Budget: The roadmap for 9% growth hinges on small businesses

The Union Budget presented by the Finance Minister focuses on three pillars of inclusive welfare, digital transformation and sustainability and leveraging private investments. All aimed at pivoting the country from the pandemic towards ‘India @100’.

The three pillars can potentially have a short and longer-term positive impact on MSMEs and the startup ecosystem in the country. The pandemic has affected many small businesses who require additional support through strengthening access to finance, access to technology and access to market to remain competitive and become a part of global value chains.

There are some direct benefits to MSMEs and startups which include:

  • The extension of Emergency Credit Line Guarantee Scheme (ECLGS) till March 2023 will help MSMEs gain the required credit to bail them out of the pandemic. Increasing the outlay of the fund to Rs. 5 Lakh crores will help in increasing the number of beneficiaries.
  • On similar lines, revamping of the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) will provide additional credit of Rs. 2 Lakh crore. A new program – Raising and Accelerating MSME Performance or RAMP – with an outlay of Rs 6,000 crores over 5 years envisages to help improve the competitiveness of MSMEs, enabling them to become part of Global Value chains.
  • Linking of portals – Udyam, e-Shram, National Career Services and Atma Nirbhar Skilled Employer Employee mapping – will help in formalising skilling, credit facilitation and recruitment services for the MSMEs.
  • For startups there is much to cheer about, starting with the 25% of the Defence spending being made available for them along with domestic manufacturers. Announcement of Drone Shakti will enable drone applications and use cases for start ups
  • Tax incentives have been extended for eligible startups by one more year
  • Increased focus on digital banking, payments and fintech that will also provide opportunities for improving liquidity for MSMEs
  • Provision for an end-to-end platform to submit and manage e-bills for government contracts and commitment to pay 75% within 10 days for running bills will also improve liquidity for MSMEs serving government organisations.
  • The launch of EoDB 2.0 reduces compliance burden on MSMEs in line with ‘minimum government maximum governance’.

The investment serves as a huge opportunity for small businesses to take part in the expected economic activity. Sectors like infrastructure, energy transition, agriculture and health provide prospects for MSMEs to grow and innovate. Startups and MSMEs can also benefit immensely by the policies which are likely to be announced in sunrise sectors like e-mobility, batteries, artificial intelligence, climate change, semiconductors, space economy, genomics etc.

Overall, the budget continues to provide much needed support to MSMEs to facilitate their access to funds and market. Small businesses are the backbone of this country and therefore, they need to be strengthened to pivot to around 9% growth that the FM expects. This budget provides a foundation for the ‘Amrit Kaal’ or the 25 years lead up to India @ 100 years of Independence and reiterates Government’s commitment towards a strong MSMEs and startup ecosystem.

(Amar Shankar and Shobhit Mathur are Partners – Business Consulting (MSME) at EY India)

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