand for MSMEs.

Conclusion

The Union Budget 2021 focused mainly on revival strategies for the COVID-hit economy. The government is going to allocate most of the budget to improve healthcare and public infrastructure.

Pros: The Budget does not impose increased taxes on businesses or startups. There is an increased focus on ease of doing business for MSMEs with lesser compliance burdens.

Cons: The government focused on a broader, all-round Union Budget. There is little focus on MSMEs that are financially crippled and need immediate financial relief. Hopefully, the Aatmanirbhar Bharat scheme will benefit MSMEs that need to grow or expand this year.

The Budget seemed to focus on overall industry growth by way of promoting digital literacy in the country. With several measures and allocations planned by the government in the Union Budget 2021, what we really need to watch out for is how the allocated funds are going to be utilised and how the sector will be benefited by it.

For YourStory's multimedia coverage of Budget 2021, visit YourStory's Budget 2021 page or budget.yourstory.com.