How Budget 2022 will impact the lives of Indian MSMEs

Amid sluggish demand, job losses, and high inflation challenges, India’s Finance Minister Nirmala Sitharaman, during the Union Budget 2022, took a growth-oriented approach to elevate the micro, small and medium enterprises (MSMEs) in India. 

The record Rs 1.40 lakh crore gross GST collection in January 2022 — the highest since inception — gave the government the impetus to announce higher capital expenditure for the year, from 5.54 lakh crore to 7.50 lakh crores in FY 22-23, and introduce infrastructure projects that hope to reignite growth. 

The government’s focus on boosting investments, thereby increasing jobs and consumption, instead of directly announcing any monetary relief or extending freebies to the MSME sector, is a welcome step that will bear fruits in the coming years. 

Here are the key changes that will impact the lives of Indian MSMEs:  

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Customs duty amendments

The government amended customs duty on certain items to spur domestic growth and curb imports. 

For instance, the Centre reduced customs duty on cut and polished diamonds and gems to 5 percent from 7.5 percent, while it raised duties on imitation jewellery to discourage import. 

It also announced concessional customs duty on parts of phone chargers, transformers, etc., to enable domestic manufacturing, and said it was phasing out the concessional customs duty on capital goods. Another noteworthy move is the duty exemption on steel scrap extended by a year to help MSMEs.

Nirmala Sitharaman said removing the exemption on items that are or can be manufactured in India and providing concessional duties on the raw material that goes into the manufacturing of intermediate products is a step towards achieving the government’s objective of ‘Make in India’ and ‘Atmanirbhar Bharat.’

Credit measures

Lauding the Emergency Credit Line Guarantee Scheme (ECLGS) to have helped 130 lakh MSMEs mitigate the worst impact of the pandemic, the Finance Minister extended the credit line till March 2023 — a critical step likely to provide a boon to lending in the MSME sector. 

Simultaneously, the revamp of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) — jointly set up by the MSME ministry and the Small Industries Development Bank of India (SIDBI) — will be an added incentive for banks to extend lending. 

Moreover, the finance minister said the Raising and Accelerating MSME Performance (RAMP) programme, with an outlay of Rs 6,000 crore, will be rolled out over five years to help the sector become more resilient, competitive, and efficient. 

The government initiative was approved with a financial aid of $500 million by the World Bank last year aimed at COVID-19 hit MSMEs. 

The government reinforcing the need for innovative financing and rebooting the PPP model is another shot in the arm of MSMEs who will become the eventual benefactors. 

Skill building

The finance minister announced the interlinking of MSMEs’ formalisation and compliance platforms, namely four portals, including Udyam, e-Shram, National Career Service (NCS), and Aatmanirbhar Skilled Employee-Employer Mapping (ASEEM). 

The move is expected to widen their scope and have live organic databases, providing G2C, B2C, and B2B services. Nirmala Sitharaman said these services would relate to credit facilitation, skilling, and recruitment to formalise the economy further and enhance entrepreneurial opportunities for all. 

In its national skill qualification framework, the government announced skilling programmes, which have been an industry demand for a long time amid sweeping technological advancements worldwide. The government also said select ITIs in all states would offer courses for skill-building. 

Investments focused on capacity-building initiatives within the infrastructure sector for skill upgradation in planning, design, and project management, including technical and knowledge assistance coming from multilateral funding agencies, could open newer opportunities for MSMEs as well. 

Ease of doing business, digital and logistics push 

To embolden one of the key pillars of the Narendra Modi government, the finance minister announced 'one nation, one registration' to be established for anywhere registration to facilitate ease of living and doing business. This is significant at a time when MSMEs are reinventing themselves amid gloom and doom in the pandemic era. 

To optimise payments and improve transparency, the government announced an end-to-end online e-bill system and has encouraged digitally-signed bills online across ministries. This is a key move to push Indian businesses to opt for technologically advanced payment means and bill settlements. 

Also, the plan of building 100 new cargo terminals in the next three years and manufacturing the new generation 400 Vande Bharat trains is a major push towards catalysing the manufacturing sector through robust demand generated from the infrastructure space. This is likely to benefit MSME exports in the long run. 

Production Linked Incentive (PLI) scheme

The finance minister said the Production Linked Incentive (PLI) scheme for achieving Aatmanirbhar Bharat had received an excellent response, with the potential to create 60 lakh new jobs and additional production of Rs 30 lakh crore during the next keycap digit five years. The government announced a further Rs 19,500 crore to boost solar module manufacturing under the PLI scheme. 

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Conclusion

For Indian MSMEs to truly succeed, this kind of hand-holding as offered in the Union Budget 2022 would make it easy for them to embrace global challenges and changes, without which their survival would become difficult.