Nirmala Sitharaman, the Finance Minister of India, presented the Union Budget on February 1, 2023, which was the current government's last full-year budget. Highlighting several key features of the budget, she focused on driving economic growth for India for the upcoming financial year 2023-2024 and for the next 25 years, which the government is calling Amrit Kaal. There were specific announcements for the MSME sector as well.
The MSME sector in India is facing several challenges, such as limited access to credit, lack of awareness, limited technology adoption, and lack of market access. The sector has immense potential though, and with the right support, the MSME sector can emerge as a key driver of economic growth in India.
Read ahead to learn more about what the budget had in store for small businesses and startups!
The MSME Sector of India
The Micro, Small, and Medium Enterprises (MSMEs) sector in India has contributed immensely to the Indian economy over the last few decades. Small businesses in particular contribute to the country's gross domestic product (GDP) and generate significant employment opportunities through millions of jobs. The entire sector provides an avenue for enterprising people to start their business ventures and become economically independent.
The Government of India provides a range of support to MSMEs and startups through various policy measures and schemes. These include easy access to credit, technology upgradation, and marketing support, amongst others.
The sector has displayed remarkable strength in the face of economic slowdown and global recessionary trends post-pandemic, being one of the fastest-growing pillars of the economy. In fact, about 52% of the Indian MSMEs saw a positive impact on their businesses post-pandemic.
Union Budget 2023: Proposals for the MSME Sector
The Union Budget 2023 was comprehensive and focused on increasing capital expenditure for the upcoming financial year to boost economic growth. It was increased by 33% to $122.29 billion to meet all targets of planned infrastructure projects in the country.
Small businesses have also received considerable support from the government after the initial distress during the pandemic. The Budget included several initiatives, which are listed below:
The Emergency Credit Line Guarantee Scheme (ECLGS) brought much-needed support to several MSMEs after the pandemic, extending secured lines of credit to small and medium enterprises. It came as a saviour for many micro, small, and medium firms in India that were struggling to survive due to the lack of sufficient capital. The scheme was extended to March 2023 to continue supporting the sector, while additional capital was also allocated for hospitality and other sectors.
Ease of Doing Business: With the goal to improve efficiency, the digital portals of the Ministry of Labour and Employment and the Ministry of Skill Development and Entrepreneurship were linked with the Udyam portal to enable the MSME sector to find skilled employees and help increase employment in the country.
Raising and Accelerating MSME Performance (RAMP): The Prime Minister of India inaugurated the RAMP program in 2022. It will be implemented over five years to benefit the MSME sector in several areas by improving market access, credit, and others.
For the financial year 2023-2024, Finance Minister Sitharaman announced the following measures for the MSME sector in the Union Budget 2023:
Vivad se Vishwas I: Through the Vivad se Vishwas I scheme, MSMEs would be benefited to a large extent since the government would be refunding 95% of the security amount any MSME had deposited for a performance or bid security for a contract in case the MSME was not able to complete the project within the Covid period.
Entity DigiLocker: The Union Budget 2023 announced that MSMEs will be able to access an Entity DigiLocker, which will help them store important documents and agreements digitally for easy access and for sharing with government departments, other businesses, and regulators. It would enhance the privacy and security of their documents.
Skill India Digital Platform: The Skill India Digital Platform will be launched, as indicated by the Union Budget 2023, to empower our citizens with the skills in demand in the market. The skilled workforce will be linked to MSMEs for employment, which will also benefit the MSME sector with access to skilled labour.
Credit Guarantee for MSMEs: The Finance Minister announced in the Union Budget 2023 that the credit guarantee scheme meant for MSMEs would be updated this year with effect from April 1, 2023. The corpus will also receive an infusion of INR 9000 crores, enabling INR 2 Lakh crores of additional collateral-free guaranteed credit.
Metals: Those MSMEs who are secondary copper producers will be benefited through a new announcement in the Union Budget 2023. For easy access to raw materials, the concessional Basic Custom Duty of 2.5% will be continued on copper scraps.
Increased Limits of Presumptive Taxation: MSMEs and professionals will be positively impacted as the Union Budget 2023 announced the increase in the limits of presumptive taxation to INR 3 crore and INR 75 lakhs for micro-enterprises and certain professionals, respectively. The budget announced the approval to use deductions on expenditures made on payments made to them, but only when the payment is actually made. This will improve the cash flow for such firms.
Startups: There was a slew of benefits announced for startups in the Union Budget 2023. Startups were allowed to carry forward losses for 7 years from the incorporation of the firms. This period was proposed to be increased to 10 years. The condition for holding 51% of the startup to avail of these schemes would also be relaxed if all shareholders continued to hold those shares.
Extension of tax benefits for startups: A few startups were eligible for tax benefits if they were incorporated before April 1, 2023, but this has been extended up to April 1, 2024, as announced in the Union Budget 2023.
Agriculture Accelerator Fund: Startups involved in the agriculture sector would benefit from this scheme announced in the Union Budget 2023, which aims to bring in reforms in the industry through innovative solutions.
Small businesses and startups are a critical part of the Indian economy and are vital to the country’s development. The sector has significantly contributed to employment generation, exports, and industrial output. The sector has great potential for further growth and expansion and can play an important role in the country’s economic development.
The Union Budget 2023 made some great announcements for the sector, which are slated to help the sector greatly. The government must now focus on implementing the proposals, while the MSME sector and startups should fully benefit from the schemes available.
We hope this article helped you learn about the various proposals for small businesses and startups in the Union Budget!
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