Anticipating Union Budget 2024: MSMEs And Startups Unveil Their Wishlist

Micro, small, and medium enterprises (MSMEs) are widely recognized as the growth engines propelling the Indian ecosystem forward. These enterprises, crucial to India's economic landscape, contribute approximately 30 per cent to the GDP, account for 48 per cent of exports, and provide employment to over 11 crore individuals. As the Union Budget 2024-2025 looms on the horizon, the focus intensifies on the MSME sector, anticipating the fiscal policies that will shape its trajectory.

With the central government gearing up to unveil the interim Budget for the fiscal year 2024-25 on February 1, 2024, the MSME sector takes center stage once again. Despite its significant contributions, the MSME industry grapples with persistent challenges such as delayed payments and limited access to capital. As stakeholders await the budget announcement, the sector's leaders have voiced their expectations, seeking strategic measures to promote growth, resilience, and sustained economic prosperity.

Machinery Tax Reduction And GST Compliance Challenges

Palash Agrawal, the Founder/Director of Vedas Exports, highlights the importance of boosting exhibition incentives for the MSME sector, particularly in the context of the ‘Made in India’ campaigns. Agrawal suggests a substantial increase, potentially doubling the budget for exhibition initiatives to accommodate rising expenses.

“According to existing policies, the allocation for each show ranges from INR 80,000 to INR 1 lakh. Manufacturers hope the budget will see a significant boost to address the escalating costs. Given the three to fourfold increase in exhibition expenditure, our sector is directing attention to budgetary considerations," he said.

Agrawal also emphasizes the need for enhanced tax reduction schemes related to machinery incentives. Additionally, he points out the absence of taxation on labor incentives, creating challenges for companies focused on this aspect.

“The sector is also grappling with a significant issue related to input GST, where some companies issue bills but fail to fulfill the GST obligations. Unfortunately, the lack of stringent laws makes it challenging for companies to claim their rightful entitlements in such cases," Palash added.

Ease Of Doing Business And Responsive Regulatory Framework

Vanesh Naidoo, Founder and Director of SafeCams, anticipates initiatives in the 2024 budget to enhance the ease of doing business, reduce hurdles, and foster a more responsive regulatory framework.

“The budget should also introduce ways to make it easier for new businesses to get credit, including rеducеd interest ratеs, еxtеndеd moratoriums, and innovativе financial instrumеnts,” he said.

Naidoo also calls for allocations to promote technology, innovation, and skill development within MSMEs. “The budget should also allocate funds for promoting technology and innovation within MSMEs, providing incentives for digitalization, research and development, and tеchnology upgradation. Allocations for skill development programs and training initiativеs should be another focus in thе budget can еnhancе thе employability of individuals and bridgе thе еxisting skill gap. This would not only bеnеfit startups but also contribute to overall economic dеvеlopmеnt,” he added.

Lower Interest Rates And Tax Reforms

Umesh Singh, Founder & Director of Tara Candles, echoes the sentiment of MSMEs, emphasizing the need for enhanced access to finance, lower interest rates, and tax reforms.

“Foremost among our expectations is enhanced access to finance, including easier credit availability and lower interest rates to facilitate business expansion. In Tax reforms we are looking for Section 194R introduced last year April 2023 has made an impact on lower sales turnover to the MSME segment catering to the gifting industry leaving them in vulnerable conditions. This section should be reformed to boost the MSME gifting industry,” Umesh said.

Calling for incentives for sustainable operations and export promotion, Umesh said, “Our commitment to environmentally friendly practices also prompts a call for incentives for sustainable operations. As economic conditions evolve, we emphasize the dynamic nature of our expectations, underlining the importance of a budget that addresses the ever-changing needs of the MSME sector.”

Reports suggest that the MSME sector is gradually recovering from the pandemic-induced crisis, with several indicators pointing towards steady growth. In Q1 FY 23-24, there was a notable 33 per cent surge in loan demand, coupled with a decline in delinquencies as Non-Performing Assets (NPAs) improved across MSME lenders and borrowers.

Seeking Extension of MSME Benefits To Retail Traders

The Retailers Association of India (RAI) urges the government to extend benefits available for MSMEs to retail traders. RAI seeks lower interest rates for retailers, a special trader finance scheme, and incentives for using electronic data capturing machines. The association also recommends lower taxes, simplified GST norms, and promotion of digital transactions.

Deloitte India highlights the need for de-risking credit inflows to MSMEs in the manufacturing sector. The firm recommends promoting risk mitigation tools such as credit guarantees and insurance schemes to address the credit gap. It also advocates for greater credit access to enhance capabilities in advanced manufacturing.

Call For GST Flexibility

Harshwardhan Patwardhan, Founder of Chappers, calls for increasing the threshold for ESI PF requirements to 50 employees in order to boost startups and lessen their legal complexities.

“The process of obtaining loans and cash credit facilities from banks remains a difficult task. If the government initiates the provision of cash credit facilities to startups, it will catalyze the startup economy. Instead of allocating funds elsewhere, the government should establish a dedicated fund that provides startups with loans and cash credit facilities," Patwardhan said.

Emphasizing the need to ease the stringent rules of GST, he said, “While everyone aspires to be part of the GST economy, the strict regulations from the GST department limit companies' flexibility. For instance, many companies operate on a credit period of 45-60 days, yet they must pay GST within 20 days. If the company does not receive the money, how will it pay GST on that amount within the stipulated time frame?”

As the expectations for the upcoming budget run high, the MSME sector, along with startups, anticipates strategic measures to promote growth and resilience. The diverse wishlist includes increased budgetary allocations, tax reforms, incentives for exhibitions, and a supportive regulatory framework, all aimed at propelling India's economic backbone towards sustained prosperity.