Budget 2023: Beginning of Amrit Kaal for MSMEs

Like previous Union Budgets, the Union Budget 2023-2024 also focuses on Inclusive Development (financial inclusion of small Businesses and support ease of doing business), promoting Public-Private Partnerships, Skilling (teaching-up skill), and setting off medium to long-term national development programs. The Budget was welcomed by all stakeholders except regular professional pessimists who also could not describe specific points or suggest alternative proposals. But surprisingly most of the analyst seemed to miss one major point that this budget was largely focussed to give impetus to Micro, Small & Medium Enterprises (MSME) sector. This article will try to explain the nuances of Budget regarding MSMEs. Let us first examine the reasons for giving so much importance to MSMEs.

Contribution to GDP-Share of MSME Gross Value Added (GVA) in All India Gross Domestic Product at current prices (2011-12) for the year 2018-19 and 2019-20 were 30.5% and 30.0% respectively. The share of the MSME manufacturing in All India manufacturing gross value output during the year 2018-19 and 2019-20 were 36.9% and 36.9% respectively. 1,52,896 MSMEs contribute to export of Rs. 9,73,657 Crores. The share of export of specified MSME related products to All India exports during 2019-20 and 2020-21 was 49.8% and 49.5% respectively. The share of MSME exports in the country’s total exports stood at 42.67% as of August 2022 in the current fiscal; nearing the FY22 share of 45.03%. Hence MSMEs are rightly called as Growth Engine of Indian Economy. Government has set a target to increase their contribution to GDP to 50%, Exports’ contribution from current level 49.5% to 75% while employment to 15 crore from present 12 crore, by the year 2025-2026 as India dreams to become a 5 trillion $ economy by that time.

Employment Generation- MSMEs are the second largest employment-generating sector after agriculture. They are providing direct employment to more than 10 Crore people out of which 2.39 crore are women. Their capacity to generate employment is much more than large corporate if compared on the yardstick of investment to employment ratio. They promote inclusive growth by providing employment opportunities in rural areas especially to people belonging to weaker sections of the society. During Covid Pandemic, the large scale migration of workers to native places exposed the myth that urbanisation will solve all problems. MSMEs are the only ray of hope to address the issue of rising unemployment and social unrest. In a democratic structure, no government can afford to ignore the aspirations of younger generation for gainful employment which otherwise may lead to socio political unrest in addition to economic recession.

Since independence our country is facing two major challenges, rising unemployment (which is more prominent in rural areas) and consequent migration of labour from under developed areas to developed areas causing socio economic and political tensions. The stark reality became more visible during Covid Pandemic when due to closure of industrial activities these workers faced hardship while returning to their native places. It is universally accepted now that the revival and development of MSMEs can only address these issues. It is a fact that steps were initiated by NDA government since 2014 but the Covid Pandemic and ongoing Russia-Ukraine crisis gave a major blow to these efforts however the launch of “Atmanirbhar Bharat Programme” and “Vocal for Local” initiative were certainly a step in the right direction.

The Covid pandemic and ongoing Russia-Ukrain crisis has worsened the socio economic condition of the world in general and developing economies in particular. These factors have caused large scale unemployment, migration of labour, health related issues among poor masses. The India is not insulated from these problems.

In this backdrop it was rightly expected that this budget will focus on revitalizing MSMEs. The following are the key highlights of the Union Budget 2023 to achieve this goal.

1. The ease of doing business just got easier: More than 39,000 compliances were reduced, and over 3,400 legal provisions were decriminalized. Govt introduced the Jan Vishwas Bill to amend 42 central acts to further trust-based governance at all levels. Decriminalizing offenses in this context means a specific number of minor economic offenses which were earlier punishable with imprisonment will now be reduced to fines and penalties.

2. Government bodies will leverage Business with PAN as the key identifier for assessing and accessing company data. It will reduce the complexity of doing business as it will reduce the usage of over 13 different business IDs, such as EPFO, ESIC, GSTN, TIN, TAN, and PAN, used to apply for various government approvals.

3. The Vivad Se Vishwas scheme for failing MSMEs. MSMEs will receive 95% of the performance security from the government under this scheme in cases of failure to execute contracts during COVID-19 period.

4. The Emergency Credit Line Guarantee Scheme (ECLGS) was launched amid the Covid-19 pandemic to help MSMEs cope with pandemic losses and was extended up to March 31, 2022. Now the ECLGS will be extended up to March 2023, and its guarantee cover will be expanded by Rs 50,000 crore to a total surface of Rs 5 lakh crore.

5. Govt. will Revamp Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) with an additional infusion of 9000 Cr. It will allow for two lakh crores of rupees in collateral-free guaranteed credit. Furthermore, credit costs will be reduced by about 1%.

6. Reduction of customs duty on specific items and customs duty exemption on iron and steel scrap will contribute to the growth of MSMEs.

7. Enhanced Limits for Presumptive Taxation of MSMEs and Professionals: To offer the benefit of presumptive scheme of taxation to MSMEs, the turnover threshold under presumptive scheme of taxation has been increased from Rs. 2 Cr to Rs. 3 Cr. The enhanced limit will apply only if the amount or total amount received in cash during the year does not exceed 5% of total gross receipts or turnover.

8. PM VIshwakarma KAushal Samman (PM VIKAS): For centuries, traditional artisans and craftspeople, who work with their hands using tools, have brought renown for India. They are generally referred to as Vishwakarma. The art and handicraft created by them represents the true spirit of Atmanirbhar Bharat. For the first time, a package of assistance for them has been conceptualized. The new scheme will enable them to improve the quality, scale and reach of their products, integrating them with the MSME value chain. The components of the scheme will include not only financial support but also access to advanced skill training, knowledge of modern digital techniques and efficient green technologies, brand promotion, linkage with local and global markets, digital payments, and social security. This will greatly benefit the Scheduled Castes, Scheduled Tribes, OBCs, women and people belonging to the weaker sections.

9. Deduction towards purchase/expenditure available only after actual payments to MSME: One of the most important proposals in the Union Budget 2023 is with regard to the amount payable to MSMEs. As far as MSMEs are concerned, it is proposed that the deduction towards expenditure will be available only when the payment is made. Such payments will be covered within the ambit of the Income Tax Act, 1961 and hence will be allowed as deduction on an actual payment basis only, disregarding the present accrual concept which is misused by large corporate to delay payments to MSMEs thereby squeezing their liquidity and adversely affecting their business cycles threatening their very survival. This amendment is expected to expedite receipts of payments , improvement in liquidity and consequently reducing borrowing of the MSMEs which will make them more competitive. This is the most desired and greatest reform for MSMEs as most of the MSMEs faced extinction because of inordinate delays and arm twisting tactics adopted for payments by large corporates in spite of so many regulatory reforms in the past.

10. Direct and Collateral benefit to MSMEs of Increase in CAPEX to boost Railways and Infrastructure Sector
The government has increased the capital expenditure allocation to Rs. 10 lakh crore and a provision for creation of capital assets through grants-in-aid to states, the effective Capex of the Centre is budgeted at 13.7 Lakh Crore. In addition to this highest ever capital outlay of Rs. 2.4 Lakh Crore and continuation for one more year of “Fifty year interest free loan to state governments” with an enhanced outlay of Rs. 1.3 Lakh Crore.

Considering the comprehensive impact of infrastructure development with recently launched the National Logistics Policy (NLP) is expected to enhance the efficiency of the country's logistics system and ensure the smooth movement of goods across India. The main objective of the policy is to reduce logistics costs from the current 13-14 per cent of India's GDP to the global cost of 7 per cent. It will significantly ease hassles of transportation by directly reducing logistics costs for MSMEs and will give a much-needed boost to them in Tier 2 and 3 cities.

The collateral benefits will also be not insignificant. The historical data shows that even though most of the infra development contracts are bagged by technologically competent large corporates, these large corporate further sublet their work orders to local MSMEs. However MSMEs will have to adopt latest technology and upgrade skills to grab this opportunity. It is no secret that Indian MSMEs lack these qualities. The Central and State Governments, Financial Institutions and MSME organisations will have to come forward to strengthen MSMEs to take part in this journey towards Amrit Kaal.