Budget 2022: What FM Nirmala Sitharaman should do to accelerate MSMEs’ post-Covid recovery

Ease of Doing Business for MSMEs: Small businesses reeling under the Covid stress are in dire need of hassle-free and instant credit, shorter working capital cycles, and more relaxed regulatory compliances to focus completely on pulling themselves out of the recovery phase. For MSMEs to have better liquidity, experts have opined focus on non-banking financial companies (NBFCs), tax reforms, reduced raw material prices, export incentives and more in this year’s budget by Finance Minister Nirmala Sitharaman.

“Credit is the lifeblood of small business and there should be concrete measures to increase the fund flow to MSMEs at affordable cost. Strengthening the banking sector and NBFCs is required to ensure last-mile reach. Measures need to be taken to control the prices of raw materials used by MSMEs. Support needs to be extended to push MSMEs involved in exports in terms of incentives, credit and ease of doing business,” said Sandip Chhettri, CEO, Tradeindia.

Vineet Rao who is the founder of social commerce platform Dealshare echoed that government should help the MSME sector by funding NBFCs to promote financial inclusion and maintain liquidity with a distinctive focus on the MSMEs under priority section lending. “This will help them recover and accelerate the overall economic growth. Single point tax compliance is another reform that needs to be implemented,” Rao said. Industry bodies such as FICCI and FIDC have already urged the government for flexibility in loans to small businesses.

For NBFCs lending to MSMEs, FICCI had suggested a separate direct line of credit at a prefixed rate having regards to tenor and rating of the borrower to help them raise funds to refinance the maturing debt and manage asset liability management. This was intended to eventually help NBFCs lend more to MSMEs.

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On the other hand, since most NBFCs, apart from very highly rated ones, depend on banks for their funding, it leads to inadequate and erratic flow of funds to NBFCs and increased concentration risk at a systemic level, FIDC had said in its budget recommendations. To address this, the federation had urged the government for a refinance mechanism for regularity in sources of funds to NBFCs. 

“The expectation will be to further provide support to MSMEs through policies that drive the reduction in interest rates on loans and enhance loan procurement process to help them walk on the road to recovery. Also, revisiting duties and taxes in sectors that can compete at international markets will lead to faster growth of MSMEs. Furthermore, to accelerate Atmanirbhar Bharat and Make-in-India initiatives, the government may reduce the GST on capital goods to encourage small enterprises and businesses to invest more and produce more,” said Winny Patro, CEO & Co-founder at credit management platform Recordent. 

Currently, GST is mandatory for companies supplying services with a turnover of more than Rs 20 lakh and Rs 40 lakh for those supplying goods. Companies have to pay the same rate of GST (5 per cent to 28 per cent) for respective goods and services irrespective of their size of business. The industry has sought the government’s focus on reduction in GST for sectors that are most impacted due to Covid such as restaurants, hotels, aviation, salons, apparel, and others.