Budget 2021: Several sops for MSMEs, start-ups; but nothing to solve fund crunch

Atma Nirbhar Bharat Package offers nothing to informal sector workers
Atma Nirbhar Bharat Package provides some basic benefits to informal workforce, but offers no solution for reducing informality in labour market.

By Ratish Pandey

The MSME and start-up community had looked forward to Budget 2021 in keen anticipation. The community expected steps to improve liquidity and address working capital shortages. While start-ups looked forward to a better tax environment and schemes, MSMEs expected simpler GST regulations, compliance norms, and possibly rationalization of the tax regime. They also expected business opportunities and improved outlays for the sector.

In this backdrop, this article will examine how the Budget 2021 measured up and what did it bring to the table for this important sector. The Union Budget 2021, presented by finance minister Nirmala Sitharaman on February 1, was anchored on six pillars.

• Health and well-being;
• Physical and financial capital and infrastructure;
• Inclusive development for an aspirational India;
• Reinvigorating human capital;
• Innovation and research and development (R&D);
• Minimum government, maximum governance and promotion of Aatmanirbhar Bharat.

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Push to MSMEs, start-ups, OPCs

Several measures have been announced for MSMEs and start-ups to accelerate their growth. These included measures for improving the ease of doing business in the country. The following provisions were announced to benefit start-ups in setting up one person companies (OPCs).

• OPCs can grow without any restrictions on paid-up capital and turnover,
• Can be converted into any other type of company at any time.
• Reduced the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days.
• Allowed NRIs to incorporate OPCs in India.

Budget will make life easier for MSMEs, start-ups

An extension of eligibility for claiming tax holidays for start-ups along with the capital gains exemption for investment in start-ups till March 31, 2022 to incentivise funding has been proposed. This would help boost continued flow of investments into the start-up ecosystem.

For the MSME sector, Budget 2021 proposed a revision in the definition of small companies, by increasing thresholds for paid-up capital from Rs 50 lakh to Rs 2 crore and turnover from Rs 2 crore to Rs 20 crore. This significantly reduces compliance norms, especially for small companies.

In the last 3-4 months in a run-up to Budget 2021, manufacturing MSMEs have been facing a significant rise in input costs. The budget has tried to provide some relief by reducing customs duty for some key raw materials like semis, flat, and long products of non-alloy, alloy, and stainless steels. This has come as a big relief.

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Budget 2021 focus on ease of doing business

Budget 2021 has also announced measures to strengthen the National Company Law Tribunal (NCLT) framework to expedite insolvency proceedings. It has also proposed to introduce alternative debt resolution methods, an e-court system, and a special set-up framework for MSMEs.

Budget 2021 is focused mainly on revival strategies for the COVID-hit economy. For the start-ups and MSME sector, a lot of opportunities will open up with the government’s push in healthcare and infrastructure. This should also lead to employment generation in these sectors.

The government had made several announcements before the budget such as the Production Linked Incentive (PLI) scheme, which focuses on MSMEs in electronics, automotive and communication (mobile) manufacturing.

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Budget 2021 did not increase taxes on businesses or start-ups. There is an increased focus on ease of doing business for MSMEs with lower compliance burden. But the budget has nothing for financially challenged MSMEs that need immediate financial relief.

Hopefully, the Aatmanirbhar Bharat scheme will be tweaked with more benefits to MSMEs looking to expand their business. The start-ups and the MSMEs must look to reap the benefits offered in Budget 2021. This is the key to putting the battered economy on track.

(Ratish Pandey is a business coach, mentor and consultant based in New Delhi.)