Union Budget: MSMEs want extension in the timeline of the ECLGS for another year

New Delhi, Jan 20 (KNN) As the countdown to the Union Budget 2022-23 has begun, the micro, small and medium enterprises (MSME) sector has pinned hope on the government for increase in budgetary outlay for their sectors.

The pandemic led business losses and disrupted supply chain have destabilized the business ecosystem. The government’s budget allocation for 2021-22 for MSMEs was Rs 15,700 crore vis-à-vis Rs 7,572 crore in 2020-21.

Pradeep Multani, President of PHDCCI, has suggested an extension in the timeline of the Emergency Credit Line Guarantee Scheme (ECLGS) for another year, until March 31, 2023. The chamber also wants the extension of the reduced rate of performance security at 3% for one more year till December 31, 2022.

ECLGS was launched by the government of India as a special scheme in view of Covid 19 crisis. The ECLGS provides 100 per cent guarantee coverage to Banks and NBFCs to enable them to extend emergency credit facilities to business enterprises and MSMEs in view of Covid 19 to meet their additional term loan and additional working capital requirement.

“We appreciate the reduction in the corporate tax from the peak rate of over 30% to an effective rate of around 25%. However, we suggest a reduction in tax on MSME firms working as proprietorship and partnerships. For such businesses, the maximum tax slab should be brought down to 25%.

For the new units, the effective rate is around 17%, so we suggest to enable the entities to take benefit of Section 115BAB the time limit allowed to start manufacturing by a new unit may be extended by at least a period of 24 months — the new unit shall be allowed to start manufacturing by March 31, 2025,” Multani said.

The Federation of Indian Micro and Small & Medium Enterprises (FISME), the apex body for MSME associations in the country, pointed that the pandemic has adversely impacted SMEs, and many accounts turned non-performing assets (NPAs) even with an extended NPA classification from 90 days to 180 days.

As the security and collateral remains usually fully used in MSMEs, the inability of the promoter to bring in additional security during restructuring becomes a serious handicap. For units impacted during the Covid pandemic, suggests FISME, the government can extend a guarantee cover of 100% for the additional security needed for restructuring.

It also says that while measures like the Emergency Credit Line Guarantee Scheme (ECLGS) helped many MSMEs, several of them have remained outside the support system.

Animesh Saxena, President, FISME suggests that the branch managers need to be empowered to decide on restructuring proposals by giving them flexibility to go beyond benchmark norms. Such relaxation is required for deviation from standard benchmark norms on inventory days, receivable days and margin requirements, among others.