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Budget 2023: Govt must navigate deftly to help MSMEs improve their scale, profitability, longevity

By Samir Sathe

Ease of doing business for MSMEs | Budget 2023: Impending global slowdown and mild recession, de-escalation of Russia-Ukraine crisis, stabilisation of commodity and currency cycles, inward-looking policy framework of the governments, India’s current and potential participation in global decision-making platforms such as G7/20, Asia’s significance in global geo-eco-political interactions, India’s competitive position against China, rise in terrorism and national security threat after a relatively quiet period of 2020-2022, rising social and political domestic affairs related implosion forecasts, climate vagaries and the ever-increasing skewness in the economic, social, psychological and physical health of the country. Seems daunting, huh?

The true potential of MSMEs remains on paper and has not been realised yet. Several attempts in the last decade have been around addressing the basic efficiencies and solving manufacturing, infrastructure, and financing bottlenecks. The current wave of policymakers with the National Entrepreneurship Mission attempting to make startups and MSMEs realise their true potential is the right direction for the nation. Here’s what could and should MSMEs expect from union budget in 2023?

Accelerate: The government needs to accelerate the scope, expanse, and pace of execution of key policies launched previously. Raising and Accelerating MSME Performance (RAMP), Gati Shakti (GS), Production Linked Incentives (PLI), Open Network for Digital Commerce (ONDC), Account Aggregator (AA), and National Logistics Policy (NLP) and National Entrepreneurship Mission (NEM) and Payment Infrastructure Development Fund (PIDF) all of which are expected to correct the manufacturing bottlenecks, physical and digital infrastructure, global market shares, and employment. The expedition of these schemes will also result in being more prepared to take on the commodity price and forex currency spikes and therefore help manage raw material price inflations and resultant profit pools that enterprises make. All the Udhyam registered MSMEs (expected to be around 50 million by the end of 2023) should be digitally linked to ONDC and other digital platforms for market access and ease of doing business.

Extend: MSMEs would benefit from the extensions of the schemes (ECLGS), Credit Guarantee Scheme for Subordinate Debt (CGSSD), given the weak demand scenario and mild recession globally, to make sure India remains globally competitive and financially sound to reach the pre-Covid or better levels of Earnings Before Tax (EBT) margins, as they will help the enterprises in managing interest and debt burdens, lowering the cost of long and short term capital.

Innovate: There are several ideas that merit attention and conceptualisation. I am not sure if the 2023 budget can fully address them. Nevertheless, here is what I think could be kicked off and implemented.

  • Services Linked Incentives (SLI): Introduce equivalent of PLI, for services sectors, particularly in education (K-12, undergrad, higher education), skilling (domain, cognitive, social, public and private healthcare, e-commerce, information technology, data and AI segments.
  • Introduce cluster and district financing loans (CDFLs) that will assess the portfolio potential and risks, not an individual unit or MSMEs. This will help improve district competitiveness and the health of millions of micro and small enterprises across the country.
  • Treat small businesses less than Rs 5 crore (turnover) as non-profits to enable them to grow fast and raise monies through grants and impact capital.

In the last budget before the 2024 elections of the ruling Government, certain segments of our society, such as agriculture, micro and village level entrepreneurs, prioritised, marginalised, disadvantaged sections based on sex, region, caste and community, occupation, will have a hope of higher allocation of larger resources, to significantly enhance the economic benefits such as market, pricing, inputs and mechanisation and social benefits to improve country’s performance on SDGs. We hope this will improve psychological health, provide continuity to political governance, and build a strong foundation for sustainable progress between 2024 and 2030.

Finally, the role of the budget exercise is set to change from 2023. The MSMEs expect the budget to be a continuation of the favourable policy frameworks done across the year, and it is no longer a once-in-a-year statement of changes. This assumes more importance as the 2024 elections will ask for the 2023 performance of the government, the second year of stabilisation post the Covid crisis. In several ways, MSMEs will look for kick-offs of several schemes which are innovative and refreshing than merely accelerating and extending the previously announced budgetary changes, run across 2023-24.

It’s ‘show, tell and do’!

Source: Financial Express

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