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Ahead of the union budget 2024-25, stakeholders from micro, small and medium enterprises (MSMEs) have urged the Modi government to focus on enhancing infrastructure, providing income tax relief, making a banking policy, increasing funding for loans and enhancing digitalisation along with skill development of small businesses in India.
While talking to BW Businessworld, experts highlighted that there need for financial aid to address delayed payments and credit gaps. India has over 70 million MSMEs, pivotal in creating over 111 million jobs and contributing nearly 30 per cent to the nation’s GDP. However, small businesses face a significant hurdle such as limited access to timely finance, with only 12 to 14 per cent of formal credit allocated to them, resulting in a substantial credit deficit of around Rs 45 trillion.
The cash-strapped sector has an estimated Rs 10.7 lakh crore which is 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, according to a report by D&B and Game. The Indian government is reportedly considering relaxing the 45-day payment rules for MSMEs. According to the news agency PTI, the government might push back the deadline for big companies to pay MSMEs for goods and services beyond the current 45-day limit.
“Access to finance remains a major hurdle. While credit facilitation initiatives and monitoring delayed payments have provided relief, a dedicated banking policy for easy credit access and speedy disbursement, along with increasing funding for MSME loans and credit guarantees, is necessary. We expect the budget to streamline the tax structure to improve operational efficiency. Additionally, we hope the tax reductions can be extended to limited liability partnerships (LLPs) and partnership firms in line with private limited firms,” said Dinesh Gulati, Chief Operating Officer (COO), IndiaMart.
According to a report by Sidbi, the MSME sector in India is projected to grow at a compound annual growth rate (CAGR) of 2.5 per cent and is expected to grow from 6.3 crore to 7.5 crore in the coming times. To support this growth, we expect several budgetary measures. Financial aid in the form of grants and incentives to boost digital infrastructure and bridge credit gaps will be crucial, building on the success of existing schemes like MSME Samadhaan, Udyog Aadhaar and Mudra.
“As we approach 23 July 2024, anticipation is building for Finance Minister Nirmala Sitharaman’s seventh Union Budget presentation. I believe this budget will lay the groundwork for India’s vision of development by 2047. When it comes to the MSME sector, the outlook is cautiously optimistic. Projections suggest a growth rate of about 2.5 per cent CAGR soon. Regular flow of affordable credit will play a critical factor in ensuring this sector delivers to its potential,” stated Krishan Gopal, Chief Financial Officer (CFO), Aye Finance.
“With this budget, we do anticipate the government will lower the minimum turnover for MSMEs included in the e-invoicing mandate from Rs 5 crore to Rs 1.5 crore. This move will bring thousands of MSMEs into the e-invoicing regime, simplifying the input tax credit claim process, which currently poses significant bottlenecks for small businesses,” said Yashraj Vakil, Chief Executive Officer (CEO), CaptainBiz.
Digitalisation
Given the share of MSME-specified products in exports stood at 45 per cent last year, stakeholders are expecting the upcoming budget to prioritise their needs and provide opportunities for their growth and sustainability They noted that investment in cloud-based technologies can boost this transformation further. With only 6 per cent of MSMEs selling online, government subsidies for technology adoption can significantly increase online commerce participation.
Vakil added, “Overall, we anticipate the government’s focus on expanding digital infrastructure, offering increased financial incentives, and simplifying tax regulations. These measures are critical for creating a more conducive environment for MSME growth and will significantly enhance the sector’s economic contribution.”
Notably, delayed payments exacerbate the credit gap for MSMEs’ working capital, often pushing them into financial distress. The government should provide a more viable alternative to the 45-day payment rule, which, despite its aim to curb payment delays, has created more problems than solutions. This initiative must be aligned with ground realities to make it more practical and effective.
One of the most pressing challenges MSMEs face is the urgent need for working capital – which currently stands at USD 530 billion. Experts noted that the government has already initiated priority sector lending schemes and incentives benefiting MSMEs. However, there is a critical need to adapt these schemes to the current demands of the market, promote small ticket-size products, and expedite the underwriting process for quick and easy access to credit.
In addition, MSMEs contribute approximately 50 per cent to exports. There is significant potential for growth in this sector through enhanced focus on value addition and marketing of Indian products. The government should provide grants to promote export facilitation and technology upgradation across all export-oriented sectors while rationalising incentive schemes to prioritise value addition. Subsidies on marketing opportunities should also be considered. These measures will collectively create a robust platform for MSMEs to seize growth opportunities in the global value chain.
“The upcoming budget presents a crucial opportunity to propel India’s MSME sector, the engine of our economy, onto the global ecommerce stage. Building on initiatives like the draft national ecommerce policy and free trade agreements, the budget can further streamline MSME participation. We particularly hope for measures that empower them to navigate the challenges of ecommerce exports,” said Tanmay Kumar, CFO, Shiprocket.
Citing the awareness gap, about 65 per cent of tech micro, small and medium enterprises (MSMEs) are struggling due to the limited awareness about available tools and resources, while 72 per cent emphasised the necessity for AI training programs underlining the importance of skill development in facilitating adoption, according to a paper released by Nasscom and Meta.
Additionally, financial constraints significantly hinder tech-enabled MSMEs from adopting AI technologies, with 59 per cent of surveyed enterprises citing budgetary limitations as a barrier to investing in necessary tools and resources. An overwhelming 91 per cent of these enterprises advocate for making AI technologies more democratically accessible.
Further, nearly half (45 per cent) of the surveyed enterprises highlighted the need for tailored use cases demonstrating AI’s benefits across specific industries. To address these and other challenges, the white paper recommends an MSME-first approach to help them reap the AI Dividend.
All Eyes On Budget
The pre-budget consultations for the union budget 2024-25 that started on 19 June 2024 under the chairmanship of Union Finance Minister Nirmala Sitharaman concluded on 5 July 2024. During the in-person consultations, more than 120 invitees across ten stakeholder groups, including experts and representatives from farmer associations and agriculture economists; trade unions; education and health sector; employment and skilling and MSME among others participated in the meetings.
In the course of the consultations, Sitharaman thanked the participants for sharing valuable suggestions and assured experts and representatives that their suggestions would be carefully examined and considered while preparing the budget 2024-25. Notably, under the Narendra Modi 3.0 government, Sitharaman will present the FY 2024-25 full budget to the Lok Sabha on 23 July.
In the pre-union budget 2024 meeting with Sitharaman, industry body Assocham has suggested that the government should focus strategically on capital expenditure, prioritising investment in infrastructure, education and healthcare. ‘’By prioritising investments in infrastructure, education, healthcare, and other critical sectors, governments can stimulate economic growth while maintaining fiscal discipline,” Sanjay Nayar, President, Assocham said.
Another key area of focus, Nayar said, should be the MSMEs. There is a pressing need to establish a dedicated working group tasked with identifying underperforming schemes related to MSMEs. Such an initiative would systematically assess the effectiveness of current programs, pinpointing areas where interventions are falling short in supporting MSMEs.
In response to the surging shipping rates triggered by Covid-19 and the Red Sea crisis, exporters have urged the Indian government to develop Indian shipping lines of global repute to boost exports. Federation of Indian Export Organisations (FIEO) President Ashwani Kumar proposed that the government extend the Interest Equalisation Scheme (IES) for five years to compensate exporters for a portion of the interest on loans. He emphasised that developing an Indian shipping line could significantly reduce the country’s outward remittance on transport services, which totalled over USD 109 billion in 2022.
“We request a focus on developing an Indian shipping line of global repute. India’s outward remittance on transport services is increasing with rising exports. As the country moves towards the goal of USD 1 trillion in goods exports, this will touch USD 200 billion by 2030. A 25 per cent share by the Indian shipping line can save USD 50 billion annually. This will also reduce arm-twisting by foreign shipping lines, particularly of our MSMEs,” Kumar stated at the meeting.
Online Coverage: BW Businessworld