The contribution of Micro, Small, and Medium Enterprises (MSMEs) is unparalleled in the country’s economic landscape. Often hailed as India’s growth engine, the sector contributes to about 30 per cent of the country’s GDP, 48 per cent of exports, and employs over 11 crore people.
For the sector to continue its growth trajectory and envision the government’s vision of a 50 per cent GDP contribution from MSMEs and SMEs by 2030, the Union Budget this year will have a set of expectations that align with the sector’s unique needs and potential.
Inclusive development
The 2023 Union Budget revolved around the inclusive development of MSMEs by allocating a ₹10,000 crore fund in a bid to foster technological developments and infrastructural support. Today, the MSME sector is driven by widespread technology adoption and is crucial for transforming India’s economy into a mass entrepreneurship and job creation ecosystem.
That said, innovation is no more a choice and is a must, and it can happen faster by using technology and artificial intelligence. Today, MSMEs want to understand what global best practices are and want to compete with enterprises. As a result, they are exploring how technology such as Cloud and Artificial Intelligence (AI) give them the ability to do so by running their operations better. Hence, favourable policies and budget allocation around technology adaptation for MSMEs have become imperative and the upcoming budget is expected to bring favourable policies around the same.
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The budget necessitates nuanced policy frameworks to realise this vision and potential of MSMEs in India. Strategic tax benefits and infrastructure development are among the key pillars that can contribute to creating a positive growth environment for MSMEs.
Access to formal credit
One of the primary challenges MSMEs face is the limited access to formal credit and finance. As per a report by the Global Alliance for Mass Entrepreneurship, the problem of delayed payments to MSMEs is in the magnitude of 10.27 lakh crore, an estimated 7.8 per cent of the country’s GDP. In the upcoming budget, we must strengthen policies in this area. Easier and non-delayed access to finance is not just a convenience for MSMEs; it is a critical factor that can determine their survival and growth. The hope is for the budget to introduce measures that facilitate a smoother credit chain for MSMEs.
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The introduction of innovative financial instruments designed to address the challenges MSMEs encounter during economic slowdowns is highly anticipated. Specifically, soft loans at minimal interest rates. These tailored financial solutions can act as a lifeline during challenging economic periods, allowing MSMEs to navigate uncertainties and sustain their operations.
Forward-looking approach
A holistic vision for the Union Budget this year encompasses not only tax benefits, infrastructure development, and improved credit access but also a forward-looking approach for MSMEs. This would address the immediate needs of MSMEs but also lay the groundwork for their sustained growth in the long term. For example, the EU has introduced the Carbon Border Adjustment Mechanism (CBAM) from October 1, 2023. CBAM would translate into a 20-35 per cent tax on select imports into the EU for SMEs and MSMEs starting January 1, 2026. Such policy interventions would help India’s MSME sector thrive.
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The success of the MSME sector is intertwined with the supportive policies that this Union Budget can introduce. A strategic and comprehensive budget will not only fuel the growth trajectory of the MSME sector but also contribute significantly to the nation’s economic resilience. As the anticipation builds for the Union Budget 2024, all expectations reflect the aspirations of the MSME sector. With an eye on strategic tax benefits, infrastructure development, and enhanced financial access, the sector envisions a budget that will propel India’s MSMEs into a future characterised by mass entrepreneurship and sustained economic growth.
Ketul Acharya is the President, Global Alliance for Mass Entrepreneurship. Views are his own.