Budget 2023: What MSMEs expect

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MSMEs (Micro, Small and Medium Enterprises) typically expect government support in the form of tax breaks, subsidies, and easier access to credit and funding in budgets. They may also look for measures to improve ease of doing business and to promote exports.

Measures such as increased allocation for the MSME sector, relaxed norms for collateral-free loans and more incentives for digital payments are anticipated to be included in the upcoming Union Budget. In Budget 2023, MSMEs seek additional support from the Government to recover from the adverse economic impact of the COVID-19 pandemic.

Many expectations arise from the micro to medium enterprise stakeholders, to recover the loss in business during the pandemic and to reach the business targets they strive for.

The Reinstatement of CGTMSE Scheme without an interest cap

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a trust set up by the government of India to provide guarantees for loans given to micro and small enterprises (MSEs) by banks and financial institutions.

The CGTMSE scheme, which provides guarantees for loans given to micro and small enterprises, underwent significant changes last year, including an expansion to include women, SC/ST entrepreneurs, and MSMEs located in targeted districts. Additionally, microfinance institutions were added to the list of eligible lenders. With these changes, it is important to review the scheme to ensure it is being utilized effectively.

One potential improvement would be to reinstate the CGTMSE scheme without an interest rate cap, which would allow more lenders, including those serving financially excluded MSMEs, to participate. Currently, the scheme has an interest rate cap of 18% for end borrowers, which limits its reach to larger SMEs only. Removing this cap would encourage more lenders to offer loans to smaller MSMEs under the CGTMSE scheme.

Extension of reach of ECLGS and operational changes

The (Emergency Credit Line Guarantee Scheme) ECLGS was a helpful aid for MSMEs during the pandemic’s financial strain, but it faced many difficulties in execution. The scheme’s implementation process was so lengthy that it did not provide significant advantages for the industry.

Simplifying the ECLGS loan application process and cutting down the approval time can alleviate the stress on enterprises looking for assistance through the scheme. Clear and prompt communication to both borrowers and lenders regarding the status of applications and loan terms will also decrease ambiguity and improve the scheme’s overall effectiveness.

Implementation of more flexible repayment schemes such as longer loan tenures and deferred payment options will also benefit the borrower MSMEs. On the other hand, implementation of better monitoring and support systems will reduce loan defaults and enhance the overall effectiveness of the ECLG Scheme.

Simplification of GST for easier compliance

On paper, the Goods and Services Tax (GST) is a positive reform. However, rough edges on the road to full implementation have made it a tough nut to crack. These include multiplicity of slabs and non-constitution of an appellate authority, even after 5 years of its implementation.

Being a middle class consumer-driven market, the Indian economy owes much of its growth to the contribution of MSMEs. The least it can do in return is to implement and offer a hassle free returns-filing and tax-payments platform that can work in areas of lesser network reception also, along with setting up of the proper appellate authority for hearing of second appeals, the Goods and Services Tax Appellate Authority (GSTAT).

Further welcome steps include constitution of helpline with local-language support and percolation of GST procedures to the masses, in a digestible manner, to avoid the already struggling MSMEs from having to bear the cost of approaching tax practitioners. However, it is wise to always seek the help of an experienced expert in the field before you file your returns.

Reforms on Import and Export Policy and Duty Structure

MSMEs (micro, small, and medium-sized enterprises) play a significant role in India’s import and export industries, consuming a large portion of the country’s imports, particularly raw materials, and contributing almost 50% of India’s exports. Exports from these businesses have grown by 37% year-on-year and are projected to exceed $1 trillion by 2028.

As India’s economy continues to grow, MSMEs have the potential to expand their reach and distribution globally. This increase in exports is also likely to create more jobs and opportunities for semi-skilled and unskilled workers.

To support the growth of MSMEs, the Indian government has implemented various initiatives such as the Make in India program. This aims to increase domestic production, reduce dependence on foreign imports and improve India’s rank on the Ease of Doing Business index. To further enhance the competitiveness of Indian MSMEs in the global market, the government should announce changes in the sector’s duty structure for imports and exports in the Union Budget.

The government can reduce tariffs and duties on imports and exports to make it more affordable for MSMEs to participate in international trade. This can be achieved by providing exemptions for MSMEs, reducing tariffs for certain products, or implementing duty drawback schemes to refund some of the duty paid on imported goods. It can also partner with financial institutions, incentivizing them to provide MSMEs with financing at affordable rates or by setting up a dedicated fund to finance trade.

To conclude, the central government can play a key role in boosting the contribution of MSMEs (micro, small, and medium-sized enterprises) to India’s economy by introducing favorable measures and schemes in the Union Budget 2023.

The MSME sector is eagerly awaiting budget announcements that include continued support for lending through programs such as CGTMSE and ECLGS, simplification of the Goods and Services Tax regime,  increased investments in infrastructure and digitization, and the development of a conducive ecosystem for MSME growth.

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