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Tata Capital > Blog > Term Loan > How the Union Budget 2022 is fostering the growth of MSMEs in India?

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How the Union Budget 2022 is fostering the growth of MSMEs in India?

How the Union Budget 2022 is fostering the growth of MSMEs in India?

Hon’ble Finance Minister Nirmala Sitharaman tabled the Union Budget 2022 on 1st February 2022 with a strong thrust on recuperating MSMEs from the adverse impact of the COVID-19 Pandemic. 

MSMEs are the backbone of the Indian economy, contributing approximately 30% of the country’s GDP (Gross Domestic Product), 45% of manufacturing output and providing employment to 11 crores of India’s population. Amidst high inflation, high unemployment rate, and increasing debt, India’s finance minister presented her fourth budget with significant measures to accelerate the growth of MSMEs in India. 

Union Budget 2022 focuses on ease of doing business for MSMEs with new policy initiatives, extending credit support to boost liquidity, reducing import tariffs, and enhancing financial inclusion. 

Here’s a quick overview of some of the notable budgetary announcements to stimulate the growth of MSMEs in India:

Credit measures

The announcement of additional credit under the Emergency Credit Line Guarantee Scheme (ECLGS) has given a much-needed boost to more than 130 lakh MSMEs in India. The ELCGS Guarantee cover is extended up to March 2023. It is further expanded by Rs.50000 crore to the total cover of Rs. 5 lakh crores, with the additional amount set aside for the hospitality and related enterprises.

Finance Minister has also announced to revamp the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme with an appropriate infusion of funds. Under this scheme, an additional credit of Rs. 2 lakh crores would be offered for advances to micro and small enterprises, leading to better employment opportunities.

Further, the finance minister mentioned the Raising and Accelerating MSME Performance (RAMP) programme, with an outlay of Rs. 6000 crores to be rolled out over five years. This will help make the MSME sector competitive, resilient, and efficient. 

Additional Read – Union Budget 2022: What to Expect from Budget 2022?

Interlinking of compliance portals

With an initiative to introduce seamless access to government data on registration and formation of MSMEs and the availability of skilled and unskilled workforce, Budget 2022 has proposed interlinking the data on MSMEs and compliance platforms. Four portals, i.e., Udyam, e-Sharm, National Career Service (NCS) and Aatmanirbhar Skilled Employee-Employer Mapping (ASEEM) are proposed to be interlinked. 

This move aims to widen their scope and enable these portals to have live organic databases, providing G2C, B2C, and B2B services. Finance Minister specifically mentioned that these services would relate to credit facilitation, skilling and recruitment to formalise the economy further and enhance entrepreneurial opportunities for all.

msme growth

Custom Duty amendments

Union Budget 2022 provides relief to the Gems and Jewellery sector by reducing customs duty on cut and polished diamonds and gemstones to 5% from 7.5%. However, there is an increase in duties levied on imitation jewellery to disincentivise imports.   

Another noteworthy move is to provide a much-needed impetus to MSMEs by extending the custom duty exemption on steel scrap by another year. Budget 2022 has announced duty concessions on parts of the transformer of mobile phone chargers and camera lens of mobile camera and other electronic items to enable domestic manufacturing in India. 

The budget by removing exemptions on items that can be manufactured in India and awarding concessions on import of raw material used in manufacturing intermediate products reinforced the Government’s intention to incentivise ‘Make in India’ towards building Aatmanirbhar Bharat.

Ease of doing business

To fulfil the aspiration of optimising payments and enhancing transparency, the Government of India has announced a completely paperless, end-to-end online e-bill system. This move aims to push MSMEs towards technological advancements enabling suppliers and contractors to submit online bills and track their status from anywhere, anytime. This move will also encourage the adoption of digitally signed bills across all the central ministries.

Additional Read – Budget 2022: Key Highlights and Takeaways

Production Linked Incentive (PLI) scheme

The finance minister stated that the PLI scheme has significantly achieved the vision of Aatmanirbhar Bharat and received a great response. Under this PLI scheme, Union Budget 2022 announced an additional allocation of Rs. 19500 crores to boost solar module manufacturing. Finance Minister stated that this move will facilitate domestic manufacturing to achieve the desired goal of 280GW of installed solar capacity by 2030.

Concessional Corporate Tax

The concession rate of tax of 15% was announced under section 115 BAB of the Income Tax Act, 1961 to help certain domestic companies establish in a globally competitive business environment. Union Budget 2022 has extended the concessional rate of tax to newly incorporated manufacturing companies until March 2024. It is a welcome move to stimulate the growth of MSMEs, attract investments and support the ‘Make in India’ initiative.

Union Budget 2022 is an effective booster dose much-needed to catalyse the growth of the Indian economy. It has given MSMEs a long-pending economic respite by introducing new policy initiatives, custom duty amendments, and concessional tax rates. 

Tata Capital corporate is all set with a wide range of loan offerings to aid MSMEs in being financially resilient and competing in the global market. Reach out to Tata Capital experts to learn more and scale up the business.

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