In the Union Budget 2023, Finance Minister Nirmala Sitharaman increased the budget allocation for MSME sector and announced new initiatives such as a revamped credit scheme and an entity DigiLocker
The Union Budget 2023, presented by Finance Minister (FM) Nirmala Sitharaman on Wednesday, brought good news for the Micro, Small, and Medium Enterprises (MSMEs) sector that was reeling under the challenges that were posed by the Covid-19 pandemic.
In the budget speech, the FM acknowledged these difficulties and stated that the MSME sector is the backbone of the Indian economy, accounting for about 30 per cent of the Gross Domestic Product (GDP) and employing over 11 crore people. To support this vital sector, the government proposed several growth-boosting measures.
In terms of allocation, this time the budget has proposed Rs 21,422 crore to the MSME ministry, which is significantly higher than the revised budget of Rs 15,628 crore for the current fiscal year. Also, micro-enterprises with a turnover of up to Rs 2 crore and certain professionals with a turnover of up to Rs 50 lakh can now avail of presumptive taxation. "I propose to provide enhanced limits of Rs 3 crore and Rs 75 lakh respectively, to taxpayers whose cash receipts are no more than 5 per cent," the FM said.
A key measure announced by the government is the launch of a revamped scheme to provide easier access to credit for MSMEs. The FM said in the Parliament, “Last year, I proposed extending the credit guarantee scheme for MSMEs. I am happy to announce that the revamped scheme will take effect from April 1, 2023, with an infusion of Rs 9,000 crore in the corpus.”
The scheme will provide collateral-free loans of up to Rs 2 lakh crore to MSMEs and reduce the cost of credit by about 1 per cent, enabling small businesses to access the capital they need to grow and recover from the pandemic's impact. This will boost the country’s entrepreneurial spirit, observed Saahil Goel, co-founder and CEO of Shiprocket.
"The government's focus on empowering the MSME sector with the revamped credit guarantee scheme is admirable. We are also glad to see that infrastructure and last-mile reach are among the seven priorities in this year's budget. The revamped credit guarantee scheme for MSMEs and the Rs 9,000 crore infusion into the corpus will further promote the country's entrepreneurial spirit," said Goel.
Prateek Toshniwal, an angel investor and professional financial advisor, agreed with this view and added, “Budget 2023-24 has redefined the landscape of capital investment in the country, and the new policies will revive the start-up ecosystem nationwide. The revamped credit guarantee scheme will be a game-changer for small and medium-scale enterprises in India.”
Additionally, to support MSMEs in receiving payments promptly, the FM Sitharaman proposed allowing a deduction for expenses incurred on payments made to them, only when the payment is successfully made. To give a boost to formal skilling, the government also launched unified Skill India Digital platform, facilitating access to entrepreneurship schemes.
The government is aiming for further inclusion in the sector without compromising on security. In this regard, a proposal to launch an entity DigiLocker was made during the budget. "An Entity DigiLocker will be established for use by MSMEs, large businesses, and charitable trusts, for securely storing and sharing documents online with various authorities, banks, regulators, and business entities," the FM said.
Anurag Jain, co-founder of KredX and executive committee member of DLAI, called the introduction of enterprise-level Digilockers for MSMEs a welcome and progressive step towards bolstering financial inclusion at the ground level.
"The extension of the Digilocker facility to enterprises and MSMEs, KYC reforms, a more integrated approach towards identity management processes, and ongoing innovations to the India Stack will help banks, NBFCs, and fintech to underwrite better and more efficiently. Even though clarity on the exact contours of the National Financial Information Registry is awaited, it seems to be a step in the right direction towards more efficient and transparent access to credit, said Sonali Kulkarni, lead of financial services, Accenture.
Additionally, the government is working on a National Data Governance Policy to enable access to anonymised data to start-ups to boost development. Under this policy, 95 per cent of the forfeited amount relating to bid or performance security will be returned to MSMEs by government and government undertakings in cases the MSMEs failed to execute contracts during the Covid period.
However, there is some disappointment among MSMEs that no incentives were announced for promoting domestic design. “The industry is a bit disappointed as industry was expecting announcements related to incentives for domestic design, expanding the PLI scheme, and strengthening the supply chain," said Mandeep Arora, managing director (MD) and co-founder of UBON.
Overall, the Union Budget 2023 is expected to have a net positive impact on the MSME sector, providing much-needed support to help it recover from the impact of the pandemic. The measures announced by the government are expected to boost the sector's growth, provide easy access to credit, simplify the process of starting a business, and access new markets.