Anushruti Singh
The Union Budget 2024-25 is fast approaching, and all eyes are on the government’s potential plans for the Micro, Small, and Medium Enterprises (MSME) sector. With significant contributions to the national GDP and employment, the MSME sector’s expectations are high. Here’s what industry experts are hoping for:
Easing cash flow and business operations
Ratish Pandey, Founder and Business Coach, Ethique Advisory, highlights the need for improved IT infrastructure for MSMEs: “The MSME sector, which contributes a healthy 30 per cent to the national GDP, continues to face significant headwinds, especially in retail. Cash flow and ease of doing business are primary challenges. The upcoming Union Budget should include provisions for ‘one-off’ expense relief for IT hardware and software investments to enable MSMEs to utilise new tech tools like CRM, AI, and effective supply chain systems.”
Pandey also emphasises the need for better GSTN systems, integration of e-invoicing and e-way bills, and fiscal reliefs for investments in plant and machinery. Clarity on the 45-day credit payout policy would be a welcome step.
Boosting digital lending and financial inclusion
Harshvardhan Lunia, Founder & CEO, Lendingkart Group, stresses the importance of funding for Fintech NBFCs: “The Indian Government’s vision to realise ‘Viksit Bharat 2047’ includes empowering MSMEs. Prioritising funding for Fintech NBFCs and introducing interest rate rebates to ensure subsidised rates for MSMEs is crucial. Additionally, reducing credit guarantee registration fees will enable lenders to pass on benefits effectively to small and medium enterprises.”
In digital co-lending, regulated entities can allocate up to 5 per cent for Default Loss Guarantee (DLG). Currently, non-Fintech lenders (NFLIs) shoulder 80 per cent of the loan risk and receive DLG without access to Credit Guarantee Scheme benefits. “Allowing NFLIs to register these portfolios would channel credit guarantee recoveries to Fintech NBFCs, thereby bolstering support for MSMEs,” he adds.
Lunia also suggests enhancing the frequency of claims under the CGMFU from once to at least twice per year to provide lenders with more frequent access to liquidity support.
Enhancing credit access and digital methods
Sundeep Mohindru, Promoter & Director, M1xchange, calls for incentives for MSME registrations and fiscal support for banks and NBFCs: “Incentives for MSME registrations on Udyam, fiscal support for banks and NBFCs to prioritise MSME working capital loans, and reduced compliance burdens and borrowing costs will boost their contribution. Stronger digital methods of credit assessment can bridge the credit gap, enabling MSMEs to access the finance needed for their working capital requirements.” he says.
Mohindru also highlights the need for a legal framework under MLETR for Digital Negotiable Instruments (DNIs), boosting exports to achieve $1 trillion in merchandise exports by 2030, and measures to protect MSMEs from cybersecurity threats and supply chain disruptions.
Supporting emerging technologies and alternative financing
Pushkar Mukewar, CEO and Co-Founder, Drip Capital, emphasises the importance of digital capabilities and innovative financing solutions: “Strategic incentives for emerging technology adoption are crucial. The significant financing gap of $2.5 trillion calls for innovative solutions to mitigate risks and reduce interest rates through robust credit guarantees. Tailor-made financing solutions for startups and MSMEs, along with alternative financing options such as crowdfunding, invoice discounting, and supply chain financing, are imperative.”
Mukewar also points out the need for increased government support in accelerated funding for credit schemes, simplification of regulatory frameworks, and initiatives aimed at enhancing the ease of doing business.
Focus on women-led enterprises and inclusive growth
Gurjodhpal Singh, CEO, Tide in India, underscores the importance of a four-pronged approach: “Empowering SMEs by bridging the credit gap, investment in cutting-edge technologies, more focus on women-led small businesses, and ensuring inclusive growth should be prioritised. Empowering SMEs with easier access to formal credit and promoting financial inclusion through digital literacy initiatives will unlock their true potential.”
Singh also calls for dedicated funding and support programs for women-led small businesses, and further investment in Skill India Digital to enhance workforce capabilities.
Potential policy changes
The government may relax the requirement of making payments to MSMEs within 45 days of buying goods and services to prevent large corporates from sourcing elsewhere. Changes to Section 43B(h) of the Income Tax Act, introduced through the Finance Act 2023, are being considered. This clause mandates that if a larger company does not pay an MSME on time, it cannot deduct that expense from its taxable income, leading to potentially higher taxes.
MSMEs fear that this provision could lead large buyers to avoid MSME suppliers. The amendment was intended to ensure timely payments to MSMEs, but concerns have been raised that it may drive business away from them. The Finance Minister had previously indicated that any changes to this rule would be addressed in the full Budget in July.
With the MSME sector accounting for 30 per cent of the country’s GDP and being the second-largest employer after agriculture, the expectations from the upcoming Budget are high. The government’s announcements on July 23 will be crucial in determining the future trajectory of this vital sector.
