Union Budget 2022-23: Market access, overall productivity and scarce access to more funds are the three major challenges MSMEs face
India has approximately 6.3 crores Micro, Small and Medium Enterprises (MSMEs) that contribute to 30 percent of our gross domestic product (GDP) by its national trade and exports. This sector employs more than 11 crore individuals and has the potential to become the largest employment provider in the country. It has witnessed immense growth in recent years, much higher than the industrial sector and this clearly demonstrates the importance of MSMEs in building ‘Atmanirbhar Bharat’. The sheer size and scale of this sector, however, has not been adequately complemented by the availability of financial resources that it needs, and hence this sector has been the most impacted due to the COVID-19 pandemic.
Several studies and surveys suggest that the national lockdown enforced in March 2020 had a detrimental impact on nearly 95 percent of MSMEs, and 70 percent of them were interrupted until August 2020. According to statistics, about 40 percent of enterprises were still disrupted till the end of February 2021, even after phased unlocking. Market access, overall productivity, and gaining access to more funds are the three major challenges MSMEs face. In 2021, lockdown resulted in an average 11 percent drop in business volume for MSMEs, compared to a 46 percent drop during the nationwide lockdown in 2020.
In the wake of Union Budget 2022, we expect the government to focus on uplifting the spirit of small business owners with initiatives and measures which will help them recover and accelerate economic growth. We hope it will come in the form of funding support for NBFCs to help them maintain liquidity and promote financial inclusion with a particular focus on MSMEs under priority sector lending.
The MSME sector has an urgent requirement of easy capital access and financial security. To support this requirement, the government should extend soft loans with longer repayment terms and enhanced credit limits. This financial support will help MSMEs focus on enhancing product quality, strengthening distribution channels, employing new marketing techniques, etc.
Moreover, the government should encourage startups and enterprises aiming to revolutionise the financial inclusion of MSMEs and establish digital frameworks for e-KYC, online payments, digital banking, and lending for this sector.
Reduce GST rates, compliance burdens
We want the government to consider reducing GST rates and relaxation in compliance burden around taxes, audits, and loans for MSMEs in Budget 2022. These initiatives can provide ample time for small business owners to focus on their strategic growth and regain lost momentum. In addition, we expect Union Budget 2022 to lay out initiatives for infrastructure development, which will further encourage trade and commerce in the country.
Recently, to promote the startup culture in tier 2 and 3 towns and cities, Prime Minister Narendra Modi declared January 16 as ‘National Startup Day’. With the global pandemic emergency striking economies, we hope Budget 2022 will support new startups’ growth and expansion.
The pandemic has accelerated innovation by startups and new-age technology companies, and it is evident that this trend will continue in 2022. India’s startup ecosystem has garnered an investment of $36 billion in 2021, as demand for digitisation and innovation grew amid the pandemic.
Extend ECLGS in new financial year
Market analysts believe that year 2022 will witness the beginning of the end of the dominance of traditional business houses at the exchanges. India has had 42 unicorns in a single calendar year which has driven jobs, increased entrepreneurship and strengthened the digital ecosystem.
With the Budget announcement around the corner, we hope it will include measures that will help ease the ambiguity caused by the COVID-19 pandemic. The government could also consider extending and expanding the Emergency Credit Line Guarantee Scheme (ECLGS) program as part of the new financial year.
We expect the Union Budget to recognise the critical role MSMEs and startups will play in keeping with the government’s ambition of turning India into a $5 trillion economy. The easing of compliance norms, policies, and regulations to enhance ease of doing business and access to funds will provide much-needed impetus and drive our economy forward in the coming year.
The author is Founder and CEO, FloBiz-a neo-business platform. Views are personal.