What Budget 2023 has brought to MSME Sector

By Dr Prabodh Halde – Chairman, Chamber for

Advancement of Small & Medium Businesses (CASMB)
(Views expressed are personal and based on Budget speech
published by government)
01.02.2023

Introduction

Micro, Small, and Medium Enterprises (MSME) is one of the largest employment-
generating sector. As India gears up to be the next manufacturing hub for the world,
MSMEs will need support in terms of infrastructure, financing etc.

MSMEs form the backbone of the Indian Economy, contributing 33% of the country’s
GDP and generating 120 million jobs across all industries. India has over 64 million
MSMEs.

The Indian Economy is showing signs of a strong recovery from the pandemic
reporting a GDP growth of 8.7% in Fiscal 2021/22 and projected to grow by 7% in
Fiscal 2022/23. India has overtaken the UK and firmly established itself as the
world’s fifth-largest Economy, with a GDP of $3.53 trillion.

Despite the bright and sunny picture, the Indian Economy has its share of challenges
to grapple with, many of which could significantly impact the MSME’s performance in
the coming year.

While the top threats remain the global recession concentrated across the US and
Europe, coupled with macroeconomic uncertainty concerning energy due to the war
in Ukraine, which is impacting the growth of the Indian Economy. Most economic
surveys are predicting India’s GDP growth to fall short of expectations to 6.6% in
the upcoming fiscal year.

Challenges Faced by MSMEs

Financing: MSMEs’ most significant challenge is the credit gap of Rs 20 lakh crore.
As a result, many micro-entrepreneurs are forced to rely on informal sources such as
family, friends, and local moneylenders to meet their credit needs, resulting in
higher interest rates and increased liability. 27% of entrepreneurs have reported
difficulty in the timely repayment of loans. Improving financing for MSMEs is crucial
to keep them viable & stimulate growth.

Infrastructure: The lack of infrastructure increases the operational costs for MSMEs
and decreases competitiveness in the marketplace. The availability of raw materials
and skilled labour is another challenge cited by MSMEs. 57% of entrepreneurs
surveyed by the Bhartiya Yuva Shakti Trust reported that Supply chain issues and
the rise in raw material prices due to increased transportation costs led to
disruptions in business.

Lack of Formalisation: MSMEs range far and wide in India, but the sector remains
largely disorganised, with limited access to timely and affordable credit, small talent
pool and lack of supplier/dealer bargaining power. A report found that a majority of
MSMEs are in the unorganised sector, and do not have a registration. While the
ministry of MSMEs estimate a total of 633.9 lakh MSMEs in India, as of 30th March
2022, the Udyam portal for MSME registration had only recorded 79,84,801
businesses (approximately 12.4% of total businesses). In fact, in India there are
only 1.1 crore MSMEs that are currently registered with the Goods and Services Tax,
with many not having the proper business and financial records. A significant
number of these unorganised firms fall fairly under the micro category, and are most
owner-managed, operating with less than five workers. The lack of formalisation
creates bottlenecks for MSMEs in terms of technological development, business
expansion and procurement of labor and raw materials.

Lack of Skilled Manpower: Since MSME sector cannot pay much salary to their
employees, this sector is unable to attract the talent and thus dependent on
traditional, unskilled or semiskilled manpower which also affects the growth of the
sector.

Now let’s see what has been unfolded by today’s Budget for MSME sector
and also Agri-Food Processing sector.

The Union Budget 2023-24 on Wednesday (01.02.2023), Finance Minister Ms.

Nirmala Sitharaman announced a slew of measures to enhance the ease of doing
business. “More than 39,000 compliances have been reduced and over 3,400 legal
provisions decriminalised. For furthering trust-based governance, we have
introduced the Jan Vishwas Bill to amend 42 central acts,” this is very positive step
and this will help more investment in MSME sector and start-ups will attract more
funding due to ease of doing the business and help in creating trusted environment.

KYC Process will be simplified and will be adaptive to a sense of risk based, rather
than one-size-fits-all. Financial sector regulators will also be encouraged to have KYC
system fully amenable to the needs of Digital India,” she stated.
Delving further, she said for all business establishments required to have a
Permanent Account Number, PAN will be used as a common identifier for all digital
systems. This will help in big way for MSME sector since compliance will be easy.
Currently, enterprises are required to obtain multiple identities (PF, ESIC, PAN, CIN,
TAN, etc.) issued by various central and state government departments. This has
created a situation wherein there is no single identifier for building corporate
compliance and risk profiles. Today’s announcement is one step in that direction,
one country one identification for business. This is positive step.

The Udyam, e-shram, NCS, and ASEEM portals will be interconnected. 130 lakh
MSMEs will receive additional credit under the ECLGS, extended until March 2023.
ECLGS guarantee coverage will increase by Rs 50,000 crore, totalling Rs 5 lakh
crore. Additional Rs 2 lakh crore credit for Micro and Small Enterprises available
through CGTMSE. RAMP program with a budget of Rs 6,000 crore to be launched.

The DESH-Stack e-portal will offer online training for skill development and
improvement, and encourage start-ups to offer drone-related services like Drone
Shakti and DrAAS. MSMEs in these sectors will be benefitted.

The government's Sabka Saath Sabka Vikas policy has benefitted many sections,
including women, SCs, STs, OBCs, and other underprivileged groups.

A National Data Governance Policy will be brought up enabling access to anonymised

data to unleash innovation and research by startups and academia. Hope this step
will strengthen the relations of academia & Industry particularly small scale industry
and starups.

There will be a launch of the PM Kaushal Vikas Yojana 4.0 to skill lakhs of youth. The
scheme will cover new age courses. This is also positive step for MSME sector.

Plan to spend Rs 15,000 cr for vulnerable tribal group (PVTG) over 3 years will
attract businesses in tribal areas and will help them to bring to core group.

Documentation availability will be the focus for the DigitLocker expansion for the
fintech sector, The fintech sector has been facilitated by digital services, PM Jan
Dhan Yojana, Indian Stack and UPI, this could be game changer for MSME sector.

Agri credit target increased to Rs. 20 lakh crores & Rs. 2200 crore for high value
horticulture will also help MSME sector particularly in area of Food Processing.

Farmers will receive direct payments of Rs 2.37 lakh crore for purchasing wheat and
rice. The government will promote “Chemical-free Natural farming” starting with
regions within 5 km of the Ganges River. NABARD will provide blended capital
funding for agriculture and rural enterprise startups. “Kisan Drones” will be utilized
to evaluate crops, digitize land records, and apply insecticides and nutrients.
The revamp schemes will take effect from 2023 through an infusion of Rs 9,000
crore in the corpus, this will help increasing the buying power of the sector and help
in strengthening the economy.

The government announced a 11% hike in agriculture credit target to Rs. 20 lakh
crores for next fiscal year.

The government has also announced to provide a 2% interest subsidy to ensure

farmers get short-term loans of up to Rs 3 lakh at effective rate of 7% per annum.
In nutshell Hon. FM has tried to give maximum benefits to MSME sector and on
behalf of CASMB we congratulate the Hon. FM Mam.

Note: Chamber for Advancement of Small & Medium Businesses (CASMB) works on
various aspects of the industry. Please reach out on president@casmb.org.in /
casmb21@gmail.com to know more about activities of the chamber.