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Budget 2022: 8 MSME-related announcements FM Sitharaman made and here’s what experts have to say

Ease of Doing Business for MSMEs: With access to more credit in the coming financial year, the government sees better recovery for MSMEs from the pandemic impact along with more employment generation through digital channels.

To reduce indirect cost for suppliers and work contractors, Sitharaman said the use of surety bonds as a substitute for bank guarantees will be made acceptable in government procurements.

Ease of Doing Business for MSMEs: Credit availability to MSMEs remained the centrepiece in the announcements related to the MSME sector by Finance Minister Nirmala Sitharaman in her budget presentation on Tuesday. With access to more credit in the coming financial year, the government sees better recovery for MSMEs from the pandemic impact along with more employment generation through digital channels. However, a separate stimulus package for MSMEs wasn‘t there that many had suggested in the industry. Here‘s everything that Sitharaman announced in Union Budget 2022 that would directly or indirectly benefit MSMEs:

ECLGS Extension

Emergency Credit Line Guarantee Scheme (ECLGS), which the minister said had provided much-needed additional credit to more than 130 lakh MSMEs, has been extended up to March 2023 from March 2022. Its guarantee cover has also been expanded by Rs 50,000 crore to the total cover of Rs 5 lakh crore, with the additional amount being earmarked exclusively for the hospitality and related 

enterprises. However, experts cite the benefit would not encompass MSMEs in all sectors.

The additional amount of Rs 50,000 crores for the hospitality and related industry is welcomed but it will not solve the immediate problem of survival,?unemployment and bleeding of the tourism industry… The government should understand that tourism is the largest employment generator and has been contributing 9-10 per cent of GDP and about $30 billion in foreign exchange earnings. About 35-40 million people have either lost their jobs or are in the process of losing them,? said Subhash Goyal, President, Confederation of Tourism Professionals.

Special attention has been paid in the budget 2022 to help MSME businesses. The extension of ECLGS till March 2023 will help MSME retail businesses impacted by the pandemic. However, not all retail businesses may benefit from the same,? said Kumar Rajagopalan, CEO, Retailers Association of India.

The suggestions by the industry around moratorium or reduction in interest rates etc. also weren‘t part of the sops announced in the budget. ?Extension of Emergency Credit Line Scheme till 2023 up to is a welcome step but not enough 

at all. MSMEs expected a one-time waiver or at least a moratorium of loans or interest like big industries. MSMEs would certainly feel disappointed as they have been struggling for financial support during the pandemic,? said Nitin Potdar, Partner, J Sagar Associates (JSA).


Finance minister Nirmala Sitharaman also announced that the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme will be revamped with the required infusion of funds. The minister said that the move will facilitate additional credit of Rs 2 lakh crore for micro and small enterprises (MSEs) and expand employment opportunities.

The proposed CGTMSE revamp will help the micro sector that could not avail ECLGS earlier because micro units did not have existing credit outstanding as it was the basic requirement for availing ECLGS,? said Vikesh Agrawal CEO of AjvaFintech.

As of February 1 in the current financial year, over 5.5 lakh CGTMSE guarantees were approved amounting to Rs 42,429.23 crore, of which 22,863 claims 

involving Rs 471.39 crore were disbursed, as per the scheme‘s data. The government had enhanced the loan disbursal limit under CGTMSE from Rs 1 crore to Rs 2 crore, former MSME Minister Giriraj Singh had said in February 2019, according to a statement by the MSME Ministry. Moreover, the corpus of the scheme was also increased from Rs 2.5 lakh crore to Rs 7.5 lakh crore rupees, the minister had said.

The extension in the timeline and increased outlay towards ECLGS and an additional infusion of funds in the Credit Guarantee Trust for Micro and Small Enterprises will provide relief to MSMEs, especially those engaged in contact- intensive sectors, who have been adversely impacted due to the pandemic,? said Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank.

RAMP Rollout

Raising and Accelerating MSME Performance (RAMP) programme is an initiative by the government that was approved assistance of $500 million by the World Bank in June last year to support Covid-hit MSMEs. According to Sitharaman, the programme with an outlay of Rs 6,000 crore will be rolled out over five years and help the MSME sector become more resilient, competitive and efficient. 

Importantly, RAMP is a part of the MSME Competitiveness – A Post COVID Resilience and Recovery Programme (MCRRP) by the government.

Aside from the critical announcements about the extension of the ECLGS scheme and the revamp of the CGTMSE programme, along with the infusion of additional funds, the government‘s focus on RAMP is also commendable, as it will define the path to sustainable and responsible development for the sector,? said Hardika Shah, Founder & CEO, Kinara Capital.

According to the MSME Ministry, the programme aims at improving market access, access to credit, strengthening institutions and governance at the central and state level. The programme will support the ongoing support programmes of the government, focusing on the competitive aspect of MSMEs, the ministry had said in a statement in December last year.

RAMP is an initiative to revitalize the MSME sector that has been heavily impacted by the Covid pandemic. While this is a positive measure taken by the government and will help MSMEs stand up and grow, I doubt if Rs 6,000 crore would be sufficient for this purpose,? Maneet Pal Singh, Partner, IP Pasricha & Co told Financial Express Online.

Interlinking of Udyam, e-Shram, NCS, ASEEM

In order to make access to government data on registration of MSMEs, unorganised workers, availability of skilled workforce, etc., more seamless, Sitharaman on Tuesday said that four portals viz., Udyam, e-Shram, National Career Service (NCS), and Atmanirbhar Skilled Employee-Employer Mapping (ASEEM) will be interlinked. The minister said this will widen their scope and will have live, organic databases, providing G2C, B2C and B2B services. ?These services will relate to credit facilitation, skilling, and recruitment with an aim to further formalise the economy and enhance entrepreneurial opportunities for all,? Sitharaman said in her speech.

We look forward to the interlinking of MSMEs formalization and compliance platforms, as this stands to facilitate operability, therefore improving entrepreneurial opportunities in the sector,? added Shah.

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While Udyam was set up as the new portal for MSME registration, e-Shram was launched for creating a national database of unorganised workers. NCS portal caters to employment-related services like job search, job matching, career counselling, and more, ASEEM portal enables matching of the supply of skilled workforce with the market demand.

Customs Duty

In order to provide relief to MSME secondary steel producers, Finance Minister Nirmala Sitharaman extended the customs duty exemption given to steel scrap last year for another year. Moreover, certain anti-dumping and countervailing duty on stainless steel and coated steel flat products, bars of alloy steel and high- speed steel were revoked in larger public interest considering prevailing high prices of metals, the minister noted. On the other hand, customs duty on umbrellas was raised to 20 per cent and exemption to parts of umbrellas was withdrawn.

Removal of exemption on items which are or can be manufactured in India and providing concessional duties on the raw material that go into the manufacturing 

of intermediate products will go many a step forward in achieving our objective of

=Make in India‘ and =Atmanirbhar Bharat‘? Sitharaman said.

It is a visionary budget that lays a blueprint for =Amrit Kaal‘, supported by PM Gati Shakti Mission with multi-modal approach to boost transport & logistics. A significant increase of 35.4 per cent in capital expenditure to Rs 7.50 lakh crore will also have a multiplier effect and provide impetus to drive growth, thus helping in steel demand creation,? said Dilip Oommen, President, Indian Steel Association.

Surety Bonds in Public Procurements

To reduce indirect cost for suppliers and work contractors, Sitharaman said the use of surety bonds as a substitute for bank guarantees will be made acceptable in government procurements. ?IRDAI has given the framework for the issue of surety bonds by insurance companies,? the minister said. This is expected to support MSME suppliers and work contractors who could now look at insurance firms for surety of their payments.

This is a big support to MSMEs as most of the time the funds of MSMEs are stuck up in bang guarantee margin money or they are deprived of getting orders due to non-availability of bank guarantee facility from banks,? Mukesh Mohan Gupta, Founder and CEO, No Defaulters and President CIMSME told Financial Express Online.

Importantly, bank guarantees impose a substantial cost burden on suppliers, so much so that bank or performance guarantees suck the liquidity out of MSMEs. In July 2020, IRDAI had formed a working group to examine the possibility of extending surety offering by insurance companies. A surety is essentially a risk transfer mechanism where the surety company assures the project owner of the performance obligation of the contractor. The surety company, contractor or the principal, and project owner or the obligee are the three parties involved in the surety bond.

The government had mandated central PSUs and departments to procure 25 per cent of their annual purchases from MSMEs. However, the ?cost of acquiring bank guarantees has always been a great limiting factor. Bank guarantees eat away the bulk of their working capital as banks don‘t distinguish between fund-

based or non-fund based limits and apply same norms for extending them to MSMEs,? said MSME association FISME in a statement.

Typically, an MSME is required to give margin money and also offer collateral security to cover for the risk of the guarantee. Hence, bank guarantees end up choking working capital for MSMEs and limiting MSMEs from participating in more tenders and consequently reducing their chances of securing orders. FISME said that Union Budget 2022-23 marks a great departure from the regime of traditional bank guarantees in government purchases.

Concessional Corporate Tax

The Finance Minister also announced the extension of the concessional corporate tax rate of 15 per cent by one more year — till March 2024 for newly incorporated manufacturing companies. ?In an effort to establish a globally competitive business environment for certain domestic companies, a concessional tax regime of 15 per cent tax was introduced by our government for newly incorporated domestic manufacturing companies. I propose to extend the last date for commencement of manufacturing or production under section 

115BAB by one year i.e. from 31st March 2023 to 31st March 2024,? the minister said.

The extension of the 15 per cent tax guideline till 2024 for new manufacturing units is a welcome move to attract more investments in the short run and support the Make in India initiative driven by the Production Linked Incentive (PLI) scheme and similar such programmes,? said Mohammad Athar (Saif) Partner and Leader Industrial Development, PwC India.

PLI for Solar PV Module

Experts also hailed the government‘s decision to allocate an additional Rs 19,500 crore to boost the manufacturing of solar PV modules under the production linked incentive scheme. Sitharaman said to facilitate domestic manufacturing for the ambitious goal of 280 GW of installed solar capacity by 2030, an additional allocation of Rs 19,500 crore for Production Linked Incentive for manufacturing of high-efficiency modules, with priority to fully integrated manufacturing units from polysilicon to solar PV modules, will be made. 

An additional allocation of Rs 19,500 crore to boost manufacturing of solar modules under the government‘s flagship PLI scheme has the potential to create 60 lakh new jobs while producing 30 lakh crore jobs during next five years,? said Yogesh Mudras, Managing Director, Informa Markets in India

According to Hetal Gandhi, Director, CRISIL Research, this will reduce dependence on imports, which stand at 90 per cent for cells and 75-80 per cent for modules currently. ?It will make India not only self-reliant for annual module needs but also open up export opportunities for domestic module manufacturers. What remains to be seen is if current bids made for PLI funding will be accepted as is, or companies under each category will be asked to match the lowest bidder.