Budget 2021 Expectations: ‘Govt must encourage local production, supply chains by partnering with MSMEs’
Updated: Jan 20, 2021 12:18 PM
Union Budget 2021 Expectations for MSMEs: Many in the MSME sector are looking forward to the upcoming budget with high hopes especially since the government has been forthcoming and helpful during the pandemic.
The current process for loan application for MSMEs has a few hurdles that can easily be addressed by the government.
By Milan Thakkar
Union Budget 2021-22 Expectations for MSMEs: With the 2020 pandemic having wreaked havoc across several sectors in India, the MSME sector was one of those sectors that were badly hit. With more than 25-30 million jobs lost in the period of March-June 2020 alone as per SKOCH Group survey, the sector many businesses shut shop or on the brink of shutting. But as the new year begins and market activity picks pace, MSMEs are looking forward to a better year. While the government had helped the sector in 2020 through liquidity infusion and payment of dues, the upcoming budget session of 2021 would bring much hope if the government continued its efforts in the sustained revival of the sector. Thereby the upcoming budget needs to keep the following matters in mind while allocating funds towards the MSME sectors –
The budget needs to keep the Atmanirbhar Bharat sentiment in mind while continuing to expand programs and fund allocations in this direction. This includes further encouragement to local production and supply chains by partnering with local MSME organizations in order to meet demands. Last year, Union Minister Nitin Gadkari mentioned that he would be likely want to recognize and award businesses and organizations that have been making timely on-time payments to MSMEs for their goods and services. Such recognition would be helpful if it is included in the budget in the form of a tax incentive.
The current budget’s focus while being on the health sector as well as bolstering recovery in other sectors, should also be on improving infrastructure across the country. This will not only initiate liquidity into the market but also bolster jobs and growth opportunities for several MSME organizations. Several experts have pointed towards this direction including during a meeting between the Finance Minister and CEOs of several companies. This will be an opportune time for India to be at the forefront of infrastructural opportunities. In the long term, it will also help attract businesses looking at alternative production and supply chain sources other than China to set up shop in India.
Rural & Labour Development
With the previous budget having focused on rural development and agriculture, one would think that this year’s budget would need to reduce that focus. But instead, the government should continue this momentum and allocate funds towards rural development. The pandemic hit the rural sector far worse as many workers migrated back home and were left with lower job opportunities while living under the fear of contracting the virus. Thus, the government could partner with the MSME sector in creating jobs in the rural sector while also giving a boost to the labour force skill development through its current programs. This will help in creating a skilled workforce for the future and in the long term, will also give Indians opportunities to explore different jobs and skills in the rural as well as urban sector.
The current process for a loan application for MSMEs has a few hurdles that can easily be addressed by the government. For example, when the interest amount needs to be paid, it piles up fast in the case of loans. Despite the rate of interest being lower than other types of loans, it accumulates rapidly and takes away a significant amount of money when paid. The processing fee needs to be paid by the borrower which leads to an extra expenditure for the entrepreneur. Such requirements are not expected in the case of angel investing and boosting. While the percentage of approval of the loan is high, the procedure for sanctioning is tedious.
The process for application is also cumbersome as many documents are requested while applying for the loan to prove the credibility of the lender. Most MSME loans are provided without collateral, which makes such loans insecure and unstable for banks. While it is advantageous for the lenders as they do not have to suffer any losses, it increases the probability of bad money for the banks. Since the collateral is not required, it leads to verification of the credit score of the applicant by the banks and other lenders. In case an individual doesn’t have a good credit score, they cannot apply for the loans at all. Even if the loan is sanctioned, the entire amount is not always provided and generally, only 50-60 per cent is sanctioned.
These issues can be easily addressed during the budget announcement to bring changes in such policies. Many in the MSME sector are looking forward to the upcoming budget with high hopes especially since the government has been forthcoming and helpful during the pandemic. It would help millions of Indians employed by the sector if the government can any address any of the above issues mentioned.
Milan Thakkar is the CEO of Walplast. Views expressed are the author’s own.