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Tata Capital > Blog > Loan for Business > How will the Union Budget 2021 Impact the SME Sector in India?

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How will the Union Budget 2021 Impact the SME Sector in India?

How will the Union Budget 2021 Impact the SME Sector in India?

The Union Budget for 2021-22 was announced on February 1, 2021. How will the India Budget 2021impact the Indian SME sector? Let's find out.

Nirmala Sitharaman, the union finance minister, allocated Rs. 15,700 crores to the Micro, Small, and Medium Enterprises (MSME) sector – nearly double the previous year's fund allocations of Rs. 7,572 crores.

Other than inclusive development under the AtmaNirbhar Bharat mission and COVID-19 relief measures, the key focus areas of the budget 2021 for SMEs include:

  • Higher allocation for skill development and entrepreneurship programmes.
  • Allocation of Rs. 300 crores towards setting up of new technology centres for the various SME/MSME units.
  • Creation of a special framework for SME loan/debt resolution, including strengthening the NCLT (National Company Law Tribunal) framework and implementing the e-Courts systems.
  • Reduction in raw material prices to boost domestic manufacturing via custom duty rationalisation

Additional Read: Key Things to Know about the Union Budget 2021

Extension of SME working capital credit

The new Union Budget announced the extension of various business credit initiatives launched by the Centre in 2020. This move will help SMEs procure business finance more readily, and speed up the sector's post-pandemic recovery. One such government initiative to provide cash flow support to SMEs includes the (Public and Private Sector Banks) PSB loan in 59 minutes scheme.

Using the 59-minute portal, a small company can avail of an SME term loan from any bank/NBFC in less than 59 minutes. They can obtain up to Rs. 5 crores at an interest rate starting from 8.50%.

Once the loan application is approved, the borrowed funds are disbursed within 7 to 8 working days, allowing SMEs to enjoy faster credit accessibility.

Changes to the Companies Act, 2013

The finance minister proposed to revise the definition of a "small" company. How? By increasing the threshold limit on turnover and the paid-capital base - which is the amount of money, shareholders receive in exchange for stocks of share.

Under the revised definitions, the thresholds are as follows: 

  • The previous paid-up capital limit of "not exceeding Rs. 50 lakhs" was revised to "not exceeding Rs. 2 crores".
  • The previous turnover limit of  "not exceeding Rs. 2 crores" was revised to "not exceeding Rs. 20 crores".

In this way, the new revisions allow more companies to fall under the "small" category. And enjoy the benefit of lesser compliance requirements for small businesses, including:

  • Exemption from auditor rotation
  • Fewer mandatory board meetings
  • Relaxed provisions on company's annual returns etc.

These relaxations enhance the ease of doing business for the SME sector.

Additional Read: What to Expect from SME/MSME Sector in 2021?

The bottom line

Reeling from the COVID-19 outbreak; cash flow shortage has been the primary concern of most SMEs, followed by a lack of easy access to business credit.

However, extensions of the various subsidy and loan schemes by the government will prove instrumental in helping SMEs obtain necessary funds from banks/NBFCs readily.

At Tata Capital, you can avail of an unsecured business loan to optimise your cash flow cycles, invest in business expansion, boost production, purchase inventory, etc.

Our credit facilities are available at incredibly competitive business loan interest rates and flexible EMI structuresso that you can repay the debt without difficulty.

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