Budget 2023 wishlist of MSME sector: Finance minister Nirmala Sitharaman will present her fifth Union budget with crucial elections to several state assemblies just round the corner. This may also be the last full budget before the general elections scheduled for next year. The last one year went by without lockdowns and other disruptions. Several sectors of the economy and the people at large have great expectations from budget 2023. Sticky inflation, supply disruptions and a looming global recession make the finance minister’s task an unenviable one.
Sitharaman’s statements in the run up to budget 2023 make interesting reading. “Never be afraid of closing an enterprise or accepting failure,” she told in an interaction with a group of youngsters. “If you can’t run it, so be it. Close it and restart your life,” she added.
At another function, she identified herself with the middle-income groups, saying, “I know they are bearing most of the pain and there is a lot more to be done.” Hope she will take the side of self-employed entrepreneurs and empathise with them. The word MSME has become the favourite one for politicians and bureaucrats who run the country.
According to the MSME ministry there are 62 million MSMEs in the country, contributing 30% of GDP and employing 110 million people. Where did the numbers come from? The data referred by the ministry is from the year 2017, but MSMEs were reclassified three years later. According to the new definition, an enterprise with a monthly turnover of Rs 2 lakh is called an MSME, as is an enterprise with a turnover of Rs 20 crore a month.
The new definition has opened the gates and most enterprises can now be called an MSME. The fact remains that we lack relevant data. The Udyam Portal, launched by the MSME ministry, about two years back is yet to get 15 million MSME registrations, despite the 62 million claim.
The situation is alarming for the Informal sector employers and employees. Hope the budget will cater to the needs of the micro enterprises. When I say micro enterprises, I am talking about self-employed business owners, those employed on assignment basis and by GIG entrepreneurs. I am talking about enterprises that are not covered by any social security scheme.
I am talking about traders who are facing an onslaught of online platforms and app-based businesses. The loss of employment is both in the informal sector and the formal sector. We estimate the informal sector employment to be around 350 million. At lease 100-110 million people have lost their jobs in the last two years, which means close to 30-35% people lost their livelihoods in the MSME sector.
An agenda for MSME sector
We have a large number of demands and suggestions for the finance minister and the bureaucrats who prepare the Union budget 2023. Here are 10 of them which we consider the most important. These concern the 3Ms — money, manpower, and material.
Policy intervention: With more than 99% of the MSMEs in the country being micro enterprises with turnover less than Rs 5 crore, a separate ministry for micro enterprises must be created to address their specific problems. They need a different policy, different hand holding, different support and different growth strategy. They are like cyclists driving in a lane full of cars and heavy vehicles. They are getting sandwiched, and are getting lost. It is time to open the equivalent of a cycle lane for their use.
Respect entrepreneurs: A scheme to improve ease of closing must be announced for MSME entrepreneurs who want to wind up their business due to adverse economic situations. It should offer a one-time settlement and launch a Lok Adalat with quick dispute resolution so that they can start new business activities.
Revival support: Waiver from payment of long-term capital gains tax for MSME entrepreneurs for a year. When we talk of ease of closing business, several entrepreneurs are disposing off their assets –houses, factories, and trying to close their loans. Please save them from capital gains tax at least for the next 2 years. Any industrial asset which is being sold for winding up the business should be exempted from capital gains.
Ease of doing business: To increase the exemption threshold limit for GST from Rs 40 lakh to Rs 2 crore for one year for both manufacturing and service units. This will enable them to be competitive in the market and provide the entrepreneurs with enough time to focus on business revival, rather than spending unproductive time to fill up statutory forms.
Raw material prices: The government must open fair price shops at industrial estates to supply raw materials including cotton at a fixed price for one year through NSIC at easy credit terms.
Employment generation: Offer a stipend of Rs 6000 per month for six months for fresh graduates to undergo internship at MSME units to skill them.
Financing MSMEs: Lending to micro and small enterprises and start-up units by banks must be made under easy norms including online submission with a clear cut-off date to accept or deny. The 99-minute loan processing must be done by all banks. They should not insist on CIBIL SCORE or past performance or collateral security. An interest subvention at 5% from the existing rate may be offered to micro enterprises setting up a manufacturing base. They should be given priority in procurement process, and a separate bank for financing under Rs 2 crore requirements should be set up.
Social security for informal employees: Enterprises which are not covered under the eligibility norms of PF and ESI shall be offered a voluntary inclusion at a combined concessional coverage @5% of the salary paid to bring them under formal sector for three years. This will enable them to access medical and financial security without affecting their existing income.
Tax relief: All micro and small enterprises must be exempted from TDS deduction and also from ‘pay and get reimbursed’ procedure, like in the case of GST for exporters.
Investment boost: Those investing in start-ups and small-scale enterprises in Series A round must be given 30% income tax rebate on the amount invested. This will encourage the flow of funds into start-ups and small-scale industries.
These simple recommendations will work wonders when implemented along with waterproof solutions for TReDS scheme for timely repayment of MSME loans.
(KE Raghunathan is founder chairman, Association of Indian Entrepreneurs.)