All eyes are on the Union Budget for reviving the MSME sector, the back bone of Indian economy, which was beleaguered by the pandemic. Ms. Nirmala Sitharaman, Union Finance Minister, while presenting the India’s first Paperless budget proposed an outlay of Rs 15700 Crore for MSME sector more than double in the previous year. This is a welcome move as MSME contribute to 30% to our GDP. This Union Budget is like a shot in the arm for the MSME sector which not only contributes to the GDP but creates a large employment opportunity.
I had a discussion with Mr. Gopalakrishnan, Secretary – TIDITSSIA who stated that there are several positive things in this Union Budget like the proposal to reduce customs duty to 7.5% on steel. This will be a big boost for MSMEs especially for those in Trichy as fabrication works remain the core business in this region. Also, the exemption of excise duty on steel scrap will be a big relief for steel recyclers and smaller businesses. This announcement made in the Union Budget will be of good relief for core manufacturing industries as the prices of steel have been skyrocketing in the recent past. He also added that the expectation of loans at cheaper interest rate for MSME is still a distant dream. But hope that the special framework for MSMEs to be shortly unveiled by the FM will add a feel-good vibe of the budget.
The Government has proposed to invest on infrastructure to the tune of Rs. 5.5 Lakh Crores which is 34.5% more budgeted for 2020-21. This will enhance the prospects not only for the primary products but will definitely open up the world of opportunities for MSME sector as well. The sum of Rs.20000 Crore has been provisioned in the budget to capitalize a Development Financial Institution which will be an enabler for infrastructure financing and the MSME will also be benefitted either directly or indirectly.
The cut in margin requirement from 25% to 15% will increase the credit outflow under Standup India scheme to SC/ST or Women entrepreneurs. This will lead to an inclusive development. The revision in the definition of Small Companies by increasing the threshold for capitalization from not exceeding Rs 50 Lakh to not exceeding Rs 2 Crore and turnover from not exceeding Rs 2 Crore to not exceeding Rs. 20 Crore will help more companies to ease their compliance requirements.
The proposal to incentivize incorporation of One Person Company (OPC) will directly benefit innovators and startups. OPCs are better than sole proprietorship firms and can avail all the benefits of the Government schemes for MSME.
Looking ahead, overcoming the challenges and capitalizing on the opportunities will help in building the next gen MSMEs and make them real Powerhouses of Indian Economy.
Head & Entrepreneurship Coordinator,
CARE Business School.