Union Budget 2022: What’s ahead for MSMEs?
Nitin Sharma, MD-SME(UpScale) & CPTO, CredAble, explores what the MSME sector can look forward under Budget 2022.
The much cash strapped MSME sector had been expecting a fiscal stimulus from the Union Budget 2022-23. While that expectation has not been fulfilled, the Finance Minister has indeed announced certain measures that promises to provide some much needed respite to the sector.
The Budget this year is a growth-oriented one with measures to aid the sectors that have been heavily impacted by the pandemic.
To set the context — while the pandemic had raised alarming health and economic concerns across the globe, it also had MSMEs in the country struggling to survive, pushing many to bear the brunt of overnight closures.
The prolonged lockdowns came as a blow to the MSME sector that was already struggling with depleting cash reserves. In the aftermath of the second wave of the pandemic, nearly four out of 10 MSMEs confirmed that they pivoted their business models to survive.
With all this in the backdrop, it was no surprise that MSMEs were looking forward to Budget 2022 with high hopes that the government will bring about reforms that will revive and infuse capital into the battered MSME sector.
Before we run by the outcome, let’s backtrack a bit to understand the key expectations from this sector.
What were the MSMEs expecting from Budget 2022-23?
For a sector that has been primarily strapped for capital, specific schemes to infuse more liquidity were primarily expected.
Increase the inflow of capital to the MSME sector
MSMEs continue to struggle today owing to poor cash flow or a capital crunch. In line with this, small business owners were expecting policy reforms that will promote the disbursement of funds to the sector. Increasing the collateral-free loan limit was one other expectation of the sector.
Promote increased adoption of digital solutions
Due to the unforeseen circumstances brought on by COVID-19, most MSMEs had no choice but to go digital, with payments leading the way. Over the course of the pandemic, we’ve seen small businesses be more open to the idea of digitisation yet struggling again to find the right solution.
Thus, digital upskilling of MSMEs was one of the primary demands of this sector.
Simplify taxation
Significant reforms that will reduce the tax burden on MSMEs and make the GST tax structure simpler also made it to the MSME wishlist. There is a strong demand for taxation-related compliances to be kept to a minimum.
Enable global expansion
Trade policies and supportive reforms around ease of doing business were expected to further aid in the globalisation of small businesses.
Union Budget 2022 aims to rejuvenate the MSME sector
This year’s Union Budget has been a tight rope walk for the government that is balancing economic growth with inflation concerns and a much-needed fiscal deficit discipline.
While Budget 2022 failed to touch upon key areas in the economic sector, the budget has introduced certain necessary reforms to revive the MSMEs — who are reeling from the subsequent liquidity crunch brought on by the pandemic.
Here’s a look at the reforms announced in favour of the MSME sector:
Extended ECLGS scheme
One of the significant reforms that ushers in good news for the MSME sector is the decision to extend the Emergency Credit Line Guarantee Scheme (ECLGS) scheme till March 2023. That’s not all, the government has announced that they will top up the current guarantee cover under the scheme to Rs. 5,00,000 crores with an additional allocation of Rs. 50,000 crores.
With the hospitality and travel sector struggling to survive let alone reach pre-pandemic levels, this move was introduced with a primary focus on the revival of MSMEs exclusively in the hospitality sector and other related enterprises.
The RAMP initiative
Another major announcement for the MSMEs was the introduction of the Raising and Accelerating MSME Performance (RAMP) initiative.
Finance Minister Nirmala Sitharaman stated that as a part of this initiative, the government plans to extend a Rs 6,000 crore programme to rate MSMEs over the course of the next five years. This will bring in much-needed stimulus to the MSME sector.
CGTMSE will be revamped
In a bid to address the growing capital concerns of credit strapped MSMEs, the government has decided to revamp the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme.
This will be done to further increase the infusion of funds which will enable an additional credit of ₹2 lakh crore for MSMEs. This move is a much welcomed one as it paves the path for more employment opportunities.
The PLI Scheme
The Production-Linked Incentive scheme is already being lauded by MSMEs as it looks quite supportive. The government is also claiming that it has the potential to create 6 million new jobs and an additional procurement of Rs. 30 lakh crores in the next five years.
The One Station, One Product scheme
With the intention of helping farmers and MSMEs, this initiative will surely create a large impact as it involves developing cargo terminals. This is one of the most ambitious projects announced by the Finance Minister in this year’s Budget as it aims at facilitating local supply chains through the country’s vast rail network and setting up hundred PM Shakti Cargo terminals in the next three years.
The interlinking of MSME portals
The budget also laid out the plans to have MSME portals like Udyam, e-Shram, NCS and Aseem interlinked. This will not only widen their scope but also will enable more entrepreneurship opportunities and improve credit facilitation for MSMEs, through a centralised infrastructure.
Digital upskilling
Effective steps towards quick digital adoption have been introduced. The plans to set up a digital ecosystem will be a major driver for digital upskilling and enhancing entrepreneurship.
This initiative by the government is definitely a step in the right direction towards the sector’s digitisation aspirations.
The way forward
While the Indian economy is on the road to recovery, it is important to ensure that there is a consistent increase in demand. In order to achieve this, the growth-focused budget this year promises more employment opportunities with an aim to create 60 lakh jobs in the next five years.
While the budget downplayed major revamp measures in certain areas like taxation and trade policies, it is bullish for MSMEs and their revival.
We hope this will result in the desired spike in the consumption and spending levels and provide the necessary impetus to restore the country’s economic growth.
Edited by Anju Narayanan
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)