Opportunity to Unleash MSMEs’ Full Potential

In 2022, India surpassed the United Kingdom as the world’s fifth-largest economy, and it is on track to meet Prime Minister Narendra Modi’s vision of a $5 trillion economy by 2026-27. Despite fears of a global recession, supply disruptions, and the Russia-Ukraine conflict, India has emerged as a bright spot, growing faster than the majority of major emerging markets. The government’s 2023 budget presents an opportunity to make Indian MSMEs more competitive and self-sufficient.

What are MSMEs? How are they defined?

  • The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, which became effective on October 2, 2006, defines MSMEs. The MSMED Act of 2006 defines Micro, Small, and Medium Enterprises as those that invest in plant and machinery for those engaged in manufacturing, production, processing, or preservation of goods, and those that invest in equipment for those engaged in providing or rendering services.

MSMEs in India at the moment

  • This spirit of resilience can be seen in the 6.3 crore micro, small, and medium enterprises that account for 30% of GDP and employ nearly 11 crore people.
  • With sales in several industries in the MSME sector reaching 90% of pre-pandemic levels, India’s small businesses are on the mend.

Union budget 2023: A chance to make MSMEs more competitive and self-sufficient

  • Input tax credit simplification for e-commerce suppliers: Currently, suppliers selling on e-commerce platforms must obtain input services such as logistics, which are taxed at 18%. This causes valuable working capital to be blocked with no visibility into future realisation, potentially discouraging suppliers from using e-marketplaces.
  • Adequate working capital for small businesses is essential for meeting fixed expenses such as electricity, rent, and employee wages, as well as investing in future growth.
  • Reduced GST rates on input services: By lowering GST rates on input services used by online sellers, the government will not only strengthen their finances but also help them on their way to digitisation. Refunds of accumulated input tax credits will also help their cash flow situation.
  • GST relaxation for small online businesses should be expedited: There is also a need to expedite GST relaxation for small online businesses. Last year, the GST Council announced a landmark decision to relax rules for small businesses looking to go online.
  • GST relaxation measures for small online vendors: Among other things, mandatory GST registration has been waived for small online vendors with a turnover of less than Rs 40 lakh for goods and Rs 20 lakh for services.
  • Unlocking the Potential of MSMEs Through Digitization: With only 10% of our MSMEs currently online, rapid implementation of these new norms is critical to realising their full potential. Millions of small businesses are awaiting the benefits of digitisation, which include a much larger addressable market, increased efficiencies, and easier access to capital.
  • The National Logistics Policy (NLP) can also be used to boost the competitiveness of MSMEs: The NLP aims to reduce logistics costs as a percentage of GDP from 13-14 percent to 8%, putting the country on par with developed nations. While lower costs will encourage more MSMEs to use logistics services powered by technology, they will require assistance to meet rising e-commerce demand from smaller towns and semi-rural areas.
  • Indian post and railways can be used for low-cost last-mile delivery: The government could enlist India Post as a technologically advanced last-mile delivery partner capable of facilitating cash-on-delivery transactions at competitive prices. Similarly, the unparalleled reach of Indian Railways can be leveraged to quickly and cost-effectively ship goods to the most remote parts of the country.

Why the MSME sector is important especially for India?

  • Employment: The Indian MSME sector provides maximum opportunities for both self-employment and wage-employment outside the agricultural sector.
  • It contributes to the development of an inclusive and sustainable society in numerous ways, including the creation of low-cost non-farm livelihoods, balanced regional development, gender and social balance, environmentally sustainable development, and so on.
  • Khadi and village industries, for example, require low per capita investment and employ a large number of women in rural areas.
  • Contribution to GDP: With approximately 36.1 million units spread across the country, MSMEs contribute approximately 6.11% of manufacturing GDP and 24.63% of service GDP.
  • Exports: It accounts for approximately 45% of India’s total exports.

@the end

With a visionary government charting the nation’s growth path, the budget is expected to address MSMEs’ challenges and bring us closer to the dream of an Atmanirbhar Bharat.

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