With the 2020 pandemic having wreaked havoc across several sectors in India, the MSME sector was one of those sectors that were badly hit. With more than 25-30 million jobs lost in the period of March-June 2020 alone as per SKOCH Group survey, many businesses shut shop or are on the brink of shutting. But as the new year begins and market activity picks pace, MSMEs are looking forward to a better year. While the government had helped the sector in 2020 through liquidity infusion and payment of dues, the upcoming budget session of 2021 would bring much hope if the government continued its efforts in the sustained revival of the sector. Thereby the upcoming budget needs to keep the following matters in mind while allocating funds towards the MSME sectors:
Rural & Labour Development
As the previous budget was focused on rural development, people might think that this year’s budget would need to reduce that focus. But instead of reducing the focus, the government should continue this and allocate funds towards rural development. The pandemic has hit the rural sector worst and many workers lost their job and were living under the fear of getting contracted with coronavirus. Thus, the government could partner with MSMEs to create more job opportunities in rural sector while also giving a boost to the labour force skill development through its current programs.
The upcoming budget should keep the Atmanirbhar Bharat sentiments in mind while continuing to expand programs and fund allocations in this direction. This includes further encouragement to local production and supply chains by partnering with local MSME organizations in order to meet demands. Last year, Union Minister Nitin Gadkari mentioned that he would be likely want to recognize and award businesses and organizations that have been making timely on-time payments to MSMEs for their goods and services. Such recognition would be helpful if it is included in the budget in the form of a tax incentive.
Ease in loan application
There are few hurdles in the current process for a loan application for MSMEs that can easily be addressed by the government. There are many documents that are requested while applying for a loan to prove the credibility of the lender. Most MSME loans are provided without collateral, which makes such loans insecure and unstable for banks. While it is advantageous for the lenders as they do not have to suffer any losses, it increases the probability of bad money for the banks. Since the collateral is not required, it leads to verification of the credit score of the applicant by the banks and other lenders. In case an individual doesn’t have a good credit score, they cannot apply for the loans at all. Even if the loan is sanctioned, the entire amount is not always provided and generally, only 50-60 percent is sanctioned.
The current budget’s focus while being on the health sector as well as bolstering recovery in other sectors, should also be on improving infrastructure across India. This will not only initiate liquidity into the market but also bolster jobs and growth opportunities for several MSME organizations. This will be an opportune time for India to be at the forefront of infrastructural opportunities. In the long term, it will also help attract businesses looking at alternative production and supply chain sources other than China to set up shop in India.