On 1st Feb 2022, finance minister Nirmala Sithraman presented her fourth successive budget. The minister’s Union budget 2022 was envisioned to provide a blueprint for economic growth over “Amrit Kal.” The framework aims to set the foundation for driving growth into the Indian economy over the next 25 years as India reaches 100 years of independence. The Union Budget 2022-23 put special focus on the MSME sector due to its critical contribution of around 45% to India’s total manufacturing output, 40% to total exports, and approx 29% of the national GDP. From providing financing to ease of doing business and interlinking of Udyam, e-Shram, NCS, and ASEEM, here are the key announcements for MSMEs in Union Budget 2022-23.
Key Announcements for MSMEs in Union Budget 2022-23.
Extension of Emergency Credit Line Guarantee Scheme
The budget extended the ECLGS scheme up to March 2023 for facilitating credits to more than 130 lakh MSME units. Moreover, the Union Budget 2022-23 extended the guarantee cover under the ECLGS scheme by INR 50,000 crore. Also, one of the key announcements for MSMEs in union budget was that the extra guarantee cover will be used only for MSMEs working in the tourism and hospitality industry as they were the worst hit by the Covid-19 pandemic. Around 40% of people lost their jobs in the tourism sector due to the pandemic. The tourism industry is the biggest employment generating sector contributing around 9% to India’s GDP. The tourism sector attracts around USD 30 billion worth of forex earnings every year. The addition of the INR 50,000 crore took the total guarantee cover to INR 5 lakh crore.
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Rolling Out Raising and Accelerating MSME Performance (RAMP)
The RAMP scheme received USD 500 million from the World Bank last year to support Covid-hit MSME units. Union Budget 2022 again focused on revitalizing the enterprises by RAMP. The vision is to launch RAMP with an outlay of INR 6,000 crore over the next 5 years. Being an integral part of MSME Competitiveness – A Post COVID Resilience and Recovery Program, RAMP will help Indian MSMEs to gain resilience and become more competitive both in domestic and international markets. Besides, RAMP will also enable credit facilitation and improve market access for MSMEs. By making robust institutions and implementing good governance practices for small and medium enterprises, the scheme aims to fast-track the performance of enterprises.
Revamping the Credit Guarantee Trust for Micro and Small Enterprises
This year’s budget announced the revamping of the Credit Guarantee Trust for Micro and Small Enterprises by capital infusion. Along with revamping the scheme, the government had earlier taken the following steps:
- An increase in loan disbursal limit to INR 2 crore from earlier INR 1 crore.
- An increase in the corpus of CGTMSE scheme to INR 7.5 lakh crore from INR 2.5 lakh crore
The move will enable the MSEs to avail of collateral-free loans amidst the ongoing liquidity crunch. Moreover, both new and old enterprises are eligible to avail of the benefits under the scheme. The micro-enterprises that we’re unable to avail of the credit under ECLGS can make use of CGTMSE. As the micro MSMEs do not have the compulsory outstanding credit under ECLGS, CGTMSE will provide an additional credit of INR 2 lakh crore for micro and small units (MSEs). The scheme will benefit particularly the enterprises in contact-intensive sectors, as they were severely harmed due to the pandemic.
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Focus on Skilling and Assessment
The Union budget 2022-23 proposed to align the National Skill Qualification framework with the dynamic global markets and industry requirements. The main aim is to foster the skilling environment by skilling, upskilling, and deskilling.
Launching of a new e-portal DESH-stack was also one of the major announcements for MSMEs in union budget. The portal will foster a digital ecosystem for skilling, training, and livelihood promotion. The DESH-stack e-portal offers API-based skill credentials, payment as well as discovery to find suitable job opportunities.
Ease of Doing Business 2.0
The Union budget 2022 announced the launching of the second phase of the Ease of Doing Business Index. The EODB 2.0 will focus on enhancing states’ involvement and digitization of manual procedures. Moreover, the new phase will also focus on integrating central and state systems to provide a single touchpoint for all the citizen-focused services. By eliminating the overlapping laws and compliances, the budget expects to attract more foreign investments.
Unified Logistics Interface and Gati Shakti
To enable the smooth movement of goods with a reduced logistics cost, the government is working upon enabling the exchange of data. This will be possible by bringing all-mode operators on a Unified Logistics Interface platform.
The budget made supply chain logistics the center point to boost the logistics industry. The renewed focus on the Gati Shakti program will strengthen the supply chain environment by integrating logistics nodes and smooth multimodal connectivity. Moreover, the budget also announced 100 more cargo terminals to reduce the burden on existing terminals and reduce logistics costs. These steps will highly improve the distribution, set a robust supply chain, and strengthen storage and freight aggregation infrastructure.
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- Udyam (government registration for enterprises to get certified as MSMEs and get a Unique Identity Number)
- e-Shram (A national database of unorganized/informal workers for quick access to human capital)
- National Career Service (bringing recruiters, job-seekers, trainers, career coaches at one platform to ease communication and enable seamless hiring)
- ASEEM (match-making platform to match skilled workers with the relevant jobs)
The interlinking of these 4 key initiatives to enable seamless access to data on MSMEs registration, informal workers, skilled workforce, and available jobs was one of the key announcements for MSMEs in union budget. The live information databases that provide G2C, B2C, and B2B services will help in moving towards an organized economy.
Customs Duty
This year’s budget extended the exemption that was introduced last year for steel scraps. Additionally, the finance minister revoked some anti-dumping and countervailing duties on stainless steel, alloy steel bars, and high-speed steel. Also, removing the exemption on products that India can manufacture will end up in concessional duties on the raw material used for manufacturing intermediate goods. The step will bolster our mission of Make in India and Self-reliance.
Surety Bonds in Public Procurements
The budget permitted the use of surety bonds instead of bank guarantees in public procurements. Allowing surety bonds’ usage in government procurement will decrease indirect costs on suppliers and work contractors. Moreover, they can also consider insurance companies for payment surety. The move will solve the issue of MSME funds dwelling in bank guarantee margin money cycle and cost burden due to bank guarantees. The cost of securing a bank guarantee takes away a major chunk of MSMEs’ working capital. This is because to get the bank guarantee, an enterprise needs to give margin money as well as collateral security. This chokes the working capital for enterprises, restricting them from taking more tenders and securing more deals.
Barring a few misses, the MSME sector has welcomed the steps announced in the Union budget 2022-23. However, the real test of the budgetary provisions and the vision of “Amrit Kal” is in the implementation. Reduction of compliances, an extended ECLGS scheme, revamped CGTMSE, and focus on logistics are the key highlights for MSMEs in this year’s budget.
Written by
Prasad P. Patkar