Host Of New Schemes For MSMEs In NDA's Budget, But Implementation Will Be Key To Success

Sitharaman, presenting her seventh budget—the first of the Narendra Modi 3.0 government— came up with a host of new measures including collateral free term loans for purchase of machinery and equipment, in-house credit assessment for MSMEs by public sector banks along with setting up of a new credit assessment model based on the scoring of their digital footprints, increase of MUDRA loans from Rs 10 lakh to Rs 20 lakh for entrepreneurs who availed and successfully repaid previous debts under the ‘Tarun’ category and allowing these enterprises to unlock their working capital by converting their trade receivables into cash among others.

That apart, SIDBI will open new branches to expand its reach to serve all major MSME clusters within three years, and provide direct credit to them. The new employment linked incentive scheme announced by Sitharaman is also aimed at boosting jobs, especially in the MSME sector, which employs about 1.25 crore people.

“The enhanced focus on MSMEs through credit guarantee facilities and Mudra loans will significantly boost investment and lead to the creation of numerous small and medium enterprises,” Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, a company focused in commercial real estate services and investments said

Ongoing Programmes Have Fallen Short Of Expectation

Several schemes such as PM Vishwakarma Scheme, Prime Minister’s Employment Generation Programme and Emergency Credit Line Guarantee Scheme, among others are already in place. However, another analyst said that the new measures will provide much-needed support to the MSMEs only if the implementation is rolled out in a timely manner.

“We need to wait and watch to understand if the additional measures actually yield results. It is important to analyse how and when the new measures are rolled out,” the analyst told The Secretariat.  

Despite the government and Reserve Bank of India focusing on improving credit flow to the MSME sector at low cost, the sector is yet to shrug off the impact of the Covid-19 pandemic. The geopolitical uncertainties have multiplied their problems.

In the last couple of years, many MSMEs facing acute cash shortages have been forced to wind up. Though bank advances to MSMEs have grown, the overall credit gap has expanded as well to about Rs 30 lakh crore, indicating severe funding strains in the sector.

According to data portal Statista, the contribution of MSME-related exports as a share of total exports from India in the financial year 2023, stood at around 42.6 per cent. The share was around 49 per cent during the financial years 2020 and 2021.

“To enable MSMEs and traditional artisans to sell their products in international markets, E-Commerce Export Hubs will be set up in public-private-partnership (PPP) mode,” Sitharaman said. She added that these hubs, under a seamless regulatory and logistic framework, will facilitate trade and export related services under one roof.

A study by McKinsey Global Institute (MGI) pointed out that in India only 11 per cent of entities categorised as MSMEs in 2000 managed to scale up to the big league, while in Indonesia it was 31, in the UK 18 and in US 17.

The new Budget measures for the MSME sector have brought some cheer to this sector but implementation will be the key to their success. The authorities now need to closely monitor the progress of the execution of each of the measures. Supporting the MSME sector is not only critical for employment generation but also for India's overall economic growth.