Union Budget 2023: MSME sector seeks access to credit at affordable rates

PLI schemes, quick access to funding, and expansion of exports are some of the key areas that the sector is looking forward to

The Micro, Small and Medium Enterprises (MSME) sector is among the fast-expanding and dynamic sectors of the Indian economy. There are over 60 million entities falling under the MSME category in the country that contribute about 45 per cent of the total manufacturing output and 30 per cent of the national Gross domestic product (GDP). In the previous budget, Union Finance Minister Nirmala Sitharaman had announced a slew of measures to help the MSME sector, which suffered huge losses due to the pandemic-induced economic slowdown.

Given the important role the sector plays in driving the Indian economy, the budget allocation for the sector has seen a continuous rise in the past few years. The Budget outlay for the sector increased from Rs 7,572 crores in the financial year 2020-21 to Rs 15,699.65 crores in 2021-22, which further rose to Rs 21,422 crores in 2022-23.

While the MSME sector is recovering from the pandemic’s downturn, here are some of the expectations from the industry from the upcoming Budget.

Access to finance

Non-availability of funds is one of the main issues faced by MSMEs. To scale up, the sector needs timely credit at reasonable rates. In this regard, the sector expects a deduction on the interest rate on CGTMSE (Credit Guarantee fund Trust for Micro and Small Enterprises).

The sector needs incentives at affordable rates, Sanjay Kumar, Partner Deloitte told Business Standard.

“The minimum (CGTMSE) loan rate is about 18 per cent, which is good for big companies but MSMEs may look for a little bit of rebate. The government can bring out schemes where MSME could get credit at cheaper rates,” he said.    

In the last Budget, the government extended the Emergency Credit Line Guarantee Scheme (ECLGS) -- introduced to financially aid MSMEs hit during the pandemic – to March 2023 and the industry experts seek further extension of the scheme in the upcoming Budget.

“One straight expectation from the industry is the extension of ECLGS. Now that the economy is better, the big companies are doing very well, and some part of that growth also translates to MSMEs. They may not be producing finished goods but they produce intermediary goods so to that extent aiding them will add to the domestic value chain,” said Kumar.

Rajnish Gupta, Principle Partner, Tax & Regulatory Services, EY India also reiterated the funding issue and said, “MSMEs require a higher level of credit to underpin growth both on the short term and the long term.”

“There are two primary mechanisms i.e., through guaranteeing loans provided to MSMEs by banks and through cash flow-based lending. It would be of interest to see if the government decides to lift the limits on MSME credit that it would guarantee,” he said to Business Standard.

Production-Linked Incentives

The Production-Linked Incentive (PLI) scheme can boost MSME’s manufacturing and export capabilities. The industry wants the government to formalise MSMEs and provide them incentives that have so far been limited to large corporates and companies.

“Some of them (MSMEs) may be working only in cash and that is the reason they are unable to access finance, hence formalizing the MSME sector is very important. In many cases, micro and small enterprises do not fulfill the rigorous requirements that are required to avail PLI schemes but it is important to nudge them to be a part of it,” said Kumar.

Exports

MSMEs contribute to 40 per cent of exports. For the sector to expand its export network, it is essential to form alliances, scale up production and be competitive in the export market.

In this regard, we need to link the domestic value chain or international value chain because the sector can learn a lot when it works together, said Kumar.

The sector also seeks government initiatives in forming cooperatives, boosting the use of digital platforms and trade agreements that could ramp up MSME’s output.

“Signing of FTAs and thereby providing preferential access in sectors where large numbers of MSMEs operate would push exports from MSMEs. We are also waiting for the government’s announcements regarding the implementation of ONDC and thereby bringing the benefits of digitisation to the sector,” said Gupta.

Logistics

The logistics sector in India is fragmented. Implementation of the National Logistics Plan (NLP) 2022 --aims to reduce the cost of logistics from its current 14 per cent of GDP to less than 10 per cent -- would aid the MSMEs by reducing the indirect logistics costs.

“National Logistics policy or any other similar policy that brings down the logistics costs would help MSMEs immensely,” said Gupta.