Clipped from: https://www.financialexpress.com/industry/sme/msme-fin-budget-2023-charting-the-course-of-growth-for-msmes/2970941/
Credit and Finance for MSMEs: By providing comprehensive support and removing unnecessary barriers, Budget 2023 aims to drive economic growth and enhance financial inclusion.
The launch of DigiLocker, a secure, mobile-friendly free service that enables safe storage and sharing of documents with regulators, banks, and other businesses, and the creation of a National Financial Information Registry will eliminate paper-based processes and quicken access to credit.
By Hardika Shah
Credit and Finance for MSMEs: The Union Budget 2023 has stayed true to the government’s larger focus on inclusive progress, putting out a series of announcements for sectors and segments. It also delivered on several highly anticipated announcements for the micro-small-and-medium enterprises (MSME) sector and the financial services landscape as a whole. It’s a progressive Budget that has also established the government’s clear focus on streamlining processes and enhancing ease of doing business in the country. This focus will benefit both financial service providers and end-users by improving their access to the tools they require for growth. Here are the moves the government has made in the Budget that are poised to positively impact the last-mile customer.
Also Read: Corporates should clear MSME dues within 45 days: FM Sitharaman
Revamping the CGTMSE scheme
The move to infuse Rs 9,000 crores into the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme is a positive development that will enable MSMEs to access credit worth Rs 2 lakh crores. This will strengthen the scheme and foster financial inclusion and job growth in the sector. The one percent decrease in credit cost is a positive for lenders serving the underserved MSME sector. While this is a step in the right direction, there is still a degree of ambiguity about whether the 18 per cent interest cap on the scheme will be removed, as the industry was hoping to see. To increase funding for micro MSMEs and maximize use of funds under the scheme, this cap needs to be lifted. We expect this issue to be addressed when the updated CGTMSE launches on April 1, 2023.
Revisiting existing regulations
The Finance Minister called on financial regulators to carry out a thorough review of existing regulations, taking into account input from the public and regulated entities. This is very beneficial for both entities in the financial services sector and the consumers.
With the growth of digital lending and non-banking financial companies (NBFCs) offering specialized products and services to under-served credit segments, financial inclusion is being widely promoted. It is expected that the assets under management of NBFCs will increase by up to 12 per cent in FY23. Therefore, it is crucial to differentiate regulations between banks and smaller NBFCs and MFIs.
Streamlining financial information access
The government’s move to recognize PAN as a unified business identifier for digital systems is praiseworthy as it will simplify financial information management by centralizing it under one entity. This will significantly reduce the compliance burden for small businesses that struggle with tracking multiple records and numbers. The launch of DigiLocker, a secure, mobile-friendly free service that enables safe storage and sharing of documents with regulators, banks, and other businesses, and the creation of a National Financial Information Registry will eliminate paper-based processes and quicken access to credit.
Addressing delayed payments
The government has made a positive announcement that tax deductions will be based on payments made to MSMEs, instead of the conventional calculation method on an accrual basis. This change is expected to strengthen the MSME supply chain by incentivizing timely payments to these businesses. The outstanding amount of delayed payments owed to MSMEs is estimated to be a massive Rs 10 lakh crores, and this new policy is poised to significantly reduce this number, improving the overall stability and competitiveness of MSMEs in the economy. By guaranteeing that MSMEs receive payments in a timely manner, this policy will stabilize their cash flow and enable them to invest more in their businesses.
Also Read: Banks’ GNPAs in MSME loans decline to Rs 1.54 lakh crore: MSME ministry
In addition to these major developments, the government has also enhanced the presumptive taxation benefit threshold to micro enterprises with a turnover of up to Rs 3 crores. The Finance Minister also announced that the government would return 95 per cent of the amount forfeited in relation to bid or performance security by MSMEs upon failing to execute contracts due to the impact of the pandemic. By providing comprehensive support and removing unnecessary barriers, Budget 2023 aims to drive economic growth and enhance financial inclusion. We hope to see the effective implementation of these plans accelerate India’s progress towards becoming a $5 trillion economy in the near future.
Hardika Shah is the Founder and CEO of Kinara Capital. Views expressed are the author’s own.