The Finance Ministry introduced the Emergency Credit Line Guarantee Scheme (ECLGS) as part of the Atma Nirbhar package on November 12, 2020, in response to the COVID-19 pandemic, in order to boost growth in India’s MSME sector.
The government recommended a debt provision of Rs. 20,000 crore and an equity infusion of Rs. 50,000 crore under this scheme. Furthermore, Finance Minister Nirmala Sitharaman changed the definition of a small-scale enterprise to assist a bigger number of businesses.
Indian SMEs hoped that the Union Budget 2021 will include further measures to help the sector recover, particularly in light of the financial problems that afflict the bulk of the sector’s constituents.
Let’s take a look at some of India’s MSME sector’s primary expectations from this year’s union budget.
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Union Budget 2021: Critical Expectations
Small and medium-sized businesses have a number of significant expectations from this year’s Union Budget:
Extension of the Guaranteed Emergency Credit Line Program
The government has previously extended ECLGS twice before the presentation of this year’s budget, allowing firms to meet their short-term obligations and weather the storm.
This scheme is open to MSMEs until March 31, 2021, or until they reach a predefined level, whichever comes first.
Working capital loans with a repayment period of up to 48 months are available under the ECLGS programme. They also have the option of choosing a 12-month main moratorium.
Experts feel that extending the credit guarantee scheme for at least another year is critical in encouraging financial institutions to issue loans despite a sharp increase in non performing assets (NPAs).
As a result, small firms were able to raise financing and satisfy their working capital needs more efficiently.
Budget 2021: Key Announcements Regarding MSMEs
The following announcements were made by India’s Finance Minister regarding the MSME sector:
- Allocation Total
In her third budget statement, Nirmala Sitharaman pledged a Rs. 15,700 crore commitment for micro, small, and medium companies. This substantial sum, which is more than double the previous year’s allotment, will be used to fund critical programmes such as the Emergency Credit Link Guarantee Scheme and the Interest Subvention Scheme.
- Customs Duty Reduction
Customs duty on semis, flats, and long items composed of alloy, non-alloy, or stainless steel will be imposed at a standard rate of 7.5 percent, as announced in Budget 2021.
This move is especially beneficial to MSMEs that have been adversely affected by the surge in iron and steel costs. In addition, until the end of FY 21-22, the Finance Minister recommended a customs duty exemption on steel scrap.
She also announced a 5% rise in import tariff on plastic building materials and steel screws to help small and medium-sized businesses.
- Import Exemptions Are Being Withdrawn
To protect local producers’ interests and boost sales of domestically made items, the Finance Minister announced the removal of import tariff exemptions on particular types of leather.
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- Mega Textile Parks are being established
India has one of the world’s major textile industries. It is important for the general development of the economy, in addition to offering employment possibilities.
However, in recent years, this industry has faced stiff competition from Vietnam and Bangladesh, which have successfully captured the export market.
Aside from the Product-Linked Incentive (PLI) programme, the Finance Minister recommended launching a new scheme to build seven mega textile parks in three years.
These textile parks would be equipped with cutting-edge technology to enable a short turnaround time and avoid logistical losses.
This change will almost certainly increase employment and make India’s textile industry more globally competitive.
Aside from these initiatives, Budget 2021 contained modifications to the One Person Company Act, port privatisation, and a tax holiday extension. Despite the fact that the MSME sector’s expectations were not realised, these suggestions were created with the best interests of small and medium businesses in mind.