Union Budget 2024-25: MSME Sector Gets Financial Support; Experts React
The Finance Minister Nirmala Sitharaman declares that there would be a new mechanism for facilitating the continuation of bank credit to MSMEs
While presenting the union 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.
By facilitating the working capital needs, setting up food irradiation units and quality testing labs, and establishing e-commerce export hubs, the government is laying a robust foundation for MSMEs to thrive, experts noted and added that these measures will empower small and medium enterprises to grow, compete globally, and drive economic growth.
“The introduction of a comprehensive credit guarantee scheme, coupled with significant provisions for long-term interest-free loans to states, underscores a commitment to fostering an aspirational India. This holistic approach will not only enhance the financial stability of MSMEs but also stimulate innovation, create jobs, and boost exports. Encouraging states to provide similar support for infrastructure will further amplify these benefits, ensuring balanced regional development. These initiatives will open new opportunities for MSMEs, propelling Bharat towards a more inclusive and prosperous future,” stated Karthik Srinivasan, Chief Business Officer, HDB Financial Services, an HDFC Bank subsidiary.
Rumki Majumdar, Economist, Deloitte India said, “One of our asks was to support the MSME sector, which is the biggest contributor to employment and manufacturing. Credit guarantee schemes for MSMEs in the manufacturing sector, facilitating term loans for the purchase of machinery, and formulating packages to finance technology support to MSMEs will go a long way to providing access to finance and increasing investments, which have been key challenges in the sector.”
The Union Budget 2024 presents an ambitious framework aimed at revitalizing India's economic landscape, particularly for MSMEs, startups, artificial intelligence, and job creation. With a proposed allocation of Rs 22,000 crore for the MSME sector, experts noted that this has the potential to catalyze significant growth and innovation.
However, Mukul Goyal, Co-founder, Stratefix Consulting said, ‘'While the expansion of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is commendable, it could have been further enhanced by introducing specific incentives for eco-friendly technologies, which are crucial for aligning economic growth with sustainability.''
He added that the budget's focus on ease of doing business is promising, with measures to streamline regulatory processes and extend tax holidays for startups. Yet, the absence of substantial changes in GST rates is a missed opportunity. Simplifying compliance and reducing the GST burden on essential goods for MSMEs would have provided immediate relief and improved cash flow management.''
Jyoti Prakash Gadia, Managing Director at Resurgent India said that the credit lead growth of the MSME sector supported by the new credit guarantee schemes announced will prompt the banks to provide additional credit on favourable terms without collateral and third-party guarantee.
"The more liberalised assessment process of credit requirements of MSMEs is expected to bridge the large credit gap for MSMEs. Simultaneously,the widening of eligible entities for mandatory 'onboarding' on the TREDS mechanism will facilitate additional funding of sales of MSMEs. The lenient approach for handling the stressed special mention accounts (SMA) will provide additional support for the survival of the MSME units. These measures will have far-reaching impact in favour of MSME on long term basis by providing additional funding and relaxed terms and conditions," Gadia added.
Notably, as the economic survey noted MSMEs face significant challenges, including extensive regulation and compliance requirements, with access to affordable and timely funding being a primary concern. The finance minister declared that there would be a new mechanism for facilitating the continuation of bank credit to MSMEs during their stress period. Small Industries Development Bank of India (SIDBI) will open new branches to serve more MSMEs over the next three years, she added. SIDBI aims to open 24 new branches in the current financial year.
Meanwhile, she further stated that ecommerce export hubs are to be set up under PPP mode to enable MSMEs and traditional products to sell their products in international markets. One other financial support was declared for 50 multi-product food irradiation units in MSME sectors. She added that the turnover threshold of buyers for mandatory onboarding on the TReDS platform will be slashed from Rs 500 crore to Rs 250 crore.
