Budget 2022 focuses on ease of doing business for MSMEs but fails to address 90% of unorganised sector

Ease of Doing Business for MSMEs: The proposed measures to revive the MSME sector in the Union Budget 2022 are based on historical experience but they lack ground as latest data on the sector is missing.

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Despite the many initiatives announced for MSMEs in the Budget 2022, most of the policy announcements are a continuation of the government's existing efforts and fail to go beyond the sector’s concern regarding capital infusion. (Image IE)

Ease of Doing Business for MSMEs: The Union Budget 2022 focuses on ease of doing business for MSMEs by introducing policy interventions towards boosting liquidity, reducing input costs and driving financial inclusion by mobilising post office infrastructure for banking services. However, experts say these measures are limited in their scope, focusing only on the formal sector when 90% of the MSMEs fall in the informal economy.

The hits

In the Union Budget 2022, the Finance Minister has announced the extension of the Emergency Credit Line Guarantee Scheme (ECLGS) by a year, till March 2023, with an increase in its corpus by Rs 50,000 crore to Rs 5 lakh crore. There is also an additional allocation earmarked for hospitality and related industries. Also, the outlay for Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme is increased to touch 2,00,000 crore MSMEs. “With these policy announcements the budget has addressed the current pain-points of the MSME ecosystem, providing renewed impetus for the lending ecosystem to lend to MSMEs and empower them,” said Alok Mittal, Co-Founder and CEO, Indifi Technologies. 

The budget also announced several sops for the MSME sector especially on making critical factor conditions competitive such as reducing raw material and input costs. “Reduced import tariffs on inputs and increasing or imposing tariffs on end products will help provide a level playing field and a degree of protection for domestic industries. For instance, reduced customs duty and exemptions on inputs like steel scrap, while levying a 7 per cent duty on finished capital goods,” Padmanand V, Partner, Grant Thornton Bharat told Financial Express Online. Notably, sectors such as textiles, leather products and handicrafts are expected to be benefited by reduced import tariffs facilitating competitive global sourcing of inputs, he added.

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In addition to fiscal measures, there is a sustained push towards digitisation. There is a proposal to link several portals, including Udyam, e-Shram for MSMEs and using them for additional facilitation for example for credit provisioning, opportunities sharing, skilling etc across B2B and D2C channels. “Currently, all these portals are run and hosted by different Ministries. The integration will enable MSMEs to get all the required information from a single platform related to registration, labour welfare schemes, associated compliances on the supply side and access to new sellers, markets on the demand side, enabling ease of doing business, Mohammad Athar (Saif), Partner and Leader, Industrial Development at PwC India told Financial Express Online.

The misses  

Despite the many initiatives announced for MSMEs in the Budget 2022, most of the policy announcements are a continuation of the government’s existing efforts and fail to go beyond the sector’s concern regarding capital infusion.

Many MSME units are still not making profits so benefits to directly help them run the business would have gone a long way in enabling the sector to get back on its feet. 

“I was hoping for measures that fund job creation given the stark rise in unemployment during the pandemic. The government could have offered the SME owners a share of their salary cost so they don’t cut down on staff to reduce their operating cost,” Dr Partha Chatterjee, Professor and Head, Department of Economics at Shiv Nadar University, Delhi-NCR told Financial Express Online. Creative ways of saving the small business economy could have been introduced such as an asset purchase programme.

Even judicial reforms to spur economic activity find no mention in the Budget. “Commercial disputes take years to settle due to archaic processes and understaffing in the Indian courts. We were hoping for the introduction of digital measures to enable easy tracking of court cases and their settlement in a time-bound manner, Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME) told Financial Express Online.

Also, the Insolvency and Bankruptcy Code only covers private companies and does not include proprietorship firms when more than 90 per cent of the MSMEs are promoter owned. “These points have always been the topmost sore points in Ease of Doing Business surveys,” added Bhardwaj.  

However, the elephant in the room is that the Budget focuses only on registered MSMEs which comprise only 10 per cent of the sector. “The unorganized sector has been greatly impacted by the pandemic and nobody, including the government officials, knows the latest status due to the dearth of nation-wide data on MSMEs in the country, said M H Bala Subrahmanya, Professor, Department of Management Studies at Indian Institute of Science, Bangalore. He added, the proposed measures are based on historical experience but they lack ground as the latest data on the sector is missing. “It is high time the government announces a systematic statistical sampling-based survey before proposing corrective measures,” he said. For instance, the Japanese economy brings white paper every year on their SME economy detailing its innovation index, investments made, employment generated amongst others.

While the Budget recognises MSMEs as the key drivers of growth and employment in the country, holistic measures to revitalize the sector have fallen between the cracks.

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