Expectations on the Union Budget for MSMEs

MSMEs in India have been dealing with several challenges at the same time - the Covid-19 pandemic, coal shortages, raw material price hikes, and the shipping container crisis. While the government has attempted to alleviate the situation with several credit schemes, rising input costs mean that MSMEs must still contend with the associated challenges. According to the AICA (All India Council of Association of MSMEs), overall prices for raw materials have increased by around 150 per cent. To enable Indian MSMEs to compete domestically and even internationally raw material prices need to be reduced. As per the AICCA overall, the raw material price increase ranged from 37 to 155 percent since April 2020. The CIA (Consortium of Indian Associations) has urged the government to create fair price shops which supply MSMEs with raw materials like aluminum, steel, and copper at a fixed price. In that respect, the FISME (Federation of Indian Micro and Small & Medium Enterprises) has also demanded that import duties on copper, steel, polymers, and aluminum be abolished. The government has initiated discussions with several industry leaders concerning the Finance Bill 2022. In anticipation of the 2022 budget the CII has also created the post of a Development Commissioner, who will cater to the needs of MSMEs.

Rising raw material prices, higher GST rates, and the cost of complying with Covid 19 related legislation have eroded the working capital of a majority of MSMEs. The AICA has demanded an exclusive banking policy for MSMEs, which facilitates a streamlined application and credit disbursement process. The AICA is also aiming for a reduction in GST rates because a large percentage of MSME working capital gets allocated to complying with GST obligations. The CII has advised the government to convert all outstanding working capital loans taken by MSMEs term loans that have a one-year moratorium, and that the government should also facilitate working capital for MSMEs at the repo rate. In the pre-budget memorandum, the CII has made certain recommendations to expedite credit access for MSMEs. These include accelerating the implementation of the Fund of Funds scheme, restoring the CLCSS (Credit Linked Capital Subsidy Scheme) to encourage technological upgrades, and another Fund of Funds scheme to galvanize adoption of new technologies among MSMEs. The Managing Director of Frontier Technologies, a manufacturing company, and the Co-Chairman of the CII’s National MSME Council, Ashok Saigal, have observed that technological development and adoption was one of the government’s main priorities as far as MSMEs were concerned. To facilitate this evolution MSME entitlement to tax benefits on research and development expenditures should be restored. 

MSMEs have a lower bandwidth for risk and lower access to resources in comparison to large corporations; ideally, the compliance burden should be lower and the ease of business should be higher. Thus, if the Union Budget 2022 integrates the suggestions and demands of the AICA, CII, and FISMI, MSMEs can accelerate their recovery post-pandemic.