MSMEs and the Union Budget 2022

The MSME sector is hailed as the backbone of the country's economy, comprising 6.3 million units and employing over 11 crores of the Indian population, accounting for more than 28 percent of the Indian GDP. However, the sector has been impacted by both the first and second waves, and the now the variant is wreaking havoc on their operations and worsening their pre-existing problems.

Photo by Mike Hindle on Unsplash
Photo by Mike Hindle on Unsplash

The MSME sector is hailed as the backbone of the country’s economy, comprising 6.3 million units and employing over 11 crores of the Indian population, accounting for more than 28 percent of the Indian GDP. However, the sector has been impacted by both the first and second waves, and the now the new variant is wreaking havoc on their operations and worsening their pre-existing problems.

Finance Minister Nirmala Sitharaman on Monday while presenting the Union Budget 2022-2023 announced a slew of measures to help boost India’s MSME secto, apart from an important announcement of upgradation of  Udyam portal to include B2B, B2G, and G2B services, such as skilling and recruitment.

The budgetary allocation for MSMEs increased by more than 26 percent, from Rs. 15,699.65 crores to Rs. 21,422 crores. 

The Emergency Credit Line Guarantee Scheme (ECLGS) has been extended through March 2023, with an additional Rs. 50,000 crores added to the guaranteed cover scheme.

The Prime Minister Employment Generation Programme (PMEGP) has seen a significant increase in funding, rising from Rs 12,499.70 crore to Rs 17,600.12 crore a 29 percent increase.

The MSME Champions Scheme, which previously had no funding, now has Rs 60.72 crores.

The allocation for entrepreneurship and skill development schemes increased by 20.5 percent, to Rs. 717.99 crores, up from Rs. 570.93 crores previously. And, within this, the Fund of Funds has seen a 39 percent increase, rising to Rs 486 crore from Rs 350 crore previously.

The budgetary allocation for the Mahatma Gandhi Institute for Rural Industrialisation increased by 3 percent to Rs 182.82 crore from Rs 176.70 crore previously, and the allocation for the Total-Infrastructure Development Programme increased by 44 percent from Rs 1,107.63 crore to Rs 1,596.03 crore. The outlay for research and evaluation studies also increased by 11 percent to Rs 175.64 crore from Rs 157 crore.

However, in the labour-intensive MSME industry, budget outlays have decreased for many schemes including the Development of Khadi, Village, and Coir Industries that saw a 5 percent decrease to Rs. 1,168.03 crores, from the reviewed outlay of Rs. 1,232.32 crores.

The allocation for the Interest Subvention Scheme for Incremental Credit to MSMEs, along with the Distressed Assets Fund, had been drastically reduced, with the plausible reason being an increase of Rs. 5,000 crores from the existing Rs. 10,000 crores to Rs. 15,000 crores in the Guarantee Emergency Credit Line (GECL) facility to eligible MSME borrowers.

The Credit Linked Capital Subsidy and Technology Scheme, which previously had a budget of Rs 315.31 crore, has received no funding this time and the total outlay for Technology Upgradation and Quality Certification has been reduced from Rs 330.31 crore last year to Rs 80.72 crore this year (down by 75.56 percent ).

The industry reaction to the announcement by the Finance Minister has been mixed.

Ashutosh Kharangate, the founder and managing director of MARC, a management consulting firm for SME and MSME states, “Kudos to the government for not falling prey to coming out with a populist budget considering elections in several state. In fact contrary to several economies which have increased taxes to make up for the effects of pandemic, there have been some reliefs provided in subjects like MAT and surcharges. In addition for MSMEs the proposed revamp of the CGTMSE and the extension of ECLGS scheme is most welcome. The facilities and support in payment offered for Government purchases is absolutely a step in the positive direction. E-pay and time based payment was a necessity for MSMEs supplying to the Government. The further proposed enhanced INR 6000 cr addition to RAMP scheme focussed on MSMEs is worth applauding, In a nutshell it’s a budget absolutely pushing for public and private investment which shall stimulate economic reforms. To have a 35% increase in capex spending at 6.9% fiscal deficit is unprecedented. We need to give credit where it’s due”.

According to Sarosh Amaria, Managing Director of Tata Capital Financial Services Limited,“The Government has continued its support to MSME sector with measures announced in the Budget like extension of ECLGS scheme and integration of digital portals. Higher allocation towards capital expenditure at Rs. 7.5 lac crores will aid the industry in sustaining recovery after the pandemic”.

Sanjay Bhatia, CEO and Co-Founder of Freightwalla, was pleased with the budget as Supply Chain Logistics was one of the focal points in the budget and the initiatives taken for the shipping and logistics industry by accelerating the digitisation of the sector through the Unified Logistics Interface Platform (ULIP), but he also hinted that more details about the national logistics policy would have been beneficial to MSMEs and other logistics players because stakeholders had pinned their hopes on it for job creation in the economy.

Nitin Sharma, CPTO and MD SME Business CredAble states, Union Budget 2022-2023 opens up significant opportunities for the MSME sector. The government is taking on a renewed focus on reviving India’s SMEs and MSMEs who have been adversely affected by the pandemic and the prolonged lockdowns. The measures to interlink MSME portals like Udyam, e-Shram, NCS and Aseem, will further widen their scope and enable credit facilitation and entrepreneurship opportunities’.

Senior Director and Centre Head of NASSCOM CoE, Gandhinagar, Amit Saluja states, ” The digitisation of manufacturing is a key enabler for Make in India and AtmaNirbhar Bharat, and the thrust on digitization is evident in the budget. The budget focuses on efficiency improvement and growth of MSMEs, which will give a boost to MSMEs and start-ups working for digital technology adoption in industries. This has also emphasised on building digital skills and accelerating the deployment of solutions that can help industries become more efficient and competitive by reducing costs and improving capacity utilization through the adoption of digital tools.” 

According to Madan Padaki, Co-Founder of the Global Alliance for Mass Entrepreneurship (GAME),“It is heartening to see a slew of measures in the budget that help MSMEs grow directly and indirectly. The 7-engined Prime Minister (PM) Gati Shakti initiative is a significant investment in physical infrastructure, and with the emphasis on rural infra, it will accelerate an environment for entrepreneurship to thrive and boost job creation. The extension of ECLGS and attention to Delayed Payments which have been keenly awaited will provide immediate to mid-term relief for the sector”.

Overall the MSME industy has got a lot on its table that includes the Ease of Doing Business for MSMEs, ECLGS scheme extension, CGTMSME revamp, Raising and Accelerating MSME Performance (RAMP) roll out, interlinking of Udyam, e-Shram, NCS, ASEEM, custom duty exemption to the steel industry, PLI for Solar PV Module, surety bonds in public procurements replacing bank guarantee.