Budget 2023: Scrapping of key MSME schemes worrying, say industry experts

The government has announced a slew of schemes over the years to boost the MSME sector, but it has also discontinued many useful ones, said industry experts. Key schemes such as 2% interest subvention for all GST-registered MSMEs and interest subvention for incremental loans could have been extended to support the sector, which is currently struggling in the face of multiple domestic and global challenges, they pointed out.

“I would wonder why the MSME outreach programme, which gives 2% interest subvention for incremental loans to the MSMEs, has also ended and never been extended thereafter. I believe this and the interest subvention for incremental loans are incentives for the sector to invest more, build more capacities, buy new technologies, etc,” Rajiv Chawla, Founder & Chairman, IamSMEofIndia, said at ET Online’s Rising Bharat Summit.

The government announced the 2% interest subvention scheme in November 2018 and it existed till March 31, 2021. It was launched to provide interest relief to MSMEs on their outstanding fresh or incremental term loans or working capital to the extent of Rs 1 crore.

“Maybe the government is short of budget, maybe they think that the schemes have outlived the utility for whatever reason. I believe that the MSME sector is really missing these fine schemes,” Chawla said, adding that MSMEs require more hand-holding now than before.
Other than reconsidering these schemes, the government should also look beyond the Production Linked Incentive (PLI)-type schemes, said Anil Bhardwaj, Secretary General, Federation of Indian Micro Small & Medium Enterprises (FISME). “For the MSME sector to grow, the PLI-type of schemes would not be of much help because they require very huge outlay to be taken advantage of,” he said.

How are the previously launched MSME schemes performing?
In Budget 2022, the government announced measures such as the Emergency Credit Line Guarantee Scheme (ECLGS) for Covid-hit MSMEs. Another facility was launched on August 21, 2020, to restructure loans without downgrading the current asset classification, to help MSMEs to cope with the post-pandemic recovery. However, the scheme was discontinued on September 30, 2021. Commenting on how the previously launched MSME schemes have performed and if they had the intended results, Madan Padaki, Co-Founder & CEO, Global Alliance for Mass Entrepreneurship (GAME), said, “I think some of the schemes, especially the post-Covid ECLGS Scheme kind of made sure that credit was available for MSMEs hit by the pandemic on an emergency basis. I think we have seen a lot of offtakes of that scheme and we have really seen MSMEs getting benefited from these schemes. So, I think some of these things have worked to an extent. But my key takeaway from all of these schemes is that even at the Centre and state level, there are no dearth of schemes on paper. What really matters is how it is reaching the ground — what awareness is being created and how it is being implemented on the ground,” he added.

Challenges for MSMEs
Commenting on the challenges facing small businesses, FISME’s Bharadwaj said while a few segments in the MSME sector have recovered, others are still struggling. “Some exporters or suppliers, particularly those catering to Europe, were hit. Consumer spending, as you know, is affected due to high inflation there, and industrial sectors were impacted due to shortage of energy amid the ongoing war between Russia and Ukraine.”

A large number of product categories that were historically reserved for small-scale industries, and now termed as MSMEs, suffer from technology gaps. “So, a massive tech upgrade is needed,” he added.

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