MSME schemes 2020: What was announced, what was utilised, and what is needed in 2021

Regardless of a number of well-intentioned bulletins, the actual fact stays that there are a disproportionate variety of compliance and regulatory burdens each MSME faces in comparison with bigger companies.(Representational picture)

• By Vishal Devanath

6.3 crore Micro, Small, and Medium Enterprises (MSMEs) of India employs round 11 crore individuals. Nevertheless, they have been, sadly, one of many worst-hit by the primary wave of the pandemic that affected their entry to markets, credit score, and monetary safety. This prompted the Indian Authorities to announce a slew of measures aimed toward shoring up their monetary and transactional well being. As we grapple with a good deadlier second wave of the pandemic this yr, it will be fascinating to see how final yr’s schemes have fared up to now, so {that a} helpful indicator could be constructed of what labored and what didn’t. This may assist policymakers as they work the numbers for the inevitable bulletins this yr too.

Taxes and compliance

A number of bulletins have been made to offer reduction to taxpayers together with MSMEs from tax compliance norms and deadlines. The TDS charges to be deducted have been slashed by 25 per cent for non-salary funds. Tax submitting dates have been prolonged by 30 to 90 days. There was a discount within the fee of curiosity on delayed cost of taxes, and an amnesty scheme (zero penalty) for service tax dues paid inside December 2020 was additionally introduced. The final date for submitting of GSTR 3B was pushed again, and there was additionally a small concession on the late submitting price.

Easy issues just like the GST construction and submitting calendar don’t agree with the definition of an MSME (small taxpayer) vis-a-vis massive taxpayer. A micro-enterprise (turnover as much as Rs 5 crores) is anticipated to file returns as soon as 1 / 4, however the frequency is month-to-month for a bigger firm. That’s the reason if such a micro-enterprise is a vendor, provider, or contractor for a bigger firm, then the bigger shopper typically withholds the tax cost of the bill or perhaps the whole bill until the time that enterprise declares the related returns. That is one thing that might be labored on.

Creating native demand

Due to their smaller scale and scope, MSMEs typically discover it troublesome to pretty compete with bigger companies within the home market. Moreover, the opening up of enterprise boundaries has additionally made the specter of multinational or overseas firms very actual. This menace will get compounded in troublesome occasions like the present pandemic. The Aatmanirbhar Bharat package deal bulletins for MSMEs in 2020 additionally included one which barred international bidders for presidency tenders of as much as Rs 200 crores, together with consultancy companies and turnkey initiatives.

Whereas it’s unimaginable to particularly pinpoint what number of MSMEs received contracts from June 2020 onwards because of this ruling, however just like the adjustments in GST guidelines, this initiative additionally wanted a number of extra reforms within the procurement course of to be actually helpful to MSMEs. For example, greater companies with extra expertise are higher in a position to sort out the quick software home windows and excessive earnest cash quantities. Additionally, some adjustments to the expertise standards for MSMEs might have helped them achieve the arrogance to bid for initiatives.

Expertise upgrades

The Credit score Linked Capital Subsidy Scheme (CLCSS) was launched a number of years in the past to encourage funding in know-how upgrades. As per this scheme, any institutional finance (as much as a most of Rs 1 crore) availed by small-scale models to include the most recent applied sciences of their workflow could be instantly given a 15 per cent capital subsidy upfront. Initially, an outlay of Rs 2,900 crore was allotted for the scheme however lately the scheme was modified to a demand-driven one with none higher restrict on the general annual restrict.

This has led to a doubling of MSMEs which benefited from this scheme from 7,779 in FY20 to fifteen,188 in FY21. The whole subsidy additionally doubled to Rs 1,100 crore from Rs 540 crore. Whereas it’s heartening to see this uptick in funding into know-how, main gaps nonetheless stay. For example, the scheme is proscribed to sure notified sectors and solely relevant to current debtors. The advantages are concentrated round a number of states like Gujarat, Maharashtra, and Punjab with Gujarat accounting for greater than 42 per cent of the advantages. It could be a good suggestion to unfold consciousness and encourage MSMEs in different states to take higher benefit of this scheme in FY22.

Quicker cost cycles

Bigger companies can use their deeper pockets to fulfill the working capital necessities even when the funds for previous work haven’t but been obtained. However for micro and small enterprises, the smaller order e-book and modest money reserves often cripple them if funds are delayed an excessive amount of. An MSME can, subsequently, do higher if their accounts receivables are settled quicker. The Authorities acted on these over which it had management. All Central Public Sector Enterprises (CPSEs) have been instructed to launch their excellent funds inside 45 days. The CPSEs responded admirably. Because the chart beneath reveals, a mean of Rs 3,000 crores was paid each month by CPSEs in opposition to dues excellent for MSMEs for the primary seven months after the announcement.

Supply: MSME Ministry

The identical MSME Ministry assertion from which the chart is taken additionally goes on to tell that orders positioned to MSMEs by CPSEs additionally went up on this similar interval. To proceed this good work, authorities businesses and CPSEs should be inspired to maintain a equally immediate cost cycle always, not simply throughout the pandemic.

Manufacturing-linked incentive scheme

This scheme was introduced in early 2020 with an preliminary outlay of Rs 2 lakh crore aimed to spice up manufacturing funding in India. The scheme supplied monetary incentives from 4 per cent to six per cent of incremental gross sales with FY20 thought of as the bottom yr to manufacturing models beneath sure key sectors. Because of the excessive capital funding thresholds and manufacturing targets, over the past yr, most companies that benefited from this scheme have been massive MNCs or company companies. Whereas there was an oblique push from the federal government to supply from native companies increasing the availability chain within the nation, the scheme has not had a direct affect on MSMEs. A number of trade our bodies have requested for a brand new MSME focused PLI scheme or widening of the present scheme to assist small companies reap the advantages of it.

Funding assist

One of many vital measures taken by the federal government to sort out the pandemic and its impact on MSMEs features a slew of financing assist to native companies. A few of the measures taken in 2020 have been:

• A six-month moratorium on mortgage repayments (labeled by banks as ‘commonplace’ on the time of announcement) by MSMEs was introduced by the Reserve Financial institution of India for the March to August 2020 interval. Greater than 30 per cent of MSMEs benefited from the RBI moratorium because it was availed by nearly a 3rd of MSMEs with present loans excellent. However the moratorium functioned solely like a brief repair for the ailing MSME, and it didn’t assure full restoration. Additionally, measures to strengthen the demand facet have been much less seen, making reimbursement of loans plus the curiosity accrued throughout the moratorium troublesome. Including to the woes, localized lockdowns as a result of second wave and non-extension of the moratorium this time has put MSMEs in a extreme money crunch. It stays to be seen if these MSMEs can emerge from it in a wholesome method.
• Further subordinate debt facility of a complete of Rs 20,000 crores was operationalised via the Credit score Assure Fund Belief for MSEs (CGTMSE) and the mortgage disbursal restrict was elevated from Rs 1 crore to Rs 2 crore. Disbursements with credit score ensures of greater than Rs 30,000 crores occurred in FY21 beneath the CGTMSE scheme. Whereas that is the second-highest quantity within the final 9 years, it nonetheless is a 30 per cent drop from final yr.
• Help was supplied for working capital wants, operational liabilities, and enterprise restart bills to the extent of Rs 3 lakh crores beneath the Emergency Credit score Line Assure Scheme (ECLGS) scheme. Round 60 lakh MSMEs availed of the ECLGS scheme, with round two-thirds of the sanctioned quantity disbursed within the first 9 months of the monetary yr. Whereas the scheme was in the suitable path there have been a number of points identified by MSMEs like inequitable distribution of funds, benefitting solely current debtors and never the first-time debtors, tedious documentation, and hefty registration price and stamp responsibility.
• A Fund of Funds of Rs 50,000 crores was arrange for fairness infusion into MSMEs to encourage them to reinforce their capability and get themselves listed on the inventory exchanges. Rs 10,000 crore would come from the federal government and the remaining Rs 40,000 crore was anticipated to come back from VC and PE companies to fund modern MSMEs and drive them in direction of progress and eventual itemizing on the SME or Startup inventory change. As of now, there is no such thing as a info on how a lot of this was mobilized and given out to startups and MSMEs.

Remaining ideas

The measures introduced final yr have been well-intentioned. The dipsticks talked about above confirmed that a few of them did work fairly properly in sure pockets, whereas some others had a lukewarm impact on the MSME sector. In abstract, there are two takeaways that must be saved in thoughts for the second wave. First, there are a number of basic roadblocks in the way in which our MSMEs work. Regardless of a number of well-intentioned bulletins, the actual fact stays that there are a disproportionate variety of compliance and regulatory burdens each MSME faces in comparison with bigger companies. The federal government must utterly shift its mindset to a facilitator from a regulator. Second, monetary and regulatory sops, whereas useful, don’t shut the loop for MSMEs. Extra structural adjustments which assist recharge the demand facet and enhance MSME operational efficiencies via know-how and expert labour could be the long-term technique to succeed in the aim of elevating MSME contribution to 50 per cent of India’s GDP.

Vishal Devanath is the Founding father of Smergers. Views expressed are the creator’s personal.