Budget 2023: MSMEs look for easy access to formal credit, regulatory regime for neo-banks, tax sops

The Union Budget this year comes at a time when the world is grappling with several crises, such as impending global slowdown and mild recession, the Russia-Ukraine crisis, stabilisation of commodity and currency cycles, and others. But experts around the world have predicted that India will sail through the crisis as it is well-positioned to drive global growth in 2023. To support the growth in India, various sectors are expecting the government would introduce sops and measure to boost businesses.

The Micro, Small, and Medium Enterprises (MSME) sector is a key sector as it adds 33 per cent of India's GDP and creates 120 million jobs across all industries, making it a key sector in the country's economy. According to the government data shared by Minister of State for MSMEs Bhanu Pratap Singh Verma in Rajya Sabha during the Winter session, the share of MSME exports in India’s total exports was 42.67 per cent as of August 2022 in the current fiscal, nearing the FY22 share of 45.03 per cent. 

Experts feel amid global recession fears, the Union Budget 2023-24 is the right time for the Centre to initiate appropriate policy measures to encourage MSMEs. 

Business Today spoke to experts about the prospects of the MSME sector.  

Russell Gaitonde, Partner, Deloitte India 

As the Union Budget 2023-24 is just around the corner, the timing couldn’t be better for the government to introduce policy measures and tax measures to boost the Indian Fintech sector.  Like a defined regulatory regime for neo-banks in India, such banks can boost the Indian economy and increase financial inclusion. Besides boosting spend on digitalisation and promoting innovation, the government must allow expenditure-linked weighted tax deductions for money spent on research and innovations, such as Machine learning, Artificial intelligence, digital infrastructure, etc., and additional tax depreciation on investment in new fixed assets.

Praveen Agrawal, Co-Head, India at OakNorth  

With the ongoing impetus for the growth of the MSMEs, it is important that the existing policies are strengthened to support the development of this sector. The government can consider improving the scope of the Production Linked Incentive (PLI) scheme, which is currently limited to corporates and large companies in specified sectors. This could be further utilised to cover more economic sectors and manufacturing MSMEs to boost exports. In addition, acceptance of the PHDCCI recommendation to change the current 90-day limit to convert MSME dues to NPA’s to 180 days would send an encouraging message. 

The Emergency Credit Line Guarantee Scheme (ECLGS) has had a huge positive impact on credit growth for MSMEs. Extension of the ECLGS timelines, simplification of the release of claims guaranteed by the government under the scheme, and relaxation in the ceiling rates would be a welcome stimulus for the sector. As interest rates rise, we expect Budget 2023 to restore interest equalization benefits of 5% (from 3%) to manufacturing MSMEs and 3% (from 2%) to all 410 tariff lines. 

Rakesh Kaul, Executive Director and CEO, Clix Capital 

Considering that MSMEs contribute to one-third of the country’s GDP, account for 48% of exports, and create 111 million jobs, it is imperative that the government protect their interests. As NBFCs have been playing a critical role in providing MSMEs with easy access to credit, in the upcoming budget, the industry expects the Government to implement budgetary relaxations to support the growth of NBFCs. This will let them participate in co-lending programs and enable them to push adequate funds in priority sectors. Access to formal credit is one of the biggest challenges that MSMEs in the country are facing. Only 16% of MSMEs get access to loans from banks, while the rest has to rely on informal sources. MSMEs currently need around Rs 25.8 lakh crore in formal credit. 

Shreya Suri, Partner - Technology Media & Telecommunications and Regulatory, IndusLaw 

On MSMEs, there were huge expectations from last year’s budget to create parity for MSMEs in the offline and online space. However, no specific policies for the e-commerce sector were spelt out. There are similar hopes from this year’s budget as well. Consequently, what one can reasonably expect is easier compliance and simplification of taxes for selling online. In this context, harmonising GST laws between offline and online sellers could be a game-changing economic transformation opportunity. 

Gurjodhpal Singh, CEO, Tide India 

The MSME sector has potentially turned out to be a key catalyst for the Indian economy in recent years. To achieve the vision of making India a $5 trillion economy, the government should introduce a much-needed policy framework mandating large corporates to include the MSME segment in their business models in some or the other way. This can be done by procuring a certain percentage of the priority sector’s business or aiding them with the current technological innovations and marketing tactics to bolster their business growth. 

Furthermore, the slowdown we saw in the economy last year has caused significant pain to MSMEs due to high-interest rates in the lending landscape inhibiting their operational capabilities. Therefore, soft loans at minimal interest rates or any reduction in the SME lending rates will provide impetus to the sector’s steadfast growth. 

Jaya Vaidhyanathan, CEO, BCT Digital  

The upcoming budget presents a unique opportunity for India to leapfrog in the global economy. The budget should also focus on credit growth for MSMEs, through measures like the expansion of the Emergency Credit Line Guarantee Scheme (ECLGS). Formally streamlining the co-lending system will ensure that tech-savvy players and banks come together to fuel economic growth. It will also aid the formulation of a standardised architecture on borrower data which financial institutions can use conscientiously for mutual benefit. A time-bound action plan for debt resolution via NARCL will help banks manage their stressed assets well, facilitating better business and credit growth.

Sonali Jindal, Co-founder & COO, RING 

The upcoming Budget should look into policies directed toward MSMEs. One potential pathway may be via creating a separate fund pool for MSMEs with higher women representation to encourage further participation across sectors from aspiring women leaders.

Also read: Budget 2023: What fintech companies are expecting from Finance Minister Nirmala Sitharaman

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