By Lakshmi Venkataraman Venkatesan
Following Finance Minister, Ms Nirmala Sitharaman’s Budget announcement, micro, small, and medium enterprises (MSMEs) are now breathing a sigh of relief as it has introduced several measures aimed at bolstering this sector, a cornerstone of the Indian economy. While the intent and strategy is commendable, a comprehensive analysis is essential to assess the effectiveness of these initiatives and their potential impact on the ground in the coming year.
Key Budgetary Announcements: Opportunities and Challenges
Financing: The 2024 Union budget introduced a comprehensive package that includes financing, regulatory changes and technological support. To address credit access, a new scheme will provide guarantees of up to Rs 100 crore for MSMEs in manufacturing to acquire machinery and equipment. This will ease access to larger loans for modernization, expansion, and improved efficiency. For micro units, the enhancement of the Mudra loan limit from Rs 10 lakh to Rs 20 lakh is a welcome step towards helping larger manufacturing micro units to be set up.
This can also help grassroots-level entrepreneurs expand their business reach by investing more in social media marketing and promotion. However, access to affordable credit remains a major hurdle for MSMEs, particularly in the informal sector and for grassroots entrepreneurs. A critical aspect lies in increasing the average loan size from Rs 40,000 to Rs 4 lakh to ensure that micro units are adequately capitalised for sustainable growth.
Ease of Doing Business: Simplifying regulatory processes and reducing compliance burden for MSMEs is essential to create a conducive business environment. While the Union Budget 2024 did not specifically announce any amendments to GST for the MSME sector, the focus was more on broader economic reforms and initiatives. Key highlights included significant reforms in customs duties to simplify rates and enhance trade facilitation. One expectation from micro enterprises with turnover up to Rs. 100 lakhs is to be exempted from GST tax and compliances.
Additionally, the proposed development of rural roads and rail cargo access to tier 3 and tier 4 regions is expected to improve connectivity and logistics and create opportunities for the MSMEs. The announcement of the plug-and-play investment-ready investment parks for 100 districts of the country will become new hubs of Viksit Bharat which will give opportunities for MSMEs especially micro units to be vendors and to create jobs. An ease of doing business index aimed at micro enterprises in small towns and rural areas would go a long way towards scaling them and creating jobs.
Job Creation: Employment Linked Incentive (ELI) programme is designed to support new entrants to the workforce and incentivise job creation in the manufacturing sector, including MSMEs. Additionally, targeted efforts to increase women’s participation in the workforce and a new skilling programme in collaboration with state governments and industry underscore a multifaceted approach to addressing employment challenges. ELI scheme should not be confined to large or medium industry only but to micro enterprises employing more than five workers.
Digital Empowerment: The low digital penetration among MSMEs, especially in rural areas and among women and SC/ST entrepreneurs, necessitates a robust digital literacy and infrastructure development program to maximize the impact of this initiative.
The budget’s move to reduce the turnover threshold for mandatory onboarding on the TReDS platform from Rs 500 crore to Rs 250 crore will bring more companies onto the platform, potentially improving access to working capital for MSMEs. Although no direct reference was made in this budget to the open interface public e-commerce platform, ONDC, expanding its footprint will enhance the market reach of rural micro enterprises.
Technology: The budget allocation for sunrise sectors such as solar, green fuel, green farming and green mobility includes a corpus of Rs 1 trillion to provide long-term financing through 50-year interest-free loans. The “Pradhan Mantri Suryodaya Yojna” is a significant policy initiative that aims to decentralize solar energy use.
This programme targets installing solar panels on one crore houses, delivering transformative benefits. Micro units that provide repair and maintenance services for solar installations should be integrated with this scheme to ensure successful implementation on the ground.
To capitalize on the opportunities proposed in the budget, the government should start prioritizing the micro enterprises, which constitute 98.35% of MSMEs. Therefore, specific measures should be targeted towards them. Nurturing a supportive ecosystem through incubation centers, mentorship programs and access to markets is equally crucial for MSME growth. Regular monitoring and evaluation of the budget’s impact on MSMEs is essential to identify bottlenecks and make necessary adjustments.
Lakshmi Venkataraman Venkatesan is the Founding and Managing Trustee at Bharatiya Yuva Shakti Trust. Views expressed are personal. Reproducing this content without permission is prohibited.