10 takeaways from Budget 2020 for the MSME Sector

The Union Budget 2020 rightly announced a slew of far-reaching reforms to revive the economy while staying fiscally prudent. One of the main areas of focus of finance minister Nirmala Sitharaman’s budget was growth in the MSME sector.

The importance of the MSMEs
The MSME sector is one of the key sectors in the Indian economy in terms of job creation, providing the necessary backbone to the country’s economic structure and helping India stay resilient. Growth in this sector is directly set to affect the Indian economy.

That is why this year’s budget has the highest allocation of funds for the micro, small and medium enterprises at a whopping Rs 7,572.20 crores. In addition to the financial aid, the finance minister announced a number of initiatives and revised schemes to facilitate ease of doing business and promote growth in this sector. 

Schemes like app-based invoice financing, raising the audit threshold, facilitating technological advancement, raising the customs duty and so on, in order to promote the business of the MSME sector is critical for the development of the country’s economy. Development and increased profitability of this sector is essential to support our economy on various stages.

Here are the 10 key takeaways:

1. Raising the Threshold for Audit

Budget 2020 proposed to raise the current threshold of turnover for the small business owners, traders, shopkeepers in order to get their books of accounts audited by an accountant. Earlier, the turnover threshold for an audit was Rs 1 crore, which was raised by five times to Rs 5 crores in this budget. This will reduce compliance burden on small business owners and allow them to operate with more freedom in order to grow their business. The raised limit is only applicable to businesses having cash transactions at less than 5% of their total business transactions. 

2. Scheme for Technology Development

The finance minister allocated Rs 1000 crore for supporting small and medium enterprises from selected sectors to have assisted support for business operations. Sectors like pharmaceuticals, auto components and other related sectors will be getting extensive support for research and development, business strategy planning, technological improvements and others. This will enable the above industries to become competitive in the export market and grow their business outside India.

3. Development of the MSME Clusters

Clusters are an important business initiative that promotes the business and growth of MSMEs in the country. Budget 2020 has increased the fund allocation by 71% from the earlier Rs 228 crores in 2019-20 to Rs 391 crores for the current fiscal year. This will help the MSME sector to improve its production capacity, become more competitive, and technologically-advanced to compete in today’s market. 

4. Creating a Single Platform of Business (GeM)

The Government e-Marketplace or GeM is an initiative by the government to bring the small and medium business owners on a single platform for the ease of business. The finance minister provided an insight into the Unified Procurement System of GeM that helps the small and medium businesses to create new business opportunities. Using a single platform, the MSMEs can obtain goods and services easily and facilitate business operations. There are already 3.24 lakh vendors on the platform, which is expected to reach a turnover of Rs 3 lakh crore. 

5. Boost to Traditional Industries

Traditional industries are an integral part of our country’s economy and so the finance minister has raised the funds allocated for the improvement of this sector. The Scheme for Fund for Regeneration of Tradition Industries has seen an increased allocation of funds from Rs 125 crores in the previous fiscal year to Rs 465 crores for the current financial year. This will help this industry to be more productive and more profitable, which will help generate sustainable income for the artisans. 

6. Subordinate Debts for MSME Business Owners

In order to tackle the working capital issue for MSME businesses, Ms. Nirmala Sitharaman has proposed to introduce a new scheme that will provide the small and medium business owners subordinate debt. This debt would be forwarded by the banks and counted as a quasi-equity to be fully guaranteed under the Credit Guarantee Trust for Medium and Small Business Entrepreneurs. The scheme will be altered accordingly by the government to accommodate the funds that will be forwarded to this sector. 

7. Allocation to the CLCS-TUS Scheme

The finance minister has announced a further allocation of funds to the Credit Linked Capital Subsidy and Technology Upgradation Scheme (CLCS-TUS). A fund of Rs 805 crores has been proposed to be allocated under this scheme for the MSMEs to harness the benefits of new technologies and become more productive and competitive in the current market.

8. Restructuring of the Debt Permitted by RBI 

The government has also proposed to the RBI to extend its window for the restructuring of debt from March 31, 2020 to March 31, 2021 to provide business benefits to the MSME industry. According to Sitharaman, over 5 lakh MSMEs had already reaped the benefits of this scheme last year. Hence extending the window would allow MSMEs to operate with more freedom in the country. 

9. National Logistics Policy

The budget also announced the introduction of a National Logistics Policy that will clearly define the roles of the Union Government, State Government and other key regulators. This also facilitates a single-window e-logistics market that will focus on generating employment and increasing competitiveness in the MSME industry based on skill. 

10. Introduction of an App-Based Invoice Financing

The budget also announced the introduction of an App-based invoice financing system that will solve the cash flow issue in the sector. The app-based invoice financing system will allow the MSMEs to eradicate the issue of delayed payments and mismatch of the cash flows in the sector. 

The finance minister also proposed an amendment of the Factor Regulation Act 2011 to allow NBFCs to provide financial support to the MSMEs through the TReDS system. This will help the small and medium business owners acquire loans from NBFCs easily for their business operations. The financial support to the MSMEs will bring in financial sustainability and promote growth in the sector as a whole. 

Conclusion 

Union budget 2020 has focused  on the growth and development of the MSMEs. The record allocation of budget this year shows the government’s commitment towards enhancing the business capabilities of this sector. The slew of announcements and reforms made in order to enhance imports, technological advancements and business opportunities is sure to help the MSMEs flourish in the current fiscal year.