Union Budget: Why MSMEs seek de-risking of credit inflows

Private businesses majorly comprise of Micro, Small and Medium Enterprises (MSMEs). MSMEs are poised as the growth engine of Indian economy as it contributes around 30 per cent of our GDP, 48 per cent of exports, and provides employment to more than 110 million in rural and urban areas.
As India awaits the Union Budget (interim) for 2024-25 ahead of the general elections, no major announcements are expected. Nevertheless, we expect this Budget to be similar to the 2023 Budget for MSMEs, wherein the government introduced a host of policies and schemes – Credit Guarantee Trust for MSME revamp, Vivad se Vishwas scheme, and certain tax benefits (increase in threshold limits under presumptive taxation scheme as well as addressing payment issue by allowing tax deduction of expenditure to buyers only on actual payment to MSMEs).
Detailed expectations and policy recommendations of the MSME sector are as under:

De-risking of credit inflows to MSMEs : MSMEs in sectors like automotive, electronics (manufacturing of ICs), industrial, electrical machinery, and chemicals, require the reduction of risks in capital flows, hence advisable to promote risk mitigation tools (viz. credit guarantee and insurance schemes).
Provide greater credit access to MSMEs : to enhance their capability in advance manufacturing for the semiconductor, medical equipment, and industrial equipment segments – Stakeholders have been expecting a customised package that can improve access to institutional credit at competitive rates. Additionally, industry experts expect the government to introduce interest subvention schemes, alleviate collateral requirements, etc. This is in line with India’s goal of achieving a $5 trillion economy.
Simplified regulatory procedures and reduced compliance burdens are expected to be introduced that can empower private businesses, startups, and MSMEs, promoting a more agile and competitive landscape.
Union Budget 2023-24 had earmarked around Rs 22,138 crore for the MSME ministry, around 41.6 per cent higher than the preceding fiscal year. It is expected that allocation for the next fiscal should be significantly higher.
Potential simplification of capital gains tax structure that could significantly enhance the investment landscape.
Extension of deadline of concessional tax regime of 15 per cent (plus 10 per cent surcharge and 4 per cent cess) for manufacturing companies, if the company has commenced production by 31 March, 2024, for another five years at least, in addition to Production Linked Incentive (‘PLI’) scheme.
To provide assistance for the execution of Open Network for Digital Commerce (ONDC) initiative, which aims to enable MSMEs to easily access various e-commerce platforms without facing any entry barriers. Additionally, allocating resources for MSMEs to integrate e-commerce platforms, with ONDC playing a crucial role, will support small businesses with improved market access.
Allocation of more funds for the Raising and Accelerating MSME Performance (RAMP) scheme would provide major financial and technical support to MSMEs. This would help MSMEs upgrade their technology, adopt digital solutions, improve quality standards, and access new markets.
Artificial Intelligence (AI) emerges as a transformative force for MSMEs in e-commerce. The integration of AI in e-commerce platforms propels MSME growth, boosting profits and sales for a sustainable future. Moreover, AI-based loans streamline financial processes, automating the assessment of loan applications. This innovation, utilising machine learning, enables quicker and more informed lending decisions, providing tailored credit lines to meet MSMEs’ unique business needs.
Allocation for skill development programmes and training initiatives should be another major focus. This would not only benefit startups / private businesses / MSMEs, but also contribute to overall economic development.

MSME sector has the talent as well as risk-taking appetite and can play a big role in strengthening India’s capabilities even in critical sectors such as semiconductors, space technology, defence, and medical equipment. Currently, out of the 6.3 crore MSMEs in India, only half are registered on Udyam – a platform that creates many opportunities for GST and non-GST registered small businesses to avail of government schemes, production-related incentives, and formal channels of credit. A major driver will be to bring the remaining half to register on Udyam, which will act as a catalyst for MSMEs to formalise and reap the benefits.
If the aforesaid reforms are introduced (especially better credit access at competitive costs, reduced interest rates, extended moratoriums, interest subvention schemes, skill development, tax benefits, etc.), it would help MSMEs reach a wider customer base, reduce operational costs, and enhance customer experience. This will go a long way in fostering the growth of the Indian economy and lead India on the pinnacle of becoming a superpower in short to medium term.
The author is Partner, Deloitte India. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.
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