Indian MSMEs aren't new to adversities. Their zeal to emerge victorious every time a challenge erupts has been tested repeatedly. Amid interest rate hikes, China's economic slowdown, the covid-led global supply chain crisis, and the ongoing Russia-Ukraine conflict, an opportunity has arisen for India's MSMEs to carve their name on the global trade map.
India's economy currently stands at nearly $3.5 trillion, making it the world's fifth largest. The Centre for Economics and Business Research estimates India's annual GDP growth will average 6.4% for the next five years, then rise 6.5% in the following nine years.
The world is now looking at India as a hot investment destination, especially in manufacturing and production–the twin pillars for trade and trade-related growth. Moreover, The International Monetary Fund's Deputy Managing Director Gita Gopinath, at the World Economic Forum, said that countries looking to diversify their supply chains are considering India. The nation is on everyone's mind as an alternative to China for nearshoring/friendshoring, with MSMEs- the real custodians of India's economic growth, being an integral component.
To help India leverage this opportunity and potentially catalyze MSMEs' contribution to global trade, the government should consider a three-pronged approach in its annual Budget 2023-24.
1. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE):
Basic amendments to the CGTMSE scheme that aims at providing institutional credit via unsecured loans are one of the most prominent steps to fuel MSMEs' growth. However, the scheme's lending framework has become more generalized in the quest to widen the scope to include all sections of society. In the Budget 2023-24, the government must bring the requisite focus back on catering to the needs of smaller MSMEs and provide them timely access to credit.
Additionally, the interest rate range between 14% to 18%, though quite competitive for unsecured loans, must be reduced to benefit more MSMEs. This is achievable given the policy helps provision credit from conventional lenders to new-generation entrepreneurs. The step is crucial in alleviating the overall working capital fulfillment for MSMEs to scale their efforts quickly.
2. Emergency Credit Line Guarantee Scheme (ECLGS):
The ECLGS picked up steam during covid-19 and has great potential to continue to deliver returns for MSMEs. Through the Budget, the government must create broader awareness about the scheme, including an up-to-date revision of what it entails and how MSMEs can benefit from it. Furthermore, making the scheme accessible, given the lucrative 9.25% interest rate offer for banks and 14% for NBFCs, and clear communication to MSMEs on how to get the credit line is a pending step that the Budget 2023-24 must address.
3. Product-Linked Incentives (PLI) Schemes:
The government's objective to boost domestic manufacturing, investments, and exports via industry-specific PLI schemes is an area that needs attention in Budget 2023-24. Moreover, the allocation of INR 1,000Cr for MSMEs must be revisited, which could pave the way for MSMEs to compete globally as India's manufacturing capabilities continue to improve.
4. Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme:
While RoDTEP scheme was implemented in January 2021, it underwent multiple additions. However, even today, there is a substantial need to revise the scheme, and rates need to be amended to boost exports further, combat the recessionary world's changing requirements and protect exporters' interests. The RoDTEP scheme, which enables rebates of the embedded central, state, and local taxes to the exporters, has been a long-standing industry demand and is well-received. The confidence needs to be built further.
1. Convenient testing and certifications for MSMEs:
Quality checks and improvisation standards need to be structured by utilizing testing and certifications issued by the government. This will instil trust in the global clientele and bring Indian MSMEs on par with global peers.
The need of the hour is to make processes cheaper, more convenient, and more efficient for exporters. This would reduce the rejection rate of MSME exports, accelerate global trade and improve the brand image of Indian products in the international market.
2. Improving the GST system to boost compliance:
GST has often been amended to benefit MSMEs, but its processes are usually unnecessarily complex. Improvements in filing GST, simplifying processes to claim refunds, and user-friendly procedures for the not-so-digitally-savvy MSMEs will aid in optimizing effort and time.
Reducing taxes for MSMEs is the one demand that has been persistently voiced. The time is right for the government to address this concern and help MSMEs leapfrog their counterparts. In India, the tax rate for large corporations is 25%, 33% for proprietorship firms, and 42% for partnership firms. Establishing a level-playing field for MSMEs by offering them a lower corporate income tax rate of 25% would allow them to produce competitive products for global markets.
Similarly, some other pain points of MSMEs are reducing GST across sectors and decreasing the interest rates for late payments of GST from 18% to 12%. Addressing these issues would further boost the economy and help MSMEs increase their contribution to exports.
2023 is indeed the much-awaited opportunity for India's MSMEs to rethink and reimagine growth prospects that would further widen their scope globally. For MSMEs, Budget 2023-24 will hold the key to how they can achieve this goal.
The article was first published on economictimes.indiatimes.com