Budget 2020: FM Asks RBI To Consider Extending MSME Restructuring Schemes Till March 2021

To help the MSME entrepreneurs to support their business, the Union Budget 2020 has proposed the country's central bank - Reserve Bank of India to consider extending the restructuring scheme for micro, small and medium enterprises (MSME) by another year till March 31, 2021.

The FM said that more than 5,00,000 small businesses had benefited from the scheme during the last one year.

MSMEs are vital in keeping the wheels of the economy moving. They also create a job, innovate and are risk-takers. Several measures for the MSMEs have been taken in the past few years. There are more steps proposed in this budget also.

Government e-Marketplace (GeM) is moving ahead for creating a Unified Procurement System in the country for providing a single platform for procurement of goods, services and works. It offers a great opportunity for Medium, Small and Micro Enterprises(MSMEs). 3.24 lakh vendors are already on this platform. It's proposed to take its turnover to Rs 3lakh crores.

In her budget speech, the FM said that - I propose to make necessary amendments to the Factor Regulation Act 2011. This will enable NBFCs to extend invoice financing to the MSMEs through TReDS, thereby enhancing their economic and financial sustainability.

Working capital credit remains a major issue for the MSMEs. It is proposed to introduce a scheme to provide subordinated debt for entrepreneurs of MSMEs. This subordinate debt to be provided by banks would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE). The corpus of the CGTMSE would accordingly be augmented by the government.

More than five lakh MSMEs have benefitted from the restructuring of debt permitted by RBI in the last year. The restructuring window was to end on March 31, 2020. Government has asked RBI to consider extending this window till March 31, 2021.

An app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flows mismatches for the MSMEs.

Many mid-size companies are successful domestically but not in export markets. For selected sectors such as pharmaceuticals, auto components and others, we propose to extend handholding support - for technology upgradations, R&D, business strategy etc. A scheme of Rs 1000 crore will be anchored by EXIM Bank together with SIDBI. Both these institutions would contribute Rs 50 crore each. This 100 crore would be achieved towards equity and technical assistance. Debt funding of Rs 900 crore from banks would be made available.

She also announced that currently, businesses having turnover of more than one crore rupees are required to get their books of accounts audited by an accountant. To reduce the compliance burden on small retailers, traders, shopkeepers who comprise the MSME sector, I propose to raise by five times the turnover threshold for audit from the existing Rs 1 crore to Rs 5 crore. Further, to boost less cash economy, I propose that the increased limit shall apply only to those businesses which carry out less than 5% of their business transactions in cash.

On the Customs side, several measures have been taken for ease of doing business. India's quantum leap in the Trading Across Border parameter of Ease of Doing Business rankings by the World Bank is a testimony to these efforts. India's rank on this parameter improved from 146 to 80 in 2018 and further marched up to 68 in 2019. Measures have also been taken for providing a level playing field to our domestic manufacturers, particularly the MSME sector and for securing borders.

Labour-intensive sectors in MSME are critical for employment generation. Cheap and low-quality imports impede their growth. Special attention has been taken to put measured restraint on import of those items which are being produced by our MSMEs with better quality. Keeping in view the need of this sector, customs duty is being raised on items like footwear and furniture.

She noted that the introduction of GST has also led to significant benefits to MSME by way of enhanced threshold and composition limits. The effective tax incidence on almost every commodity came down substantially. Through several rate reductions, an annual benefit of Rs one lakh crore has been extended to consumers. It amounts to a 10% reduction in overall tax incidence. An average household now saves about 4% on its monthly spends on account of reduced GST rates.