Budget 2022: Why MSMEs feel they deserved more to thrive, help India’s economy grow

“This Budget seeks to lay the foundation and give a blueprint to steer the economy over the Amrit Kaal of the next 25 years.” 

Announcing her fourth Union Budget, Finance Minister Nirmala Sitharaman mapped out four major priorities: PM Gati Shakti; inclusive development; productivity enhancement and investment, sunrise opportunities, energy transition, and climate action; and financing of investments. 

FM Sitharaman hailed the startup community, calling them “drivers of growth for our economy” and proposed an extension of tax incentives in the wake of COVID-19 for another year. She expanded the guarantee cover of Emergency Credit Line Guarantee Scheme (ECLGS) by Rs 50,000 crore to Rs 5 lakh crore and extended it to March 31, 2023, and revamped the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) with credit of Rs 2 lakh crore for micro and small enterprises.

Sitharaman also announced that programmes with an outlay of Rs 6,000 crore would be rolled out in the next five years to accelerate MSME performance. 

While all these initiatives aim to bolster MSMEs, stakeholders of the ecosystem see them as “incomplete” and are hankering for more. 

According to Dr Vivek Bindra, Founder of Bada Business, an edtech company that aims to empower Indian entrepreneurs, India's 63 million SMEs contribute 30 percent to India’s GDP and “deserved more in terms of relief”. 

Budget 2022 and MSMEs

According to FM, the ECLGS scheme will provide much-needed additional credit to more than 130 lakh MSMEs, which will help mitigate the impact of the COVID-19 pandemic. 

“Hospitality and related services, especially those by micro and small enterprises, are yet to regain their pre-pandemic level of business. Considering these aspects, the ECLGS will be extended up to March 2023 and its guarantee cover will be expanded by Rs 50,000 crore to total cover of Rs 5 lakh crore, with the additional amount being earmarked exclusively for the hospitality and related enterprises,” she said.

Sitharaman has also interlinked Udyam, e-shram, NCS, and Aseem portals. This initiative will help provide better opportunities to the sector in terms of credit facilitation and other key services. 

The finance minister has revamped the CGTMSE scheme with required infusion of funds – this will facilitate additional credit of Rs 2 lakh crore for micro and small enterprises and expand employment opportunities. She also proposed a Raising and Accelerating MSME Performance (RAMP) programme with an outlay of Rs 6,000 crore over five years to enable the MSME sector to become more resilient, competitive, and efficient.

Other important announcements likely to help MSMEs sustain and grow include:

Incentivising exports: Exemptions are being provided on items such as embellishments, trimmings, fasteners, buttons, zippers, lining materials, specified leathers, furniture fittings, and packaging boxes that may be needed by bona fide exporters of handicrafts, textiles and leather garments, leather footwear, and other goods.

Skill development: Skilling programmes and partnerships with the industry will be reoriented to promote continuous skilling avenues, sustainability, and employability. The National Skill Qualification Framework (NSQF) will be aligned with dynamic industry needs. 

Atmanirbharta in defence: The government is committed to reducing imports and promoting atmanirbharta in equipment for the Armed Forces. As much as 68 percent of the capital procurement budget will be earmarked for domestic industry in 2022-23, up from 58 percent in 2021-22.

Domestic manufacturing of solar power: To facilitate domestic manufacturing for the ambitious goal of 280 GW of installed solar capacity by 2030, an additional allocation of Rs 19,500 crore for Production Linked Incentive for manufacture of high efficiency modules, with priority to fully integrated manufacturing units from polysilicon to solar PV modules, will be made.

Reducing dependence on oil seed imports: A rationalised and comprehensive scheme to increase domestic production of oilseeds will be implemented.

Customs duty calibrated on electronics: Electronic manufacturing has been growing rapidly. Customs duty rates are being calibrated to provide a graded rate structure to facilitate domestic manufacturing of wearable devices, hearable devices, and electronic smart meters. Duty concessions are also being given to parts such as transformers of mobile phone chargers and camera lens of mobile camera modules and other items. This will enable domestic manufacturing of high growth electronic items.

Duty on umbrellas raised: Duty on umbrellas is being raised to 20 percent and exemption to parts of umbrellas are being withdrawn. Exemption is also being rationalised on implements and tools for agri-sectors manufactured in India. 

Customs duty on steel exempted: Customs duty exemption given to steel scrap last year is being extended for another year to provide relief to MSME secondary steel producers. Certain anti-dumping and Countervailing Duty Investigation (CVD) on stainless steel and coated steel flat products, bars of alloy steel and high-speed steel are being revoked in larger public interest considering prevailing high prices of metals.

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But what is missing? 

Ahead of the Union Budget 2022, MSMEs had expressed their expectations to SMBStory. From low-interest loans and GST and taxes waiver to reducing burden on the manufacturing sector, stakeholders of the ecosystem had a lot of hope.

MSMEs have suffered most due to COVID, says Dr Bindra.

“Most entrepreneurs in India don’t have formal education and start a business. There should be compulsory education for SMEs and the completion of that course should lead to subsidies. There will be fewer defaults on loans and less dependence on subsidies if the person is educated,” he says.

Daisy Tanwani, Founder of Pinklay, also had similar thoughts regarding the skill development initiative announced by the finance minister. Daisy feels a skilled population makes for an empowered nation. 

“It's definitely a move in the right direction.”

However, there are a few caveats. The platform must be resource rich and smart, and the success of this initiative will depend on public-private partnership, so right incentives and proof of concept will be needed. 

“Not every sector can be skilled online, hence, as an extension to this, the government must introduce training and skilling mechanisms of sectors that can only benefit from offline training,” Daisy says.  

Vivek points out that more than 90 percent cases of SME Money Recovery are unresolved despite MSME Samadhaan, which necessitates a better Alternative Dispute Resolution Mechanism.

GST reforms have been open ended. Dr Vivek says Budget 2022 was missing announcements regarding GST, which were anticipated. 

“The government should have taken measures towards rationalising the GST. SMEs who don't collect GST but end up paying GST to vendors suffer the most. The government should give some kind of credit or subsidy to such small business owners as it would help in further improving the cash flow, which in turn would help in the growth of their businesses.”

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Other major points that seem missing:

‘PLI scheme for large corporates’

Amol Anand, Co-founder of Loom Solar, a Faridabad-based monocrystalline solar panels and AC modules manufacturing company hailed the FM’s proposal of allocating Rs 19,500 crore under the PLI Scheme. 

He says this would help India in building domestic manufacturing while reducing dependency on imports. 

Solar modules are a $3 billion market and roughly 80-85 percent is imported as India does not have technology and capacity for polysilicon and wafer manufacturing. 

“This is a booster step in the commitment for sustainable and Make In India,” he says, adding that the government has imposed a 40 percent import duty on solar panels and 25 percent on solar cells from April 2022," he says.

"It will help domestic manufactures in the short term as solar developers shall be forced to buy from local manufacturers. However, a price hike to this tune will impact the demand in short to medium terms as customers (home owners) would not like to adopt solar as it is not an essential purchase,” he says. 

He adds that the PLI scheme is only for large corporations. “To be eligible for this incentive, a startup or MSME has to build a minimum 1000 MW solar panel factory, which requires an investment of nearly Rs 350 crore per 1000 MW. So all MSME or startups are already out.”

Missing incentives and subsidies

The rollout of 5G is going to be a big game-changer for mobile phone companies as this will increase demand for 5G compatible products. 

Nilesh Mali, Founder of KDM India, a Mumbai-based mobile accessories brand, says the Finance Minister overlooked giving incentives and subsidies for companies designing products or doing R&D in India.

“Budget 2022 has given a boost to domestic electronics manufacturing and provides a much-needed incentive to manufacturers. It will help in building manufacturing bases in India, but the proposal of certain incentives and subsidies would have been a step in the right direction.”

Bala Sarda, Founder of VAHDAM Teas, also feels more incentives for highly labour intensive industries were needed as the prices of raw materials has gone up.

“Indian exports have been on the rise. To keep them going, there needs to be an aggressive strategy to promote and market the Brand India tag so that benefits can be derived from related industries. Given how crucial exports are to India’s plan of becoming a $5 trillion economy by 2025, a concerted effort to keep the growth rate up and steady is imperative.”

While this budget is observed as a mix of short-term boost and a long-term structural emphasis, MSME stakeholders feel there should have been more for the sector that is said to be the growth engine of the economy and is crucial in taking India closer to its $5 trillion economy target.