Explained: What Budget 2024 Offers To MSMEs, The Backbone Of India's Economy

Finance Minister Nirmala Sitharaman presented the Union Budget in the Lok Sabha on July 23. One of the focus areas of the Budget was the Micro, Small and Medium Enterprises (MSMEs). Recognising their importance, the budget announced several schemes including the credit guarantee scheme to facilitate term loans for purchasing machinery and equipment, without collateral or a third party. Writes Dr. Koteswara Rao VBSS.

Finance Minister Nirmala Sitharaman presented the first budget of Prime Minister Narendra Modi’s third term in the Lok Sabha with the government setting the tone with nine priorities of the Centre. Union Budgets over the next five years focus on productivity and resilience in agriculture, employment and skilling, human resources and social justice, manufacturing and services, urban development, energy security, infrastructure, innovation and R&D, and the next generation of reforms.

According to the Economic Survey tabled in both Houses of Parliament on July 22nd, the contribution of MSMEs to all-India manufacturing output in FY 22 was 35.4 per cent and the share of MSME-made products in exports in FY 24 was 45.7 per cent.

Recognising the importance and to give a boost to MSME in a multidimensional way, this budget has focused more on MSME, which is the backbone of India's economy. Nirmala Sitharaman announced several schemes for MSMEs right from the credit guarantee scheme, to facilitating term loans for purchasing machinery and equipment, without collateral or a third party.

This Credit Guarantee scheme is an encouraging step towards making capital more accessible. Normally MSMEs are denied loans because of their banking history and being not able to show the rosy figures of turnovers. After the pandemic, MSMEs are in the recovery path and slowly building up their books and orders. Most of the entrepreneurs, are self-made and come up with their ability to establish companies and also create jobs from their industries.

If they want to purchase machinery/equipment for the expansion, banks deny them on their track record and anyway they are also required to offer the collateral irrespective of their track record. This Credit Guarantee Scheme without collateral or 3rd party guarantee is a welcoming initiative by the MSME sector.

A separately constituted self-financing guarantee fund will provide, to each applicant, a guarantee cover up to Rs 100 crore, while the loan amount may be larger. The borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance.”

Here there is no government subsidy. This will certainly help medium enterprises to enhance the capability of MSMEs to expand their production capacities to meet the market demands. There should have been enhancement for the working capital limits as well, which is the real growth accelerator rather than only on machinery and equipment.

Though the sector was also looking forward to announcements related to the 'Ease of Doing Business' through the implementation of the National Retail Trade Policy, a reduction or rationalisation of GST rates, the reintroduction of the Technology Upgradation Fund Scheme (TUFS) to encourage innovation and an updated Production-Linked Incentive (PLI) scheme to address existing challenges.

These additional measures would have significantly contributed to the industry's growth and competitiveness. Mudra loan disbursals in the year ended March 2024 stood at ₹5.20 lakh crore, as against ₹4.40 lakh crore in the previous financial year.

Over 65% of Mudra loan beneficiaries to the tune of over 8 million are women, reflecting their increasing participation in entrepreneurship. Credit availability will be backed by a guarantee from a government-promoted fund, and the limit for Mudra loans has been increased from ₹10 lakh to ₹20 lakh for those who have successfully repaid their previous loans.

This facility of enhancing the limit to 20 lakhs can enhance the capacities who are already successful in their entrepreneurial journey. This is the real 'Mahila Sadhikaarata'. These successful case studies are also boosting the confidence of other women entrepreneurs to come forward.

Women-led MSMEs registered on Udyam Registration Portal in the last three years till 2023-24 stands at 2,28,299 units in Andhra Pradesh and 2,32,620 units in Telangana as posted by PIB Delhi.

TREADS (Trade Related Entrepreneurship Development Assistance Scheme) provides for a government grant of up to 30 per cent of the total project cost as appraised by lending institutions. These institutions would finance the other 70 per cent. So there is a big demand for industries to encash the benefits of these schemes. There is a criterion of 500 crore company.

Now under this Budget, lowering the turnover threshold for mandatory onboarding platform from ₹500 crore to ₹250 crore. This change will allow an additional 22 Central Public Sector Enterprises (CPSEs) and 7,000 companies to join the platform, and medium enterprises will also be included as suppliers.

There will be a ripple impact on the economy to strengthen the micro units and also to become the suppliers to small and medium companies of this category.

SIDBI establishing new branches in MSME clusters to enhance its reach and provide direct credit to these businesses within three years. With the opening of 24 branches this year, service coverage will extend to 168 out of 242 major clusters can also enhance the credit availability to the Industries to boost their operations.

Certain products made by MSMEs need testing under internationally accredited laboratories and it will be very costly for any individual to set up.

Under this budget, financial support is also provided to establish 50 irradiation units in the MSME sector to enhance quality and safety testing. Additionally, the setup of 100 NAB-accredited food quality and safety testing labs will be facilitated. Having the facilities nearby, it strengthen their confidence to meet international standards and thereby they can contribute the good quality of food products to exports as well.

During the last year, Foreign Trade Policy 2023 emphasises the significance of eCommerce exports, projecting a potential USD 200 to USD 300 billion worth of trade by 2030. Focusing on this opportunity, the creation of E-commerce export hubs and public-private partnerships to help MSMEs and traditional artisans sell their products in international markets is a boosting factor for small enterprises as well. These hubs will operate under a seamless regulatory and logistical framework, offering trade and export-related services in one location.

FM announced that industrial parks will be developed in or near 100 cities. Investment-ready "plug and play" industrial parks to be developed in or near 100 cities. 12 industrial parks sanctioned under the National Industrial Corridor Development Programme. Critical Mineral Mission to be set up for domestic production, recycling of critical minerals, & overseas acquisition of critical mineral assets.

Though there is no special mention of the locations and what category of the industry comes in each state/cluster, overall this will give a big boost to real estate and good development in and around the industrial area due to upcoming industry. It creates employment and wealth for the people in and around those areas and it results in socio-economic development.

Transition from Education to Employment

Upgradation of 1,000 Industrial Training Institutes to be upgraded in hub & spoke arrangements in five years will bridge the skill gap and prepare youth for future jobs. Focussing on employment and education, particularly the allocation of Rs 1.48 crore and the Rs two lakh crore package for five schemes aimed at creating jobs and providing skilling to 4.1 crore youth. This significant investment will drive economic growth and progress by enhancing job creation, improving higher education access, and expanding skill development programs.

Also made it mandatory for one crore youth to be skilled by India's top companies as interns in five years with a 12-month Prime Minister's Internship with a monthly allowance of ₹5,000/. All these mandatory announcements should have a check on the implementation to get the real results. There should be a mechanism for reporting to the Government and also the evaluation of their activities to get fruitful results.

A similar announcement was also made in the new foreign trade policy as a mandatory for all the above two start exporters to train startup export firms as their interns. These results have seen the light. The emphasis on women-led development and AI-driven upskilling for women highlights a commitment to gender equality and inclusive growth.

Public investment in digital infrastructure and private sector innovation showcases the power of technology in enhancing access to essential services.

By addressing critical areas of employability and inclusivity, these measures will promote a more dynamic and capable workforce for the MSMEs. There was an announcement that the government will provide ₹3,000 per month to companies for their EPFO contributions for every extra person hired for a salary up to ₹1 lakh per month in the next two years. This scheme has the potential to incentivise employment for almost 50 lakh people.

Also, everyone who newly enters the workforce in the formal sector will be eligible to receive a wage for one month up to ₹15,000. This scheme will be implemented in three tranches, benefitting 2.1 crore youth, and will be applicable for those earning salaries up to ₹1 lakh per month. Since this scheme can generate jobs in urban, there is a good potential to create new jobs for the unemployed.

Though universities and colleges and imparting education, the passed-out students do not have the required skills as per the industry needs. So there is a dire need to make them ready for the industry with the help of industry and academia as per their industry skill. Providing 20 lakh youth skill-training over the next five years to prepare them for the industry need-based skills and providing them employment is going to be the welcoming measure.

This is a win-win situation for the industry to get qualified and well-skilled resources. Also, unemployment can be accommodated in the right place. Due to this skill gap, graduates and post-graduates are working in unrelated fields like real estate, insurance, and credit card sellers etc. Garib Kalyan Anna Yojana for five more years extension will also benefit 80 crore people in the country.

Overall this budget is a bonanza for MSMEs and Agriculture and Allied Sectors. Coming to Agriculture and allied sectors, provision of ₹1.52 lakh crore for the agriculture and allied sectors towards the establishment of 10,000 bio-research centres and next two years, one crore farmers will be initiated into natural farming supported by branding and certification.

Vegetable production and supply chain, large clusters to be developed closer to consumption centres. Also, financial support for shrimp breeding centres is to be provided, and export is to be facilitated through NABARD. Kisan Credit Cards to be launched in 5 states.

The plan to release 109 varieties of 32 crops will help Natural Farmers with verification and branding. To ensure self-sufficiency in pulses and oil seeds six crore farmers and their land will be brought into the farmer and land registry.

Major infrastructure and tourism development projects were announced for Bihar, Andhra Pradesh, and Odisha -- the three states where BJP and its allies are in power.

For Telugu States

For Andhra Pradesh a special financial support package of 15,000 crore for development of Andhra Pradesh's new capital city during the financial year 2024-25, while assuring to facilitate special financial support through multilateral development agencies. Grants for backward regions of Rayalaseema, Prakasam and North Coastal Andhra, as stated in the Act, will also be provided.

Promoting industrial development, funds will be provided for essential infrastructure such as water, power, railways and roads in the Kopparthy node on the Vizag-Chennai Industrial Corridor and the Orvakal node on Hyderabad Bengaluru Industrial Corridor. An additional allocation will be provided this year towards capital investment for economic growth. This will certainly boost growth along these corridors and consequently boost real estate growth there.

The Finance Minister also tried to rejuvenate the MSME sector, which does have a multiplier effect on overall economic growth – with the implied positives for real estate as a collateral beneficiary of such growth.

To enhance the competitiveness of India’s exports by MSMEs, custom duties on certain raw materials and inputs were reduced in this budget.

There was almost a 100-fold jump in exports of mobile phones over the last six years. Duty was reduced to 15% from 20% for certain components. Now high-end mobile phones will be available at discounted prices to this extent.

Import duty is fully exempted on 25 critical mineral items such as lithium, copper, cobalt and rare earth elements are critical for sectors like nuclear energy, renewable energy, space, defence, telecommunications, and high-tech electronics. Also expanded the list of exempted capital goods for use in the manufacture of solar cells and panels. This will enhance the profits directly to MSMEs for their growth.

Deduction of basic customs duty on fish feed too has been reduced to 5 per cent from 15 per cent, removal of duty on accessories for the manufacture of textile and leather garments, leather and synthetic footwear or other leather products. A sharp cut in import duties on gold and silver, from 15 per cent to only 6 per cent. This move will end the decade-old approach of discouraging gold buying.

Pharma MSMEs will get the benefit of “Zero Customs” for 3 important cancer-related medicines and it will increase their sales revenue to serve patients.

Opportunities for MSMEs

Next Generation Reforms (9th Priority from the Budget Session) where Capital for Entrepreneurship reforms, Strategy Document for Entrepreneurship gives visibility for future care for the entrepreneurial focus in the country.

Innovation, Research and Operations are going to attract 1000 crore Venture Capital Funds, the Tech and Research-based Start-up Entrepreneurs can have their eye on this development.

Under the 5th priority ie Urban Priorities, Women Aspirants for Self Employment shall look up new ways to start their services which will get connected with women's purchase power priorities. Any investment comes from the government as capex, the aspirants should leverage the same for self-growth by embarking on professional services.

Agriculture was a priority of the Budget 2024, I see the connecting dots offering services to farmers and the ecosystem by facilitating support by rural youth.

Most of the government schemes are not well aware by most of the farmers hence middleman enjoys the maximum. Youth of the respective local and rural towns can take charge of taking government schemes to their farmers will eventually help farmers to get maximum benefit and youth shall get benefit in the process. Agripreneurship through production, market linkage, facilitation, aggregation and servicing the loans, etc., also becomes partly connected to a circular economy.

(Disclaimer: The opinions expressed in this article are those of the writer. The facts and opinions expressed here do not reflect the views of ETV Bharat)