Interim Budget is a missed opportunity for MSMEs

On the positive side, bank credit to the MSMEs has been growing at a very robust pace; but informal units form the bulk of the Indian MSME ecosystem, and we are far from covering that universe

The Interim Budget announced by Finance Minister Nirmala Sitharaman on February 1 was a non-event, as it should be. In an election year, the government has unexpectedly, but wisely, stayed away from populist measures and showed restraint on the fiscal deficit. The Budget speech was short, and yet it did have one paragraph on small businesses as a policy priority for the government; although no substantial support measure was announced.

The Budget has allocated Rs 22,137.95 crore to the Ministry of Micro, Small and Medium Enterprises in 2024-2025, the exact quantum as the Budget Estimates (BE) and Revised Estimates (RE) for 2023-2024, with a few changes within the sub-components of the expenditures. So, we find that the outlay under the Prime Minister Employment Generation Programme is down to Rs 2,300 crore in 2024-2025 from the BE and RE for 2023-2024 of Rs 2,700 crore and Rs 2,958.22 crore respectively. The outlay under the Micro and Small Enterprise-Cluster Development Programme has been raised to Rs 400 crore in 2024-2025 compared to BE and RE of Rs 150 crore and Rs 180 crore respectively in 2023-2024. The PM Vishwakarma scheme, which was launched on September 17 for artisans and craftsmen, has been allocated Rs 4,824 crore, compared to the expenditure of Rs 989.52 crore last year.

Even though there was no new announcement specifically for the MSMEs, the sector will benefit indirectly through demand raised through other proposed measures — for instance, a push on capital expenditure with a Rs 11.1 lakh-crore budget outlay higher than the BE and RE for 2023-2024 by 11.1 per cent and 16.9 per cent respectively, a new housing scheme for the middle class, 50-year interest-free loans for state governments, etc.

However, the MSME sector needs more than indirect support. The Jocata-Sumpoorn Index, which was launched last year in association with SIDBI, shows that the growth in sales performance of the MSMEs slowed down in 2023 — the index moved in the range of 0.53-0.62 last year, while in 2022, the index had moved in the range of 0.56-0.73. Growth in real private consumption expenditure has slowed down from 7.5 per cent in 2022-2023 to 4.4 per cent in 2023-2024 and uneven monsoons last year hit rural incomes. Even as the economy has recovered post-Covid-19, and the government is optimistic about higher growth next year, forecasts have pegged a slowdown. The Reserve Bank of India (RBI) has estimated growth in real GDP to move down from the  7.3 per cent in 2023-2024 as per the First Advance Estimates to 7 per cent in 2024-2025. CRISIL expects a cyclical slowdown this year too. There are strong headwinds from the global economy which will impact the small businesses which have contributed more than 45 per cent to India’s exports so far in 2023-2024.

Even as the economy has recovered post-Covid-19, and the government is optimistic about higher growth next year, forecasts have pegged a slowdown. The Reserve Bank of India (RBI) has estimated growth in real GDP to move down from the  7.3 per cent in 2023-2024 as per the First Advance Estimates to 7 per cent in 2024-2025. 

What is concerning is that private investment proposals tracked by the Centre for Monitoring Indian Economy (CMIE) showed that while new projects announced in the October-December quarter were higher by almost 15 per cent from the preceding quarter, this was down by 77 per cent compared to the previous year — more critically, project completions continue to slow, with three consecutive quarters of decline in 2023. While the government has pointed to the Production-Linked Incentive (PLI) scheme for 14 sectors as a success — the scheme approved 746 applications till December of which 176 were MSME units, the fact is that projects need to get off the ground to impact growth and employment.

Here, untangling the regulatory cholesterol continues to remain a challenge that the government has identified but is working slower than needed. It is also true as the Chief Economic Adviser pointed out in the India Economy Review 2023, a large part of the responsibility lies with individual state governments in making governance “small-business friendly”.

On the positive side, bank credit to the MSMEs has been growing at a very robust pace at 19.1 per cent year-on-year in December compared to 11.8 per cent the previous year. The share of total bank credit to the MSMEs has been steadily rising over the years from 10-12 per cent last decade to more than 15 per cent now. Also, formalization is picking up — registrations on the Udyam Assist platform of informal enterprises has crossed 13.5 million this month.

But informal units form the bulk of the Indian MSME ecosystem, and we are far from covering that universe. Ideally, camps should be held across India to increase awareness and registrations, in the same mission mode as the Pradhan Mantri Jan Dhan Yojana and Aadhaar rollouts. This would be a game-changer for millions of entities starved of access to formal capital and government benefits. All said and done, the Interim Budget missed an opportunity to take forward such a transformation.

(Sumita Kale is CEO and Senior Fellow, Indicus Foundation. Views are personal.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.