Among the highlights of her budget speech was the announcement of the launch of a revamped credit guarantee scheme worth Rs 9,000 crore for MSMEs. Sitharaman said this would enable collateral-free credit of Rs 2 lakh crore loans to the small businesses.
The scheme, which will take effect from April 1, 2023, offers a helping hand to several small firms that were hurt badly when the Covid outbreak started. In her Budget speech, the FM asserted that the move was expected to boost fund flow to the distressed and fund-starved smaller firms.
Industry observers said it would now enable banks to lend “more comfortably” to MSMEs that cannot come up with collateral.Anil Bhardwaj, the Secretary General, the Federation of Indian Micro and Small & Medium Enterprises (FISME), calls this a “growth-oriented and inclusive budget”. There are a couple of important decisions that will provide relief to MSMEs and help them grow. In his view, the infusion of Rs 9,000 crore for a credit guarantee fund means that an additional Rs2 lakh crore of collateral-free funds can now flow to MSMEs, because there will be a guarantee. “So, the cost of funds could be less than 1% of the normal banking rates, which is a good thing. The FM has also announced relief to government suppliers whose projects were stuck during the Covid phase and their bank guarantees were either forfeited or penalties were imposed on them. Now, 95% of that money would be reimbursed to them, which is a huge relief as a large number of people were affected by Covid,” he says.
Another great news for small business owners — whether a trader or a company — is that there is no need for a statutory audit in certain cases. “Earlier, this limit was a turnover of Rs 2 crore. But now, companies with a turnover of up to Rs 3 crore need not go for compliances such as income tax filing,” he adds.
The Economic Survey 2022-23 revealed that the YoY growth in credit since the January-March quarter of 2022 has moved into double digits and was rising across most sectors.
In FY21, the government had announced the Emergency Credit Line Guarantee Scheme. A recent CIBIL report (ECLGS Insights, August 2022) showed that the scheme has supported MSMEs face Covid shocks. The Economic Survey 2022-23 revealed that the YoY growth in credit since the January-March quarter of 2022 has moved into double digits and was rising across most sectors. The credit growth to the MSME sector has been remarkably high, over 30.5% on an average, during Jan-Nov 2022, supported by the extended ECLG scheme.
As Bhardwaj sees it, the government has this time struck a fine balance between spending money on infrastructure — which will create a lot of opportunities for MSMEs — and not going overboard with spending. “The budget deficit would remain within the limits, which is good. So, I think they have tried to make everybody happy, in some sense, without being very populist.”
MSME players have also welcomed the government’s increased push to usher in “true ease of doing business” for MSMEs.
Rajiv Chawla, Chairman of the industry association IamSMEofIndia, calls the budget a “pro-MSME one”. The revamped credit guarantee scheme will have a multiplier effect on MSMEs. “The other measures make it clear that clearing the MSME sector’s pending bills has now become of prime importance. It is a great push by the government that will improve compliance further for MSMEs. The government had also rolled out standardisation of KYCs/common business identifiers via Digilocker. Also, PAN will be used for all digital systems and for all government-related entities to facilitate ease of doing business. These moves will reduce compliance costs,” Chawla adds.
Mahavir Pratap Sharma, Past Chairman of Carpet Export Promotion Council, says the psychological impact of such measures will be a booster for the industry. “Aspects relating to ease of business and capital access have improved. It addresses most of the crucial aspects of the sector. The positive takeaway is that the budget has allocated and addressed the MSME sector this time, instead of only looking at the bigger conglomerates. That is a great decision and will benefit a lot of tech and non-tech MSMEs in the long run,” he adds.
