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Expert Opinion: MSME Budget Expectations

Updated: Jan 17, 2023

Expert Opinion: MSME Budget Expectations

Author: B. Yerram Raju

Budget support should be growth directed and any fund or grant should have a sunset clause. Hence, budget allocation should be restricted to the micro and small manufacturing enterprises as the services sector has the advantage of passing on the shortfall to the consumer and is also subject to GST after the threshold levels.

Scaling up of enterprises should be incentivised and such incentive should be fiscal and not financial. Hence, micro enterprise when graduated to small, should have a tax holiday for a year and so should be for the small, when graduated to medium.

Human resources constitute an important element of every type and size of an organisation. Safety nets become important, particularly viewed in the context of natural calamities and severe health hazards.

Existing EPF is hardly adequate to take care of such eventualities as we noticed in the pandemic, for the micro manufacturing, artisans, khadi, village, and cottage industries.

For instances in the farm sector, all such enterprises should be covered with specific insurance for employees, with the government(s) paying the premium annually. This would also enable data on employment more dependable for synchronization of other benefits to the sector.

It is necessary that we have a periodical census of the MSMEs that spread across several sectors – agriculture, KVIC, artisans, rural development, technology, Food processing, textiles – power looms, handlooms, as none is aware of mortality of enterprises.

A sample study of 1079 units of SIDBI in the wake of pandemic revealed that 63 per cent units are closed and 67 per cent lost 50 per cent of revenues.

Similarly, ISID (Bengaluru) in a study found out only 16 per cent of the micro manufacturing units (as defined in July 2020) are functional. Mortality of units is not captured in any reliable data frame. This will be possible only when a census is taken periodically.

Incubation, Design, Digitization and IPR for the MSMEs should get specific allocations and they should be allocated to Aspirational and ODOP districts separately.

The law of proportionality demands that the manufacturing micro and small should be under a separate law and separate budget so that the push for manufacturing that the government targets is achieved through strengthening these front-enders of the supply chains.

Revival and restructuring of viable manufacturing enterprises would ensure that the assets capable of output are not wasted.

Hence the fourteen states including Jammu and Kashmir that have preponderance of MSMEs should be allocated a matching grant support through special dispensation if these states have an accountable and institutional arrangement for such revival process.

My humble estimate of non-revival of viable MSEs costed the nation 5-8 per cent of Industrial GVA, pre-covid and 10 per cent post-Covid. Special Fund should be announced for the purpose so that Parliament and the Finance Committee of the Parliament would have scope to review it and make such corrections as required.

Disclaimer: The writer is an economist and risk management specialist and author of The Story of Indian MSMEs – Despair to Dawn of Hope. Views are personal.


Yerram Raju


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