Union Budget 2021

Highlights of Union Budget 2021 for MSMEs

Union Finance Minister Nirmala Sitharaman today presented the central government's Budget for the upcoming financial year 2021-22 in the Parliament. The MSME sector got a fair share of the estimated public expenditure for the next fiscal year set to begin from April 1 this year. In the budget unveiled today in Lok Sabha, Sitharaman has allocated a fund of over Rs 15,000 Crore to the Micro, Small and Medium Enterprises, which stands at double the amount apportioned to the sector last fiscal. "We have taken a number of steps to support the MSME sector in this budget. I have provided Rs 15,700 crore more than double the previous year," said the Finance Minister. The highlight for the MSME sector is the increase in the proposed capital expenditure of this year. The finance minister has earmarked ₹15,700 crore for the MSME sector, which is double the capital expenditure prosed in the budget of 2020-2021

With the country that is still trying to emerge from the health and economic impact of the coronavirus pandemic, the MSME sector, which forms the backbone of the economy, faced challenges during the period of the pandemic in terms of growth and survival. Pandemic has further aggravated these challenges and made it difficult for many small and medium enterprises to survive in the industry and maintain their generated revenue. The entire sector expected a lot from the government in the Union Budget to bring their business back on track and gain back the momentum that they lost during the lockdown.

Sitharaman began the Budget 2021 presentation noting the severe consequences and impact of the coronavirus pandemic on the economy and the lives of the people. The finance minister mentioned the mid-year launched Aatmanirbhar Bharat mission that aims to make India self-reliant.

Today, India’s manufacturing industry has tremendous potential to place the country on the global manufacturing map, simultaneously boosting several employment opportunities to India’s youth. Our manufacturing companies need to become an integral part of global supply chains. With a budget of Rs 15,700 crore, which is more than two times that of the previous year, this will help strengthen the MSME sector in terms of productivity development, technology adoption, strengthening of infrastructure and more. The budget has a positive, expansionary approach towards the manufacturing sector, which is reflected through the incentives and strengthening of the PLI schemes provided by the government.

The budget has also slashed the custom duty rates on various commodities to support the MSMEs affected by the COVID-19 induced economic slowdown. Customs duty on semis, flat, and long products of non-alloy, alloy, and stainless steels has been reduced to 7.5 per cent uniformly as per the Union Budget for 2021-22. 

To provide relief to metal recyclers, mostly MSMEs, I am exempting duty on steel scrap for a period up to March 31, 2022. Further, I am also revoking ADD and CVD on certain steel products. The sanitaryware industry has seen a hike in the products comprising of metal constituents, but now, MSME manufacturers are likely to see stability in the pricing of the products.

The custom duties on steel screws and plastic builder wares has been increased from 10 per cent to 15 per cent while on prawn feed it has increased to 15 per cent from the existing 5 per cent. Meanwhile the duty on cooper scrap has been halved from 5 per cent to 2.5 per cent.

The 2021 Union Budget took a calibrated approach in shaping the government’s fiscal policy and responding to opportunities and challenges on our way towards being self-reliant over the long term. The outlay for the National Infrastructure Pipeline (NIP) will increase the scale and strength of India’s supply chain infrastructure. The special framework for easy exit and duty alterations will augment the ease of doing business for MSMEs, enabling small businesses of today to become global manufacturers of tomorrow.

For MSMEs dealing in the textile industry, nylon chain has been made in par to polyester and other artificial fabrics as part of easing duty on raw materials and inputs. For the textile industry and MSMEs in the textile industry nylon chain has been made in par to polyester and other artificial fabrics.

In order to provide budgetary incentives to the promoters and exporters of garments, leather and handicraft products that are in the MSME sector, Nirmala Sitharaman announced the withdrawal of exemptions on imports of some types of leathers as they are manufactured domestically in quality and quantity.

Apart from the above measures, the finance minister has announced the establishment of a special framework for MSMEs for debt resolution. To resolve cases faster, the NCLT framework will also be strengthened including the implementation of the e-Courts system from the businesses in the sector. An additional year of tax holiday has also been provided to the affordable housing business.

When it comes to creation a digital ecosystem for MSME sector, this budget focused on laying a special framework of Data Analytics, Machine Learning (ML), and Artificial Intelligence (AI) to assist the entire MSME ecosystem and develop them digitally. Still, there are some areas such as Tax regime, Digitalisation, cash flow, easing financing norms for MSMEs, where the stakeholders are hopeful for more positive outcomes from the government.

Small retailers and kiranas were instrumental in growing the share of digital payments in India and in providing easy payment solutions to their customers since the onset of COVID-19. The Budget provision of Rs 1,500 crore to incentivise digital modes of payments comes as a recognition of these efforts and will go a long way in encouraging MSMEs to switch to accepting digital payments. The announcement has met the industry’s expectation of providing financial incentives for MSMEs to adopt digital solutions.

As we all know, MSMEs are pinning high hopes from this year's budget, which is coming at a time when India is fighting hard against Covid-19. The sector, which was battered by Covid-induced lockdowns, was offered a lifeline in terms of an emergency credit line guarantee scheme (ECLGS) by the Centre. Under the scheme, Finance Minister Niramala Sitharaman had announced Rs 50,000 crore equity infusion, and the provision of Rs 20,000 crore as debt, and change in definition of MSMEs to provide benefit to a large number of enterprises.

As part of the Centre's ECLGS programme under the Atma Nirbhar Bharat Abhiyan package, which is valid until March 21, 2021, the Centre has already sanctioned 71.3 per cent of the Rs 3 lakh crore emergency credit to the badly affected MSMEs and businesses as of January 8, 2021. The scheme was launched in May 2020 after over a month of total lockdown across the country. After reviewing the situation in November, the scheme was extended till March 31, 2021.

The scheme offered MSMEs and small businesses loans up to 20 per cent of their entire credit outstanding as on February 29. Initially, the Centre put a cap that only companies with Rs 100 crore turnover and Rs 25 crore outstanding will be eligible but the turnover cap was removed in November 2020.

To further facilitate credit flow under the scheme of Stand Up India for the Scheduled Caste and Scheduled Tribes and also women, I propose to reduce the margin money requirement from 25 per cent 15 per cent only and to also include loans for activities in allied activities in agriculture," the Finance Minister added. The Union Budget 2021-22 proposals rest on six pillars: Health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India reinvigorating human capital, innovation and R&D, minimum government and maximum governance

Also, the crucial challenge before the Modi government in this year's budget is to encourage lending and allaying the fears of lenders concerned over rising NPAs. They say one way to do it is by formulating the existing credit guarantee scheme in line with the ECLGS. The credit guarantee scheme, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), provides collateral-free loans to MSMEs.

Other demands of the MSME sector are temporary suspension of Basel norms to allow more lending to the sector; reduction on GST in professional services from the current 18 per cent to 5 per cent; enhancement of collateral free loan limit to Rs 35 crore from the current Rs 15 crore for small businesses.

As we all know, the MSME sector, which was battered by COVID-induced lockdowns, needed a lifeline. By increasing their threshold for capitalisation, such companies will get certain relief and exemptions provided by the government. The government will also be able to route emergency credit to this sector. The finance minister also mentioned about minimum wages being applied to all categories of workers. However, many MSMEs might not be able to make the pay-hike mandate work without laying off employees or not hiring them in the first place.

Meanwhile, amid the ongoing farm crisis with protests against the farm laws continuing for months, FM Sitharaman said in her Budget 2021 speech that the government is increasing the agriculture credit target to ₹16.5 lakh crore. “Our government is committed to the welfare of farmers. The MSP regime has undergone a change to assure price that is at least 1.5 times the cost of production across all commodities," said Sitharaman, in assurance to the farm sector.

This Budget will have an effect on MSMEs in Agri sector, as Sitharaman further added in her Budget speech, “Procurement has also continued to increase at a steady pace. This has resulted in an increase in payment to farmers substantially. In the case of wheat, the total payment made to farmers in 2013-14 was ₹ ₹33,874 crore. In 2019-20 it was ₹62,802 crore and in 2020-21, it was ₹75,060 crore."

“Cotton farmers saw stupendous increase in the amount that was paid to them in 2013-14, that was ₹90 crore and it was increased to over ₹25,000 crore in 2020-21," said Sitharaman. Nirmala Sitharaman said a total of 43.36 lakh farmers have benefited from these payments. In Budget 2021, Sitharaman also proposed to increase the agriculture credit target to ₹16.5 lakh crore.

Also, the setting up of textile parks is a positive step towards creating jobs and giving local manufacturers a boost. It will also increase exports. It is a comprehensive way of boosting the income of our skilled weavers and manufacturers in the MSME sector. The Budget also gives a helping hand to small producers through boosting cotton and silk raw material producers as well as fabric manufacturers.

In the Budget 2020-21, the minister had allocated Rs 7,572.20 crore for the Ministry of Micro, Small and Medium Enterprises in 2020-21. Meanwhile, the revised estimate works out to be Rs 5,664.22 crore for the financial year ending March 31. An analysis of the Budget documents revealed that the allocation for Prime Minister's Employment Generation Programme (PMEGP) and other credit support schemes has been hiked significantly from Rs 2,800 crore in 2020-21 (BE) to Rs 12,499.70 crore in the following financial year.

Along with disinvestment, Atmanirbhar Bharat initiatives, and production-linked incentive’s (PLI) with a special focus on 13 sectors, India can generate sufficient and sustainable employment. This would lead to stable incomes and higher purchasing power, which would, in turn, generate demand for FMCG and food products and services.

To conclude, this Budget is an unwavering show of support for MSMEs and will not only encourage investment and support the Atmanirbhar Abhiyan, but also develop the quality of life for citizens of the country.


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