Budget 2023: Boosting credit, simplifying taxation for MSMEs must be govt’s top priority | The Financial Express

Budget 2023: Boosting credit, simplifying taxation for MSMEs must be govt’s top priority

Credit and finance for MSMEs: The MSME industry, which has been the driving force of the Indian economy, has entered into the new year with expectations to recover from the slowdown experienced during the last two years and register significant growth.

Budget 2023, States,
The balance $300 billion is needed for mass transit systems.

By Nirav Choksi

Credit and finance for MSMEs: The union budget for the financial year 2023-2024 is all set to be presented by Finance Minister Nirmala Sitharaman on February 1st. The finance ministry has already begun pre-budget discussions with different ministries and departments. Going by the reports, economists and industry experts expect the government to bring in reforms that are focused on achieving higher growth rates on a sustained basis. On the broader front, this year’s budget will look at promoting growth by introducing policy interventions that push local manufacturing and exports. Much like the previous years, Budget 2023 will be pragmatic rather than a populist budget with a view to limit the hit of the global economic slowdown on the Indian economy.

Renewed focus on MSMEs

Taking into account how 95 per cent of India’s businesses are micro-scale enterprises, boosting credit to MSMEs and startups along with simplifying taxation for them must be a top priority for the government. The MSME industry, which has been the driving force of the Indian economy, has entered into the new year with expectations to recover from the slowdown experienced during the last two years and register significant growth. Budget 2023 should focus on bringing about desirable reforms around ease of doing business for MSMEs.

Also read: 2023 MSME Outlook: 10 major developments in the new year small businesses cannot ignore

There is also a pressing need to introduce policies that cut down input costs, boost liquidity, and promote financial inclusion where small businesses have access to affordable financial products.To further promote small businesses and empower entrepreneurs, support mechanisms such as startup-friendly policies to enable greater spending on innovation and tax relaxations should be introduced.

Need of the hour: Provision for dedicated small business credit support

Owing to India’s continuing economic liberalisation, we are on our way to becoming a global manufacturing hub by 2023. Given the current global headwinds—we would need reforms around small business credit, taxation, and product-linked schemes to ensure that we continue on the growth trajectory. The larger focus should be on taking calibrated steps to strengthen the domestic market by generating employment and promoting new avenues for growth.

Government initiatives such as easy access to funding and tax breaks will create a favourable position for small businesses to thrive and become globally competitive. These timely measures will further enable them to cope with rapidly changing business conditions and overcome operational bottlenecks. Amid concerns of a global slowdown and elevated inflation, the government is up against an uphill task of maintaining fiscal prudence, a key factor that will be under the scanner of global investors.

Wide-ranging initiatives to provide dedicated credit support for MSMEs are high in demand, as this sector will be vital in steering India on the path of continuous economic growth. Some of the pre-budget expectations of the MSME sector include:

Extension of the ECLGS scheme: The government’s Emergency Credit Line Guarantee Scheme (ECLGS) had brought much-needed relief to credit-starved MSMEs, enabling them to bounce back after the economic slowdown brought on by the pandemic and the subsequent lockdowns. The ECLGS scheme has witnessed multiple iterations and extensions from the time it was first launched in May 2020. The scheme is expected to expire in March 2023, unless the government decides to further extend it.

Also read: Budget 2023: MSME-focused fintechs suggest these tax sops to boost financial inclusion

Expansion of the PLI scheme: The Product-Linked Incentive (PLI) scheme is expected to further diversify Indian exports and take them to greater heights. The current PLI scheme is limited to large companies and corporates in specific sectors. While these incentives have done considerably well in boosting domestic manufacturing and job creation, there are expectations that Budget 2023 may extend the PLI schemes to MSMEs and upcoming industries to further boost exports.

Offering credit at affordable rates: The geopolitical crisis has disrupted supply chains and adversely impacted the country’s exports sector which was one of the main sectors that helped revive India’s economy in the last year and has experienced 37% year-over-year (YoY) growth. Exporters are seeking credit at affordable rates to in turn promote cross-border trade.

Encourage cash flow-based lending: The launch of initiatives such as Account Aggregator (AA) and Open Credit Enablement Network (OCEN) has been a great relief for the MSME sector. Supportive measures in democratizing credit and accelerating financial inclusion are expected from Budget 2023.

Restructuring of existing MSME loans: Owing to a cash crunch, MSMEs are now requesting for restructuring of existing loans with a moratorium of one year with an additional two years to repay the loans.

MSME loans are to be classified as NPAs after 180 days of non-payment: Facing interruptions in the flow of funds owing to delayed payments from buyers, MSMEs are requesting the government to consider loans as Non-Performing Assets (NPAs) only after 180 days of non-payment instead of 90 days.

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Way forward

Small businesses are looking forward to an easier line of credit which is crucial for them given how much of their working capital is locked up due to delayed payments. The good news is that in FY 2023 and 2024, the bank credit to MSMEs is expected to climb from 16 per cent to 18 per cent. There is a lot more than is expected to build the resilience and self-sufficiency of this sector. The entry of fintechs with digital models of lending and technological breakthroughs will set the right precedent to empower small businesses in the country.

Nirav Choksi is CEO & Co-founder at CredAble. Views expressed are the author’s own.

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First published on: 14-01-2023 at 10:00 IST