Budget 2022: MSME sector expectations

The micro, small and medium enterprises (MSME) sector enjoyed substantial allocation in the previous budget. A whopping Rs 15,700 crore was allocated to the sector, which was twice as much as in the year 2021-22.

A Rs 1,000 crore corpus for the provision of guarantee for borrowings was provided for. Further, customs duties were rationalised on inputs and provision made for Credit Guarantee Scheme for subordinate debt to MSMEs and fund of funds to provide succour and accessibility to MSMEs.

These budgetary outlays were supported by a gamut of conducive regulatory initiatives.

The asks by the MSME units vis-à-vis budget 2022-23 are manifold. Regarding credit, there is need for faster clearance of dues to MSMEs.

There is also scope to on-board more state government departments and state public sector units into the Trade Receivables and Discounting (TReDS) platform.

Effective operationalisation of the TReDS platform with the GSTN network would create better credit discipline and reduce fear concerning fraudulent invoices.

In the light of MSMEs being cash-strapped, today, there is also a requirement to further relax related moratorium periods.

There is also merit in encouraging financial institutions to evolve cluster-based financing instruments as to make the financial sector more responsive to distinct needs of cluster MSMEs in terms of ballooning requirements, etc.

Industry associations in the 7,000 odd MSME clusters across the country may be evolved to serve as effective financial intermediaries.

To expand the market for MSMEs, the outlay under the Trade Infrastructure for Export Scheme (TIES) under the aegis of the Department of Commerce needs to be enhanced to support establishment of export infrastructure countrywide, varying from testing labs to exhibition centres.

There is a need to invest more time and effort in favourably negotiating Free Trade Agreements (FTAs) with different trading blocks.

This would facilitate competitive market entry into global markets. There is also a need to establish a facility body to promote outward-FDI by Indian MSMEs.

This has been a strategy successfully exploited by Chinese firms to penetrate the global market competitively avoiding tariff barriers.

There is also a critical requirement for a market intelligence gathering hub to be established and operated efficiently, providing inputs on products, production and enterprise details and strategy in competing economies as well as on frequently changing tariff as well as non-tariff barriers (NTBs) such as sanitary and phytosanitary norms in export destinations.

In addition, there is a call for the foreign direct investment (FDI) promotion policy to be tempered as to encourage efficiency seeking FDI, and not domestic market seeking/penetrating FDI.

The FDI focused on manufacturing products for global markets needs to be particularly engaged. If not, we are giving up our local market to foreign direct investors.

It is, in fact, strange and a parody that while global tenders for works up to Rs 200 crore have been discouraged, we have been giving away our domestic markets to foreign direct investors with a myopic FDI Promotion Policy.

With regard to entrepreneurship development and start-ups, farmers are being encouraged to evolve into farmer producer organisations (FPOs) and graduate into processing and storage activities.

Such initiatives and by weaker sections of society need be supported by fiscal incentives and need ideally enjoy exemption from payment of Income Tax, and not merely (as presently) a five-year tax holiday (with the incidence of an annual Minimum Alternate Tax).

In the context of physical and technical infrastructure for MSMEs, the outlays under various schemes such as the Scheme Fund for Regeneration of Traditional Industries (SFURTI) and many other schemes of different ministries for supporting establishment of common facilities and industrial infrastructure is limited.

This needs to be enhanced several times over, if they have to benefit MSMEs in larger scale. Also, there is skewed allocation of central funds through schemes of assistance.

This is, particularly, with respect to public private partnerships (PPP) oriented schemes. The industrially weaker states of the North, Central and Eastern India, particularly, suffer on this front.

There is also scope to impose a quota in this context, and encourage distribution of the new SIDBI Cluster Development Fund (SCDF) accordingly.

In summary, it is expected that the budget will offer great impetus to credit, market as well as infrastructure promotion and development related initiatives, both innovative as well as otherwise.

This article was originally published in Business Today.