‘Could’ve Been Better’: MSME Stakeholders On Modi Govt’s Budget 2024

While one section from the sector has applauded the Modi government's union budget 2024-25, however, several micro, small and medium enterprises (MSME) stakeholders feel it doesn't go far enough. With a special focus on MSMEs and labour-intensive manufacturing, the government has unveiled a package addressing financing, regulatory changes and technology support for MSMEs to foster growth and global competitiveness.

Presenting the budget 2024-25, Union Finance Minister Nirmala Sitharaman doubled the Mudra scheme's loan limit to Rs 20 lakh, up from Rs 10 lakh, aiming to boost the startup ecosystem in India. Pradhan Mantri Mudra Yojana (PMMY) was started in 2015 to provide loans up to Rs 10 lakh to small and micro enterprises from commercial banks, small finance banks, and non-banking financial corporations. The government has sanctioned Mudra loans worth Rs 5.4 lakh crore in the last financial year.

“The finance minister has made this budget to enhance employment, increase the skillsets, ease of business for MSMEs and tax measures for the middle class. Though from a capital markets point of view, it would be slightly disappointing as far as taxation is concerned but economic measures announced are the need of the hour for rural employment and to reduce stress in the MSME space,” said Siddarth Bhamre, Head of Research, Asit C Mehta Investment Intermediates.

Experts noted that MSMEs will benefit significantly from the credit guarantee scheme, new assessment models by public sector undertaking (PSU) banks, and increased Mudra loan limits. A crucial initiative is the introduction of a credit guarantee scheme for MSMEs in the manufacturing sector, which will facilitate term loans for machinery and equipment purchases without the need for collateral or third-party guarantees. This scheme, backed by a self-financing guarantee fund will ensure substantial support.

Lalit Arora, Co-founder, UBON said, “We believe there's a missed opportunity in not addressing the urgent need for reducing bureaucratic hurdles and providing more direct financial incentives for sustainable and eco-friendly technologies. Moreover, integrating advanced technology systems for the Insolvency and Bankruptcy Code (IBC) and SIDBI's plan to open 24 new branches for MSME clusters are crucial steps towards enhancing operational efficiency and financial inclusivity.”

India's cash-strapped MSMEs face regulatory and tax burdens, with high compliance costs and bureaucratic hurdles stifling growth. Hence industry experts noted that budget relief is sufficient enough and comprehensive reform and improved access to finance are needed to unlock sector potential.

Mandeep Arora, Co-founder, Vingajoy stated, “There remains an opportunity to address urgent needs such as reducing bureaucratic red tape and enhancing direct financial incentives for sustainable technologies. Integrating advanced technology into the Insolvency and Bankruptcy Code (IBC) and expanding SIDBI's footprint with 24 new branches for MSME clusters are crucial for boosting operational efficiency and financial inclusivity.

Also, the budget falls short of providing sufficient infrastructure and technology support for MSMEs. Although digitalisation is mentioned, but experts believe that a more comprehensive strategy is required to effectively integrate MSMEs into the digital economy. This requires investments in digital infrastructure, training programs and support services to enhance MSMEs' global competitiveness.

Gurjodhpal Singh, Chief Executive Director (CEO) of Tide in India said, “It should have also prioritised promoting digital transformation and initiatives aimed at digitisation. A comprehensive strategy is essential, focusing on promoting financial inclusion through digital literacy initiatives and encouraging digital adoption. On top of that, allocating a larger dedicated fund to support cutting-edge technologies, particularly in AI and other frontier sectors, is vital for driving India's economic growth.”

Pushkar Mukewar, CEO and Co-founder, Drip Capital noted that the new credit guarantee scheme, enabling term loans for MSMEs without collateral, will help them invest in essential machinery and equipment, driving growth and competitiveness. Enhancing the MUDRA loan limit will allow more MSMEs to access crucial funds, fostering innovation and expansion.

While experts noted that the budget emphasised that while the recent budget has made strides in supporting the MSME sector, several key areas require further attention as the lack of reliable data remains a significant barrier to the sector's growth.

Anand Kumar Bajaj, Founder, Managing Director (MD) and CEO, PayNearby, "While this community has received considerable attention, additional support for their digital transformation journey would help MSME retailers realise their full potential. We were anticipating tax benefits on total expenditure for fintechs involved in the financial empowerment mission. This includes a special 5 per cent GST rate for fintechs working on last-mile empowerment, facilitating crucial financial and digital services to citizens.”