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Atma Nirbhar Bharat: Budget 2021 Must Provide Fillip To India’s Credit-Starved MSMEs
To achieve the government’s mission, five main incentives in Budget 2021 can determine if MSMEs would be able to sail through
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The one message that the Narendra Modi-led government wants to give to the MSME industry to fight the post-pandemic impact is becoming self-reliant or Atmanirbhar. The Budget 2021 holds the key to making this a reality.
The lockdowns and reduced appetite for consumption in the country post-COVID-19 have severely dented Indian MSMEs' growth trajectory. To survive this economic tragedy, MSMEs need to effectively fight the slowdown and shine brighter than their global peers. To achieve the government’s mission, five main incentives in Budget 2021 can determine if MSMEs would be able to sail through:
For MSMEs to survive in today's complex market - working capital is quintessential to procure raw materials, produce finished products, sell them to a reliable market participant and ensure the sale or purchase gets the right value globally
With the Reserve Bank of India (RBI) maintaining a record low repo rate -- the rate at which banks borrow from the central bank, MSMEs must be able to fund their credit needs more efficiently than before. The government is also nudging traditional financial companies to pass the benefit to small businesses.
However, given the current situation, banks continue to be risk-averse while MSMEs are struggling to stay afloat. The onus of providing collateral-free and safe working capital now lies on the shoulders of those non-traditional lending platforms that are consumer-first and have deep global insight.
In India’s pursuit to become Atmanirbhar, the first step would be to flush MSMEs with enough funds. This, in turn, would help these businesses to invest in capabilities to improve their competitiveness in the global supply chain. The Finance Minister must also announce provisions to promote alternative lending in the country for a sustainable lending ecosystem.
Ease Labour Crisis
During the early days of the pandemic, India witnessed a major reverse migration amongst its labor class. The shortage of labor has also pushed up labor costs making the whole cycle of exports cost-intensive.
The Budget 2021 must assist laborers to return to factories while providing incentives at par to what is being offered back in their rural settlements. The government should consider expanding the employment guarantee schemes in urban areas to bring skilled labor back to the production and distribution cycle.
For MSMEs to fill the export gap caused by a global mistrust in world-favorite hubs such as China, they need to adapt to digitize operations from garnering capital to processes such as invoicing as well as using analytics and market-insight tools via machine learning and artificial intelligence.
Budget 2021 must stress on MSMEs to adopt a digital-first approach to create newer avenues for trade and commerce globally to grow at a much more rapid speed than it did all of last decade.
Provide Stimulus To Exports
A post-pandemic recovery should be relied on truly opening up India’s trade to the world and enable MSMEs to showcase their full potential. For MSMEs to meet the quality standards at par with their global peers, export-related areas such as strengthening warehousing capabilities, making the availability of raw material components easier and building advanced research and development capacity will go a long mile in bringing the world’s focus to India’s manufacturing and delivery prowess.
The Production-Linked Incentive Scheme, which was introduced to key sectors such as electronics, pharmaceuticals, and textile products to enhance India’s manufacturing capabilities, is a shot in the arm that Indian MSMEs needed urgently. Now, the next step should be extending this scheme to other potential export-oriented sectors.
Encourage Ease of Doing Business & Promote Domestic Players
For MSMEs to benefit from the unique opportunity from a post-pandemic year, the government needs to further the ease of doing business in the country. The flagship initiative Faceless Assessment program under the Turant Customs, which stands on the pillars of faceless, contactless, and paperless customs, is a reform that could help India take a substantial leap forward towards faster and cheaper customs clearance of imported goods. The government must ensure that on- ground clearance of goods is expedited and rationalized compliance is introduced with the Budget 2021.
When the government promotes or partners with local companies who have a global vision, it automatically provides MSMEs a steady option that is reliable and pivots MSMEs towards growth, a step ahead of survival. Budget 2021 is a great opportunity for the government to show trust in fintech companies that are innovative and help in consolidating India’s manufacturing and trade capacity.
With the government’s genuine intent on making India Atmanirbhar, a truly forward-looking hand-holding of MSMEs can help them convert the crisis caused by the pandemic into the opportunity of the decade.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.