Budget 2021: MSME financing vital to take Indian economy on growth path

Amid global and domestic economic uncertainty, the Budget 2021 was eagerly awaited as a blueprint - the government’s vision and strategy to enable a V-shaped recovery. MSMEs have a special role to play here. They’re a key driving force behind the government’s vision of Atmanirbhar Bharat. However, last year’s economic turbulence did create systemic challenges. In 2021, thanks to an MSME-friendly Budget, these drivers of India’s future have the opportunity to take a leadership role in shepherding the country along the expected path to recovery.

With this in mind, we’re deeply appreciative of how Budget 2021 has recognised the greater relevance of both MSMEs and the digital sector. The Rs 15,700 crore allocation will be instrumental in helping the sector re-emerge after the pandemic induced lockdown. With an emphasis on infrastructure, digital, and capacity building, Budget 2021 will not only encourage investment and support the Atmanirbhar Abhiyan, but also improve the quality of life for citizens of across the country with planned expenditure on education, infrastructure, and healthcare systems.

Rs 1500 crore allocated by the Finance Minister to digital payment systems is a step in the right direction. The e-invoicing regime is about to start for more than 5 crore turnover companies from April 2021. This will require MSMEs to invest in the required digital infrastructure, educate themselves about the system and its workings. We expect the funds to be utilised and support extended to the MSME ecosystem in adopting digital infrastructure, with a continued focus on formalisation of the sector.

The need to integrate the MSME strategy with physical and digital infra plans

The months to come hold immense potential for MSMEs and the Indian economy overall. However, there is a need to better integrate the government’s MSME strategy with the general recovery plan for the economy. Both digital and physical infrastructure play key roles here in facilitating a sustainable environment for MSMEs.

The government’s Atmanirbhar package investment amounts to 13 percent of the GDP, which comes to Rs 27 lakh crore rupees. As infrastructure development is one of the five Atmanirbhar pillars, this represents a sustained increase in core infrastructure spend over the next couple years, facilitating improved transportation, energy, and digital infrastructure, addressing key costs which hamper economic activity in India.

Rationalized customs duty takes us part of the way there. However, synergizing MSME-specific infra projects with overall Atmanirbhar Bharat Mission and National Infrastructure Pipeline investment (NIP) goals would lead to significantly better outcomes. For instance, the Budget speech discussed setting up of 7 textile parks as part of the MSME package. Electricity and transportation work that takes place in tandem under the NIP would act as a force multiplier for the park infrastructure.

In the short-term, raising the finances to enable these projects is a challenge we need to address. The MSME sector has both short-term working capital and long-term project financing needs. As NITI AAYOG chief Amitabh Kant recently pointed out, barring outliers like Air India, most disinvestment projects are in the final stages as of now: a determined push could unlock lakhs of crores to fund long-term infra investment. TReDS platforms can be leveraged to address the more immediate working capital needs of MSMEs.

In the months to come, we expect government spending to augment private sector investment. In that crucial time, MSME-friendly Budget priorities are of vital importance. This year’s MSME outlay is twice that of 2020, but this needs to go towards building projects and capabilities with immediate benefits to MSME owners, providing a means for sustainable growth for the country and its citizens.