Union Budget 2021-22 Expectations for MSMEs: The pandemic triggered an unprecedented change in the economic landscape. The MSME sector with an estimated 63 million enterprises in India realized its vulnerability and faced erosion of growth which is yet to return to normalcy. As per World Bank estimates, India’s GDP is anticipated to contract by 9.6 per cent in the fiscal year and the regional development is projected to rebound at 4.5 per cent in 2021. The union government, as it braces itself to provide the most difficult spending budget by far, is faced with formidable challenges: to handle overall health and social priorities with stressed sources, roll out positive measures to set in dynamism in the economy, have an inclusive policy framework to address the wants of the most vulnerable groups, strike a balance in between brief term specifications and the want to initiate extended term development measures, and so forth. Most of these difficulties have a bearing on the fate of the MSME sector maintaining in view that it accounts for 30 per cent of India’s GDP and is the biggest employer following agriculture. A couple of focused initiatives in the spending budget could fuel some momentum into the recovery method for the sector.
Formalisation and expansion: While the pandemic halted the development of organizations, it had a silver lining by way of expediting some of the extended-pending reforms. Change of definition of MSME by which includes the turnover criteria in addition to investment and carrying out away with the distinction in between manufacturing and service sectors is one such measure. While this will go a extended way in formalizing the sector, easing the roadblocks for expansion, and so forth, this has also produced a new ‘medium enterprise’ layer that wants focused focus, each in terms of extending the positive aspects hitherto applicable to compact enterprises and also to develop their capacities to serve international worth chains.
Rationalise price of carrying out organization: India is regularly enhancing on the Ease of Doing Business ranking, but there is nevertheless huge scope in matching the pace with peers on the ‘cost of doing business’ in numerous locations. There are a lot of other roadblocks that exist that decrease the competitiveness of Indian industries which includes land, labour, capital, energy, and logistics are significant things to improve the price of carrying out organization. Industries have to be unburdened from added charges in the type of cross-subsidisation at the stake of the sector, as noticed in energy and freight targeted traffic.
Easing of financing norms: Banks demand the flexibility to enable organizations to restructure with economic enable, suspending Basel norms for couple of years could be a sensible alternative. The TReDS platforms produced to facilitate discounting of MSME receivables really should be produced mandatory for all massive and institutional purchasers. Enforcement of the public procurement recommendations mandating 25 per cent procurement from MSMEs is important at this juncture. The government could also take into account enhancing this limit to help the revival of the sector and incentivise states to adopt the similar policy. Despite Insolvency and Bankruptcy Code, 97 per cent of the MSMEs nevertheless lack an orderly exit mechanism. In a post-Covid period that would demand thousands of organizations to undergo restructuring or closure, the absence of an exit mechanism could be crippling. An announcement for IBC led options for firms could be quite beneficial.
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Import substitution and export promotion to be supported collectively: ‘Atmanirbhar Bharat’ and indigenization announcements are initiatives that would guide the industrial policy imperatives for the next decade, but it is crucial that the intent is implemented in letter and spirit. The border tensions and an anti-China wave also presents a exceptional chance for the MSMEs to invest in their capacities. Parity with international costs is important, each from the standpoint of the raw supplies and the final merchandise. This would imply relooking at some of the trade barriers, compliances, and regulations to ease imports of raw material.
Extending PLI to MSMEs: The Production Linked Incentives (PLI) announced for 10 sectors highlights a shift from input-based incentives to output-based ones. This is a progressive measure. While the detailed recommendations for the operationalization are gradually emerging, it tends to make eminent sense to extend the scheme to the MSME sector.
Competitiveness enhancement: The upcoming spending budget wants to announce sectoral allocations for strengthening the general ecosystem for 24 champion sectors. This could incorporate measures associated to productivity enhancement, technologies adoption, ability enhancement, higher sector- institution collaboration, strengthening of infrastructure by means of assistance to cluster parks, widespread facility centres, and so forth.
The pandemic witnessed a lot of of the MSMEs demonstrating their grit by rapidly pivoting to grow to be self-reliant in the manufacturing of PPEs, sanitisers, healthcare devices/ kits, and so forth. This spirit of resilience keeps the MSME sector afloat even in the most difficult instances. With a focused assistance package, the MSME sector can not only sustain itself but accelerate the recovery of the whole economy.
Vivek Agarwal is the Partner, Infrastructure Government & Healthcare Practice at KPMG in India. Views expressed are the author’s personal.