Deconstructing Budget 2021: Did the Indian MSME sector get the much-needed spur?

Indian micro and small businesses (MSMEs) are at a critical junction today, struggling to revive their businesses and adapting to the new normal by making the best use of technology to respond to increased online demand.

Many of the smallest businesses were forced to pause as their physical doors closed during the lockdown induced by the global pandemic. Due to a lack of capital, digital knowledge, and low credit rates, many MSMEs even had to close operations permanently.

As the circumstances evolved, mindsets opened to online awareness, and small enterprises gradually turned to online platforms to help fast-track their revenue recovery. Digital transformation has become a necessity to help maintain business continuity, and can play a critical role in bringing the economy back.

Today, modern businesses need to have a strong technology backbone to stay afloat for the future, even after the nation rises above the pandemic's aftermath and moves forward.

While the government has rolled out several initiatives, the MSME sector has also received support from corporations during this lockdown. Some of the tech giants have launched a variety of initiatives to support small businesses, with some even investing in them as part of their campaign.

In addition, the Union Budget 2021 included some measures to fuel the startup and entrepreneurial ecosystem, which are seeking game-changing reforms to help accelerate their growth back to the pre-COVID-19 era.

How the Union Budget 2021 supports Indian MSMEs

This year's budget had some key proposals to help the MSME sector, poised to become a powerful growth engine for India. One of the significant steps was extending capital gains exemption by one more year (through 31 March 2022), and excluding startups for one more year, to claim tax holiday. This move is likely to help small and medium businesses in the country come out of their current economic slump, while also promoting job creation in the sector.

In addition, by stimulating the emergence of One Person Companies (OPCs) without any restriction of paid-up capital, and by enabling the conversion into any form of company, these both can further be an impetus for entrepreneurship, especially in Tier II and III cities, aligning with PM Modi's vision of an Aatmanirbhar Bharat.

Many MSMEs weren’t able to earn enough in 2020 fiscal year, resulting in them being unable to pay back their creditors. Yet, with the government strengthening the NCLT framework and continuing with the e-court system for quicker settlement of bad debts, some MSMEs are likely to be taken into insolvency by their creditors. It may be beneficial to consider a separate framework where business owners can avoid bearing huge losses while risking their ventures and continuing to pay debts.

The measures included in the 2021 Union Budget are aimed in the right direction to help support the progress of small businesses and entrepreneurs in India. Still, the key to its success lies in the execution. With the first paperless budget presentation in history, 2021 witnessed a landmark victory indicating digitisation to be a powerful influence in the small business ecosystem for coming years.

While this year's Budget shed light on some of the pressing issues, other vital areas still need serious attention and, once taken into consideration, can help corroborate for a better and brighter future for small businesses in India.

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

Encouraging women in the workforce

Participation of women in the workforce can prove to be a key driver for India's economic and social development. Numerous studies show that India's GDP can grow by 18 percent to 25 percent by giving women equal workplace opportunities. Budget 2021 also presented a perfect opportunity for the government to undertake definitive workplace diversity and inclusion policy measures to ensure more significant incentives and benefits for women in the workplace.

At present, only 27 percent of the entire Indian workforce is women. According to a McKinsey report, if India was to reach the global average of 48 percent of women in the workforce, it could add $700 billion to our economy.

While this year's Union Budget did propose allowing women to work in all categories and also in night shifts with adequate protection, it didn't really delve deeper into the mechanics of it. Other challenges besides safety concerns that limit women’s participation at the workplace, includes disparity in literacy rates, gender pay gap, insufficient maternity/paternity benefits, and unavailability of childcare infrastructure. All of these issues need to be given due importance as well. Addressing these challenges will hopefully increase the role of women in the MSME sector and startup industry, and encourage more women entrepreneurs in the country.

More focus on digitisation and upskilling of MSMEs

Over the years, small businesses have emerged as the new torchbearers of the Indian economy. According to the Cisco India SMB Digital Maturity Study 2020, digitisation of small and medium businesses (SMBs) could add anywhere between $158-216 billion to India's GDP by 2024, and contribute to the country's economic recovery post COVID-19.

However, a major challenge in their path to complete digital transformation is the unavailability of digital infrastructure and affordable, skilled tech talent. Small companies that are used to the traditional brick and mortar model need experts and digital resources to help them update their basic processes, including supply chain, analytics, marketing and accounting among others, in order to survive and thrive in today's digital world.

The government needs to think about introducing special schemes and specific initiatives to bridge this digital divide and jumpstart education with a focus on basic internet development skills, as well as next-generation technologies, to nurture India's young talent pool.

The government should also consider initiating upskilling programmes to provide affordable technical and business training in the rural areas of the country.

With digitisation comes the ever-rising concern of cyber security and data protection. This year's Union Budget was an opportunity to strengthen initiatives for technology integration with data privacy and security designed at the core, especially for small businesses in the country, as they are just as prone to cyber threats, as are large enterprises. According to data from the Ministry of Micro, Small and Medium Enterprises, 99.4 percent of Indian companies categorised as MSMEs are not aware of cyber risks and their potential to upend business.

Conclusion

The interplay of digital technology and policy reforms have paved an exciting way ahead for Indian MSMEs. The Indian government has taken steps to recognise the role of startups and MSMEs as being central to India’s future.

While the Union Budget 2021 has set the path for India’s post COVID-19 economic growth, there is a long journey ahead for the small and medium businesses of the country to bolster and rise above the recent economic storm. With deepening digital acceleration, we hope to see stronger, greater, and more inclusive digitisation opportunities for MSMEs across India.