Indian MSMEs Seek Digital Push For Cross-border Trade, Easy Credit Access
The sector is the second largest employer and contributes to over 30 per cent of the gross domestic product (GDP), making its growth crucial
As Union Finance Minister Nirmala Sitharaman is all set to present the union budget 2024-25, experts from micro, small and medium enterprises are seeking digital push for cross border trade, easier access to credit and raising the 90-day NPA classification guidelines to 180 days.
The interim budget in February 2024 had outlined the vision for Viksit Bharat or a developed India and stakeholders from the sector are expecting the upcoming budget to build upon this and lay down an action plan to achieve the ambitious goal.
The projected growth rate for the MSME sector in the upcoming fiscal year is around 8 to 10 per cent, supported by budgetary measures such as increased funding for infrastructure projects, tax incentives, and simplified goods and services tax (GST) procedures.
However, to meet the country's ambitious 2030 and 2047 export targets, the existing schemes and processes may not be sufficient, they noted. The MSME sector is often prone to cash flow fluctuations owing to delayed payment from customers, seasonal variations and macroeconomic changes.
Here what experts have to say on budget expectations:
Hardika Shah, Founder and CEO, Kinara Capital said, "Revisiting the classification timeline and extending it from the current 90 days to 180 days will be extremely beneficial for the MSMEs. It will provide them with more breathing room. Often, customer payments arrive within this additional time frame, allowing MSMEs to manage their finances and avoid loan defaults. Similarly, revoking the norm for upgrading a loan from NPA to normal will also help MSMEs positively. Currently, partial payments, such as payment of only interest or only one EMI, does not result in the upgradation of the loan account which is automatically tagged as NPA until the entire arrears of interest and principal are paid by the borrower. Allowing loan upgrades upon partial payment would significantly benefit borrowers as it will not require them to dedicate the entire cash flow towards servicing the loan as well as avoid the negative implications of an NPA tag for the financial institution. The revision will help in safeguarding the credit history of the MSMEs, which generally have longer production-to-payment cycles. Maintaining a good credit record will enable them to access formal funding sources and pursue growth opportunities."
Kalyan Basu, MD and CEO of Vayana TradeXchange said, "The Union Budget should consider measures to facilitate the digitization of cross-border trade, including simplifying customs procedures and addressing other hurdles faced by exporters in availing bank finance. This could involve establishing single-window clearance systems to ease logistics operations, promoting interoperability and interlinkages of digital payment infrastructures, and leveraging technologies like blockchain to enhance transparency and efficiency in trade finance. Additionally, the government should explore ways to lower the cost of cross-border remittances by examining the drivers of cost and identifying opportunities created by digitalisation and new technologies. While there have been multiple announcements by the government in the recent past to create new portals to expedite exports, it is hoped that these initiatives will be implemented soon and made available for the benefit of exporters."
Raja Debnath, Managing Director, Veefin Solutions stated, "The government must improve MSMEs' access to finance through higher digital adoption initiatives, and regulatory sandboxes, among others. In addition, I anticipate that the government will give top priority to financial literacy initiatives, specially designed for MSMEs. By evolving in these areas, MSMEs will gain the skills required to become more efficient. We envision a future where banks can leverage fintech collaborations and government initiatives to seamlessly bridge credit gaps in underserved sectors. We are optimistic that the budget will demonstrate a strong dedication to supporting financial inclusion, encouraging innovation, and reducing systemic risks. Together, we can jointly strive for the sustainable expansion of the FinTech industry and ensure that MSMEs continue to maintain their crucial role in the economy's growth."
Sachin Agrawal, Co-founder and CEO at Bizongo mentioned, "We're optimistic that the forthcoming budget will support the expansion of the MSME sector. In order to improve access to technology for suppliers in the steel and aluminium sectors, we expect policies like subsidies for digital tools and platforms to help MSMEs with their digital transformation. Such measures are crucial and will enable MSMEs to streamline their operations, increase productivity, and remain competitive in the global market. Considering the importance that increased credit availability holds, we urge the government to think about raising the 90-day NPA classification guidelines to 180 days in addition to introducing new loan programs designed specifically for MSMEs."
