Union Budget 2023: What’s in it for MSMEs?
The Union Budget announced on February 1, 2023, emphasized on almost all crucial sectors that are driving the growth of Indian economy. MSME sector which accounts for about 30% of the country’s total GDP holds a strong position in country’s vision of Amrit Kaal (25 years up to 2047).
With crucial initiatives pertaining to Credit Guarantee Trust, Digilocker and Skill India, the government aims to increase the share of MSMEs in India’s total GDP and help them scale their business. IBT analyses how the latest additions under the Budget are expected to enhance the growth of the MSME sector.
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As India targets to become a US$ 5 trillion economy in next five years, Micro, Small and Medium Enterprises (MSMEs) are set to play a crucial role in achieving this target. The MSMEs contribute over 30% to the total GDP of the country, create over 111 million jobs and accounts for 48% of total exports, hence proving to be one of the major growth drivers.
In the Budget 2023, the government acknowledged the importance of the sector by emphasizing it under seven priorities, referring to them as ‘Saptarishi’, that will drive the country’s vision during Amrit Kaal (government’s vision for next 25 years up to 2047).
MSMEs in Budget 2023-24
To boost the output, establish the MSME sector globally and to support the “Make In India” initiative, Budget 2023 introduced several schemes and proposals. Some of them are listed below:
- DigiLocker services are to be made available for access to MSMEs, which will allow storage and sharing of documents in a safe and secure manner.
- Allocations worth ₹ 22,138 crores reducing the cost of credit by 1% and expanding employment opportunities.
- The Presumptive Taxation Scheme, to give relief to small taxpayers from the tedious job of maintaining books of account and from getting the accounts audited was previously available to micro-enterprises with a turnover of up to ₹ 2 crore and professionals with a turnover up to ₹ 50 lakh. The Budget 2023 has increased the limits to ₹ 3 crore and ₹ 75 lakh, respectively for taxpayers with less than 5% cash receipts. A proposal on allowing a deduction for expenditures incurred on payments only when the payment is made to support MSMEs to receive payments on time is also under consideration.
- The Finance Minister proposed to establish a unified Skill India digital platform that will focus on demand-based formal skilling, connecting it with employers including MSMEs and facilitating access to entrepreneurship schemes.
- Under the Vivad se Vishwas 1 – Relief for MSMEs, the government bodies will return 95% of the forfeited bid fee or performance security to the MSMEs in case of failure to execute contracts by them during the pandemic.
- A new scheme for artisans and craftspeople has been introduced which will enable them to improve the quality, scale and reach of their products, integrating them with the MSME value chain. It will offer skill training, knowledge of modern digital techniques, linkage with local and global markets among others which would greatly benefit women workers and people belonging to poor sections.
Rajeev Chawla, Chairman of IamSMEofIndia spoke to IBT and applauded the budget stating:
“The schemes and proposals introduced in the budget has offered a new lease of life to the MSMEs who faced losses due to Covid19 and has given them a chance to re-scale their businesses”.
Chawla added that the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), a scheme launched to make available collateral-free credit to the micro and small enterprise sector is to be revamped with ₹ 9,000 crore and will be effective starting April 1, 2023. He also appreciated the proposal where the buyers cannot claim a conclusion without first paying MSMEs, which will force buyers to immediately clear small business dues.
Budget for MSME exports
According to the data released by Ministry of Statistics and Programme Implementation, MSME’s Gross Value Addition (GVA) in all India Gross Domestic Product (GDP) was 26.83% in 2020-21. The MSMEs share in India’s total exports was 42.67% (up to Aug 2022). To combat the challenges faced by MSME workers and promote exports, the government announced to cover more sectors under the PLI scheme and support to the MSME sector which could help thrust exports and investments.
Contribution of MSMEs to India’s total exports
|Description||2019-20||2020-21||2021-22||2022-23 (up to Aug. 2022)|
|Share of exports of MSME-related products in All India Exports (%)||49.77||49.35||45.03||42.67|
Apparel Export Promotion Council (AEPC) Chairman Naren Goenka stated, “the increased allocation for the interest equalization (subsidy) scheme from ₹ 2,376 crore in 2022-23 to ₹ 2,932 crore in 2023-24 which is up by 23% is expected to support exports from this sector”. “The focus on infrastructure, investment, green growth, youth power and inclusive development will boost India’s journey to be the fastest growing robust economy”, he added.
Although the number of active MSME’s have increased over the years and the schemes and policies introduced by the government has improved the condition of the sector over the years, the sector depicted a YoY decline in exports from 25.03% to 42.67% in FY2022-23 (up to August 2022).
The top export destinations for Indian MSMEs in FY22 were the US (US$54.7 billion), UAE (US$ 13.4 billion), Hong Kong (US$ 9.93 billion), UK (US$ 7.54 billion), Germany (US$ 7.19 billion), China (US$ 5.16 billion), Belgium (US$ 4.73 billion).
The Budget 2023 has been recognized as balanced and futuristic by the MSME sector. With a revision in taxation, payments, introduction to digital tools and emphasis on enhancing skill, the sector is expected to recover the losses incurred in the Covid19 era. As the MSME sector displayed resiliency and strength during the challenging times of Covid19, it has played a significant role in India’s economic recovery and is expected to contribute even further in the upcoming years.