Impact of Union Budget 2021 to MSME

Ashish M. Shaji

25 Mar, 2021

The Covid-19 pandemic hit the MSME sector badly, and it aggravated the sector’s long standing issues. Therefore some key announcements were made for the MSME (Micro, Small, and Medium Enterprises) sector in the Union Budget 2021.  In this article, we shall look at those announcements for the MSMEs and the impact of union budget 2021 to MSMEs.

Key announcements for MSMEs in the Union Budget

• Double allocation for the MSME sector

In this years’ budget, the finance minister has announced an expenditure of 15,700 crore rupees for the MSME sector, which is more than the previous year. It is expected to help them in regaining their lost ground. The majority of the allocation is towards the Emergency Credit Line Guarantee Scheme.

• Grievance Redressal Framework

The finance minister has also announced the setting up of a special framework for Micro, Small, and Medium Enterprises in the National Company Law Tribunal^[1] for debt resolution. This framework shall include alternate methods and provide for establishing e-courts for faster grievance redressal.  

• Revision of custom duty to boost local manufacturing

The union budget 2021 has reduced the custom duty to 2.5% for copper recyclers from 5%. The custom duty on finished synthetic gemstones is increased in order to put a higher emphasis on domestic processing. The Union Budget has reduced the customs duty on flats and long products of non-alloy, alloy, and stainless steel products and has kept it to 7.5%. The government increased the duty on steel screws, prawn feed, and plastic builders to 15%.

• Duty exemption on Steel scrap to continue to 31^st March 2022

Metal recyclers belonging to MSME sector has enjoyed duty exemption to steel scrap that was about to end in 2021. The finance minister has extended this period of duty exemption to steel scrap up to 31^st March 2022. The Union budget 2021 also revoked ADD and CVD on some steel.

• Allocation to set up new MSME technology centres

The Union Budget 2021 proposed an allocation of 300 crore rupees for the setting up of new technology centres for the MSME units.

• Incentivizing exports

In order to incentivize exporters of garments, leather, and handicraft items made by MSMEs, the union budget provided for the withdrawal of exemptions on imports of few types of leather as they are manufactured domestically in quality and quantity. 

Impact of Union Budget 2021: Enhanced competitiveness of MSME products

As stated above rationalization of custom duties on steel screws, plastic builder wares, prawn feed, finished gem stones, and rationalizing exemptions on duty free items is expected to benefit the MSME sector.

Customs duty reduction on semis, flats, and long products of non-alloy alloys and reduction of duty on steel and copper scraps can assist the MSMEs. Further rationalization of duties on raw materials for the production of textile can help the MSME sector to be price competitive in export market. Reduction of BCD rates on nylon ships and nylon fibre and yarns can help the textile industry and MSMEs can help in exports.

Calibration of customs duty rates on chemicals to encourage domestic value addition and rationalization of customs duty in silver and gold can provide the impetus needed for MSMEs working in this sector. This can have a great impact of union budget 2021 to MSMEs.

Impact of Union Budget 2021: Multiplier effect of increased investments in specific sectors

The PM Swasth Bharat Yojana is expected to provide an impetus to MSMEs as a large amount of them are involved in health related activities. The recently revised MSME definition has already brought many such units in the health sector under the ambit of MSMEs. The proposal to set up 7 textile parks across the country under the Mega Investment Textile park scheme would generate further activities among the MSMEs with forward and backward linkages. 

With enhanced capital expenditure and infrastructure spending is expected to have a substantial and long term positive spin offs for the MSME sector.  

Impact of Union Budget 2021: Incentivizing One Person Company Set up

Start-ups can now find it more easy to open their business as the budget 2021 benefits start-ups to open one person company to grow their business without any restriction on turnover and paid up capital. The budget has also provided for reducing the residency limit of Indian citizens to set up the OPC from 180 to 120 days, thereby allowing the NRIs to function in India. The Finance Minister announced conversion into other type of company at any time, providing an advantage to MSME to start their business without any hassle or restriction.

Advise to the Government

In order to ensure inclusivity of MSMEs, the government should take more steps to support MSMEs. Some of them can be as mentioned under:

• Incentivizing the financial and non-banking institutions to provide better lending support to the sector by introducing institutional protection schemes, enhancing collateral free loan limits, and credit guarantee schemes for MSMEs.
• There is an urgent need to look into facilitating infrastructure development, skill upgradation, digitalization of business processes and integrating technology to traditional production lines. For this government should lend support to MSME manufacturing sector.
• Having technology is one thing but making it accessible to all is a completely different action that must be taken by the government. Technology should become economically accessible for MSMEs so that they can improve their internal processes.
• Creation of hubs for different essentials like facility sharing, supply chain process, delivery solutions, etc. in the MSME sector can help in meeting the ever-increasing demand from the sector.

Conclusion

Various schemes and announcements have been made for the MSME sector, but in order to better assess the impact of Union budget 2021 on MSME, we need to wait for some time. Only then the real impact of the budget can be accurately gauged.

Read our article:Non-Disclosure of dues payable to MSMEs in Financial Statements