MSMEs wish list from Union Budget 2023-24

Considering that this budget is the last one before the general elections in 2024, leaders are expecting this union budget to be a bit populist. Whereas, the MSMEs have their own wish list which focuses on their needs

   
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The Union Budget 2023-2024 will be presented at a time when major economies around the world are experiencing recessionary and inflationary trends. However, the Indian growth story is expected to tide over global headwinds on the back of resilient domestic growth and recovery, post-pandemic. At the same time, over 63 million MSMEs, which contribute close to 30 per cent to the country’s GDP, are anticipating a 360-degree budget. The business community expects the next Union Budget to bring in measures to trigger growth across sectors by bringing in funds, incentives, and tax efficiency measures. 

According to Dr Vidya Mahambare, Professor of Economics and Director of Research, Great Lakes Institute of Management, this year’s budget is expected to announce policy measures that promote economic growth, reduce the fiscal deficit, create jobs, and manage inflation. 

Funding measures

In line with the Aatmanirbhar Bharat vision, the MSME sector wants easy access to funding for their business growth.

Anjan Pathak, CTO and Co-founder of Vantage Circle says, “In this time of a global recession, we expect the Union Budget 2023 to make the necessary consideration in terms of funding and encourage future innovations. The 2023 budget should promote entrepreneurship training that will help companies to cater to the global market and raise more capital. The budget 2023-24 should allocate more funds towards the Start-up India Seed Fund Scheme.”

Gurjodhpal Singh, CEO, Tide India adds, “The slowdown we saw in the economy last year has caused significant pain to MSMEs due to the high-interest rates in the lending landscape. Therefore, soft loans at minimal interest rates or any reduction in the SME lending rates will provide an impetus to the sector’s growth. Also, the rising interest rate will pose a risk to the MSME portfolio of lenders.”

Tejas Goenka, Managing Director, Tally Solutions feels that the government’s emphasis should be on bringing the MSME sector into the formal lending process. “On the backdrop of the steady increase in interest rates, an interest subvention scheme would be encouraging for MSMEs. Also, the threshold for collateral free loans should be increased from Rs 1 Crore to Rs 2 Crores. Incentivizing the investments that go into the MSME sector will further drive more investment towards these businesses,” he recommends.

Jyoti Prakash Gadia, MD at Resurgent India- A SEBI registered category 1 merchant bank, says, “Many MSMEs are still in the recovery phase. The instalments that were taken under the restructuring process to handle the COVID-related stress are now going to become due. I feel some sops are required for the MSMEs. The DICGC scheme should be revamped to provide better support to MSMEs.”

“The receivables funding for MSMEs can be made more effective by building in simpler and more flexible funding mechanisms. The one-district product kind of scheme can be considered at the national level by integrating the same to MSME funding in a seamless manner through end to funding right from the procurement of raw material to the production and realisation of dues by MSMEs,” he adds.

Apex industry body PHDCCI also recommends extending the restructuring of the loans facility. The facility was introduced on August 21, 2020, to restructure existing loans without downgrading the current asset classification further to enable MSMEs to recover after the pandemic. However, the facility was discontinued on September 30, 2021.

Also Read: Why are financial advisors imperative for MSMEs?

Impetus to manufacturing

Considering that the manufacturing sector is a significant contributor towards generating employment and accelerating economic growth, amplifying its growth has long been on the agenda of the Indian Government. 

MSME consumer electronics manufacturer, Lalit Arora, Co-founder of VingaJoy says, “In last year’s budget, consumer electronics manufacturers were left disappointed as there was no concession or GST rationalisation given on products. From this budget we expect reforms that will accelerate growth channelised by consumer demand.”

“The government can encourage manufacturers by providing subsidies to Completely Knocked Down (CKD) and Semi Knock Down (SKD) production. It increases the probability of getting better returns and extends companies’ footprints in mature markets,” he adds.

Dr Mahambare recommends that the budget should consider reversing the recent increases in import tariffs, as they are self-defeating and hinder exports.

“Additionally, the budget should issue guidelines to the states to streamline cumbersome regulations on starting manufacturing businesses, such as those related to environmental clearances, without compromising on environmental standards. It should also include a simplification of the capital gains tax structure. Overall, any measures that boost domestic productivity would be welcome,” she says.

Broaden the scope of PLI scheme

In accordance with its ‘Aatmanirbhar Bharat’ vision, the government has implemented PLI schemes for 14 key sectors, with an outlay of Rs 1.97 trillion to boost the country’s manufacturing capabilities and exports. The stakeholders are demanding that the government should broaden the scope of the PLI scheme into new sectors.

Praveen Agrawal, Co-Head, India at OakNorth says, “With the ongoing impetus on the growth of MSMEs, it is important that the existing policies such as the PLI scheme should be strengthened. The government can consider improving the scope of the PLI scheme, which is currently limited to corporates and large companies in specified sectors. This could be further extended to more economic sectors and MSMEs to boost exports.”

Industries such as the space sector have demanded for a PLI scheme to promote R&D and incentives for start-ups. Similarly, Tamil Nadu has asked for a PLI scheme for the leather and non-leather footwear segment.

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Tax benefits for MSMEs

Most MSMEs are hoping for an easing of their financial burden in the form of tax breaks and benefits.

“The budget may announce a simplification of the capital gains tax structure, which would be a positive step for investors,” says Dr Mahambare.

Arora too says, “We are also expecting additional tax benefits and lower tax rates and the extension of the scope of the ESOP taxation reforms to start-ups.”

Robin Chhabra, Founder and CEO of Dextrus says that companies like them can really benefit from a much lower TDS bracket. Currently, it stands at 10 per cent deducted at source. “This TDS should be reduced to 1 per cent which would help the necessary liquidity requirements, hence reducing the dependency on cash line credits from banks,” he says.

Also Read: Only by consistently innovating, expanding technology EV sector can grow: Mayank Jain, Director, Crayon Motors

“The GST should also be reduced from 18 per cent to 12 per cent. This would have an immediate multiplier effect on the industry, aiding its success and growth,” he adds.

Address the delayed payments issue

The long-standing issue of delayed payments to MSMEs needs to be addressed on a strong footing.

“Payments when delayed to MSME suppliers by their larger buyers hinder not just the viability and growth of MSMEs, but the overall competitiveness of the Indian economy,” says Dr Arun Singh, Global Chief Economist, Dun & Bradstreet.

“An estimated Rs 10.7 trillion i.e., 5.9 per cent of the Gross Value Added (GVA) of Indian businesses is locked up annually as delayed payments from buyers to MSME suppliers,” he elaborates.

To address this, Dr Singh recommends that the government should undertake the following measures.

  • Run a ‘Prompt Payment Program’, which brings together the 100 largest corporates in India to commit to becoming prompt payers.
  • Mandate that all Miniratnas, Maharatnas, and Navratnas transact on TReDS.
  • Encourage these corporates to engage in ‘deep tier’ financing to unlock working capital for smaller MSMEs beyond their immediate supply chain
  • Allow MSMEs to opt-in to the services of an information utility, which will independently take action against tardy or delinquent buyers on behalf of the MSMEs. Currently, leveraged by the insolvency and bankruptcy ecosystem of India, the UK Sinha Committee recommends that it be adopted across the MSME ecosystem as well.
  • Add delayed payments as an indicator within the Ease of Doing Business (EoDB) 2.0 framework which is currently under development by the Department of Promotion of Industry and Internal Trade.

Demands on trade

Mumbai-based exporter and chairman of The Bombay Textile Research Association, S K Saraf says that exports are key drivers to promote the country’s economic growth and the budget should address the issues being faced by the sector.

“The budget should provide a mechanism for waiver of electricity duty for the units that are exporting more than 50 per cent of their production. They should be granted a script equivalent to 2 per cent of their exports to compensate for the handicaps that exporters suffer,” he says.

“My dream budget would be the one that makes exports an engine of growth for the economy,” he says. “Our exports of goods and services were about 21.5 per cent of the GDP in 2021-22. It is woefully small compared to the average contribution of exports to the GDP of about 30 per cent or more in most developing countries in Asia. Exports support many sectors like banking, shipping, insurance, and tourism,” Saraf notes.

Dr Singh of D&B says, “Given that external demand is expected to remain weak, the benefits that were given to exporters during the pandemic must be reconsidered i.e., the period of the pre-shipment and post-shipment export credit sanctioned by banks should be extended from the existing one year to 15 months.”

Since 2018, import tariffs for several product categories have been raised. All such protection should be accompanied with a ‘sunset’ clause and the government should gradually phase out the import tariff. This will improve the competitiveness of domestic MSMEs.

“The One District One Product concept needs to be supported by sufficient infrastructure by the District Industries Centers. The government should also facilitate cross border e-commerce and provide the same benefits as applicable to conventional exports,” Dr Singh adds.

MSMEs inclusion in corporate tenders

To achieve the vision of making India a US$ 5 trillion economy, we need more policies, says Singh of Tide India.

Also Read: How companies are helping revolutionise India’s agricultural landscape through organic farming

“The government should introduce a much-needed policy framework mandating large corporates to include the MSME segment in their business models in some way. This can be done by procuring a certain percentage of the priority sector’s business or aiding them with the current technological innovations and marketing tactics to bolster their business growth,” he recommends.

Digitisation of the sector

Even as the whole world is undergoing a massive digital transformation, a significant chunk of the MSME population of India resides in tier 2, 3, and 4 cities, and they lack digital awareness. Thus, digitisation initiatives still need hand holding.

“The government must introduce certain initiatives with a focus on training the sector on the technological advancement and marketing front to spur digitisation across the country,” says Singh.

Amit Maheshwari, Founder and MD of Softlink  Global says that SMEs must be encouraged to adopt technologies like SaaS solutions.

“SaaS-enabled logistics will help SMEs grow while reducing their IT costs, infrastructure overheads, and the costs associated with operations and warehouse management. A welcome move would be for this budget to offer tax deductions for investments in technology-related services for SMEs which would have a domino effect with more businesses being encouraged to make the digital transformation,” he says.

On the other hand, the telecom sector which has a bigger role in making India a digital nation is also batting for a sectoral announcement to ease digitalisation.

Gaurav Gandhi, Founder and CEO of Echelon Edge Pvt Ltd says, “The telecom sector is seeking a stimulus package from the budget to achieve the dream of a Digital India. Also, smooth and lucrative reforms for 5G rollouts are expected, so that technology firms do not face problems in acquiring private networks. Incentives for promoting new technologies to increase the efficiency of the sector are expected as well.”

Overall, MSMEs have high hopes from the budget and are expecting that certain frameworks and inclusions within it will help them in recovering from the impact of the pandemic.