In her 2023 budget speech, Finance Minister Nirmala Sitharaman called MSMEs the "growth engines of the economy", and seeing how far the sector has spread, generating crores of employment opportunities in the country, it isn’t hard to see why. The MSME sector accounts for about 33% of India’s GDP.

The COVID-19 pandemic hit the MSME segment pretty hard, leading to significant turbulence. In the last two budgets, several provisions were announced by the government to aid recovering MSMEs, from the easy availability of MSME loans in India to ensuring a competitive interest rate for MSME business loans. This theme has been carried forth into this year’s budget as well. Apart from introducing new provisions, the 2023 budget also built upon some of the measures that had previously been announced to boost the recovery, stability, and growth of the MSME sector.

Budget 2023: Reforms, Measures, and Provisions for the MSME Sector

Even as the economy is slowly returning to its normal course, several MSMEs have reported a recovery of up to 90% of their pre-COVID sales. However, there is still scope for improvement and development, especially considering the significance the MSME sector holds for India’s economic growth.

Strengthening the Credit Guarantee Scheme for MSMEs

There has been a significant increase in MSME credit offtake in recent years, with many MSMEs opting to apply for MSME loan schemes. This increase can largely be attributed to the introduction of the MSME ECLGS (Emergency Credit Guarantee Scheme) in 2020. It is estimated that around 1.2 crore businesses are backed by the ECLGS, with MSMEs forming a whopping 95% of this number.

Measures included in the 2023 budget aim to further strengthen this scheme, by funnelling an additional ₹9,000 crore into the ECLGS for MSMEs. This will make it even more convenient for MSMEs to avail business loans from financial institutions. This move translates into another ₹2 lakh crore worth of collateral-free loans being added to the overall budget for small businesses.

A 1% decrease in credit costs is also expected, which will help enhance the credit penetration of financial solutions available to the MSME sector and encourage entrepreneurship.

Provision for Forfeited Performance Due to the Pandemic

The Vivad se Vishwas Scheme is another budget provision aimed at aiding the MSME sector. This scheme offers relief to MSMEs that were unable to complete their contracts due to the economic disruptions caused by the pandemic. Under this scheme, any MSME that failed to fulfill their contracts because of the pandemic will be granted up to 95% of the forfeited bid amount or performance security by the government and its undertakings.

Enabling Presumptive Taxation for Micro Units

Earlier, micro-enterprises with turnovers of less than ₹2 crores were allowed to file their taxes under presumptive taxation. Budget 2023 extended this turnover limit to ₹3 crores, provided the cash receipts of the MSME are not more than 5%. As a result, account maintenance requirements and statutory audits are now discounted for several small businesses under the new budget provisions.

Payment Delay Issues

Currently, outstanding payables towards the MSME sector in India stand at more than ₹10.7 lakh crore, which has adversely impacted the debt repayments and cash flows of MSMEs. To address this issue, the government proposed that deductions for expenses related to payments made to MSMEs can only be claimed once the payment has been made. This measure is designed to help ensure timely payments to MSMEs, which will, in turn, improve the competitiveness and financial health of the sector.

Augmenting the “Ease of Business”

Aiming to support the development of the MSME business environment, the budget included several measures, including:

The reduction and decriminalisation of around 39,000 compliances and 3,400 legal provisions.
Announcing the PAN card as the common identifier that MSMEs can use for all digital transactions with government agencies to enable a simplified KYC procedure with a reduced compliance burden.
The introduction of the ‘National Data Governance Policy’ to improve data access, usage, quality, and management to empower inclusive development while reducing privacy breaches.

DigiLocker Updates

An Entity DigiLocker has been set up to help businesses save their documents safely online and share them with business entities or government agencies as needed.

Skill India

Supporting the Skill India Mission, a unified digital platform has been introduced for the upskilling of India’s youth. This platform will also link youth to employers, including MSMEs. Additionally, the platform will educate the youth about the many government schemes in place to foster entrepreneurial spirit.

PM VIKAS

The PM Vishwakarma Kaushal Samman (PM VIKAS) aims to facilitate financial inclusion for enterprises led by women or socially disadvantaged groups. The scheme focuses on supporting traditional and local craftspeople and artisans, providing them with financial support, skill training, and access to advanced digital techniques and green technologies. It also helps connect them with global and local markets, promotes their brands, and integrates digital payment modes. PM VIKAS seeks to improve the product quality and operational scale of these entrepreneurs, while enabling them to integrate into the MSME sector’s value chain.

A record ₹22,138 crore has been allocated in this year’s budget for small businesses, which is expected to have a positive impact on India’s MSME sector.

New Budget Impact on MSMEs - Capri Loans

New Budget Impact on MSMEs - Capri Loans