Budget 2023 | Too little to deal with too many MSME woes

Far from jubilation, Finance Minister Nirmala Sitharaman’s major budgetary announcements for the micro, small and medium-scale (MSME) sector, evoked a lukewarm response. The sector battling rising raw material costs, power tariff hikes, heavy taxation and poor basic infrastructure, found little to appreciate in what she had to offer.

The minister revamped the credit guarantee scheme for MSMEs, with an outlay of Rs 9,000 crore with effect from April 1. The FM also announced the Vivad se Vishwas scheme 1, under which 95 per cent of the forfeited amount relating to performance security, will be returned to MSMEs by the government and government undertakings, where the bidders failed to execute contracts during the Covid period. 

“Little is on offer to help MSMEs to survive or grow, in the budget, as they struggle to recover post-Covid,” said Nitin Potdar M&A Partner J. Sagar Associates.  In 2022 against 31,192 registered complaints accounting for Rs 7,128 crore dues, only 1,056 applications involving (dues worth Rs 71 crore) were cleared by the facilitation councils.The increased credit guarantee scheme may not be sufficient considering their actual need for cash, he added. 

Industry players suggested that similar announcements were made in the last budget, however, the benefits failed to reach the micro and small enterprises. About 20% of the MSMEs in the Peenya Industrial Association permanently closed during the pandemic and many could not recoup their losses. MSME players expected more focus on micro and small businesses and financial support in the form of soft loans. 

Calling MSMEs the “growth engines of the economy”, FM extended the benefits of presumptive taxation to micro-enterprises with a turnover of Rs 3 crore and certain professionals with a turnover of up to Rs 75 lakh.

“While a lot has been said about infrastructure, there was no talk about infra for MSME.  Industrial estates,” said Manjunath, President, Peenya Industrial Association, Bengaluru. “We have to meet our clients in hotels because there are no proper roads, drainage, or other basic amenities at Peenya. We are losing out on foreign investors and exports,” he added. 

MSMEs deserve a great deal more as most are capital starved and do not have access to collateral-free credit at affordable costs. As the best-employing segment of the economy, one expected that the FM would pay greater attention to this important sector, observed K.N. Narasimhamurthy President, Karnataka Small Scale Industries Association (Kassia). 

Experts lauded FM’s move of acknowledging PAN as a common business identifier as well for all digital systems, as it will significantly reduce the compliance burden on small businesses.  “The plan to create a Digi locker, which is a secure mobile-friendly free service with the ability to store and share documents online securely to regulators, banks and other business entities, plus the move to set up a National Financial Information Registry, will remove the dependence on paper trail and fasten timely access to credit,” said Hardika Shah, Founder and CEO of Kinara Capital.