Budget 2024: MSME sector expects FM Sitharaman to address issues related to institutional credit, digital transformation (2024)

Budget Expectations 2024: Finance Minister Nirmala Sitharaman is slated to present the Interim Budget on February 1 and like most sectors, the Micro, Small, and Medium Enterprises (MSME) sector has listed their demands looking at the rapidly changing market. The MSME sector, constituting 29.15 per cent of the country’s GDP in 2021-22, has been stressing on the need for a balanced banking relationship. Stakeholders have been expecting for a customised package that can improve access to institutional credit at competitive rates. This is in line with India's goal of achieving a $5 lakh crore economy, and it aims to strengthen the sector's role in this endeavour.

"As India awaits the upcoming interim budget ahead of the pivotal general elections, we do not see any major announcements as indicated by the finance minister Nirmala Sitharaman. Nevertheless, we expect the 2024 budget will contribute to advancing the growth momentum experienced in recent years. Similar to the 2023 budget where the government introduced policies and schemes such as credit guarantee trust for micro and small enterprises scheme revamp, Vivad se Vishwas and Vishwakarma scheme to support a broad spectrum of MSMEs, we anticipate the 2024 budget to unveil initiatives aimed at further enhancing the MSME sector. To improve credit availability and stimulate growth within the sector, we expect the government to introduce interest subvention schemes, alleviate collateral requirements or launch initiatives like the Emergency Credit Line Guarantee Scheme," said Ashish Nayyar, Co-Head, India at OakNorth.

Consulting firm Deloitte said promoting risk mitigation tools such as credit guarantees and insurance schemes to minimise capital flow risks for MSMEs, especially in sectors like automotive, electronics, industrial and electrical machinery, and chemicals.

It noted that the government needs to reimagine and enhance the digital commerce ecosystem, and address challenges for stakeholders to foster growth in this sector.

"With over half of the $5-trillion economic dream of the nation resting on the shoulders of MSMEs, there have been several policy initiatives undertaken over the last couple of years to boost their productivity. The expectations from the upcoming ‌budget, will be to continue upon that path through fiscal support. For instance, of the 6.3 crore MSMEs in India, only half are registered on Udyam – a platform that creates many opportunities for GST and non-GST registered small businesses to avail of government schemes, production related incentives and formal channels of credit. A major driver will be to bring the remaining half to register on Udyam, which will act as a catalyst for MSMEs to formalize and reap the benefits," said

"We look forward to initiatives that enhance thе ease of doing business, rеducing hurdlеs, and fostering a more responsive regulatory framework. The budget should also introduce ways to make it easier for new businesses to get credit, including rеducеd intеrеst ratеs, еxtеndеd moratoriums, and innovativе financial instrumеnts. Allocations for skill dеvеlopmеnt programs and training initiativеs should be another focus in thе budget can еnhancе thе еmployability of individuals and bridgе thе еxisting skill gap. This would not only benefit startups but also contribute to overall economic dеvеlopmеnt," said Vanesh Naidoo, Founder and Director, SafeCams.

In the fiscal year 2023-24, up to September 2023, the Ministry of Micro, Small and Medium Enterprises reported that the share of exports from products specified for MSMEs constituted 45.56 per cent of the country's total exports, showing an increase from 43.59 per cent in 2022-23.

The Federation of Indian Micro and Small & Medium Enterprises (FISME) also wants the FM to address the uneven power dynamic between banks and MSMEs, where the balance often favors lenders. "Lack of competition in the banking sector (75 per cent of banks being public sector) and weak regulatory institutions, which have not been very successful in ensuring customer centredness of banks, and near-defunct grievance redressal mechanism (Office of Banking Ombudsman) all coalesce into an unhappy experience for an ordinary MSME owner with the banks -- whether private or public," FISME Secretary General Anil Bhardwaj said.

Puneet Kaura, Chairman of CII Delhi State and MD & CEO of Samtel Avionics, said: "We want Finance Minister Nirmala Sitharaman to come up with a special package for MSMEs in the Interim Budget, so that the small and medium units do not suffer for want of credit. "This sector has the talent and risk-taking appetite and can play a big role in strengthening India's capabilities even in critical sectors such as semiconductors, space technology, defence, and medical equipment."

The Narendra Modi-led government oversees various schemes like MSME Champions Scheme, CGTMSE, PMEGP, MSE-CDP, and RAMP, all designed to foster the growth and development of the sector in the country.

In the Budget statement 2023-24, Rs 22,137.95 crore was allocated for the MSME ministry, marking a 41.6 per cent increase from the previous fiscal year. Anticipation exists for even higher allocations in the upcoming fiscal year.

"We are optimistic about the Union Budget 2024, which is expected to boost the expansion of fintechs beyond Tier-II regions and also support women-led enterprises. The industry expects the Budget to promote financial inclusion, provide lending solutions for MSMEs, and encourage upskilling initiatives for the young workforce. The Digital Lending Association of India (DLAI) expects a dedicated India Fintech Credit Fund (IFCF) to provide affordable finance to fintech companies. The budget is significant not only for its financial provisions but also for its potential to cultivate a knowledgeable and adaptable workforce. A forward-thinking strategy would involve investing in the education and training of our young workforce, coupled with vigorous support for upskilling projects," said Mahesh Shukla, CEO & Founder, PayMe.

The budget could also provide assistance for the execution of the 'Open Network for Digital Commerce' (ONDC) initiative. The initiative aims to enable MSMEs to easily access various e-commerce platforms without facing any entry barriers. Additionally, it aims to facilitate the standardization of data and processes, benefiting MSMEs in their digital commerce endeavors.

"A significant proportion of India's MSMEs, particularly those located in cities beyond the primary metropolitan areas, grapples with a notable deficit in digital literacy. Offering subsidies and implementing schemes to facilitate the adoption and integration of innovative technologies to improve productivity would indeed be a commendable and welcome initiative. In addition, allocating resources for MSMEs to integrate e-commerce platforms, with Open Network for Digital Commerce (ONDC) playing a crucial role, will support small businesses with improved market access," said Nayyar of OakNorth.

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