The Micro, Small and Medium Enterprises (MSMEs) Sector
MSMEs play a crucial role in the Indian economy. They account for around 30% of the country’s GDP, 48% of its exports, 95% of the country’s industrial units, and 40% employment of India’s workforce. There are around 633.9 Lakh MSME units in the country.
2023 is expected to be a pivotal year for the Indian MSME sector. Despite facing unprecedented challenges for the two years that were ravaged by the pandemic, the MSMEs found opportunities and ways to evolve, grow and emerge stronger
Breaking out of the traditional ways of doing business, forward-looking enterprises in the segment have embraced new trends, and adopted new technologies, digitisation and branding via online channels. A survey by PayPal titled ‘MSME Digital Readiness Survey 2022’ stated that 52% of small businesses saw a favourable influence of digitalisation on their business once economies reopened after two years of the pandemic. All this has opened up new avenues for them.
To enable smaller/younger companies to raise money from the public through the capital markets, SEBI has allowed both the BSE and the NSE have separate trading platforms within the main stock exchanges, where shares of SMEs are traded. These are called SME exchanges. The founder of MSMEx – a micro advisory platform providing business advisory and consulting services – expects over 10,000 companies to list on the SME Exchange in the next five to ten years.
The Union Budget 2023 has also announced a number of proposals to promote more inclusive development and enable faster growth in the entrepreneurship ecosystem of the nation. Key proposals for the MSME sector were:
- A budget allocation of around ` 22,140 Crore for the MSME sector. This is a 42% increase from previous years. This allocation will go towards implementing various schemes to provide easy and affordable access to credit, technology upgrades and infrastructure development.
- Several tax incentives and subsidies to help MSMEs.
- An ` 10,000 Crore fund for the development of technology and infrastructure in the MSME sector. This fund will provide financial support to MSMEs to adopt new technologies, enhance their production processes and modernise their operations.
A national-level mentorship programme to provide guidance to MSMEs.
- A series of reforms announced to make access to credit easier for MSMEs and a fund was set up to provide credit guarantees to them.
- A new credit-linked capital subsidy scheme to purchase new machinery and equipment.
- As of April 1, 2023, the Finance Ministry plans to infuse ` 9,000 Crore into the Credit Guarantee Fund Trust for Micro and Small Enterprises Credit Guarantee Scheme.
- Provide additional collateral-free credit of ` 2 Lakh Crore to MSMEs while reducing the credit cost by one per cent.
- This Budget has also given the means for MSMEs and small businesses to move towards non-cash transactions and ease compliance, with the presumptive taxation schemes.
- The establishment of funds for promoting entrepreneurship and enterprise development in traditional sectors like agriculture and handicrafts along with skill building is also a key component in the budget.
- Startups, which are changing their shareholding, are provided with the benefit of carrying forward their losses associated with the change in stake in this Budget.
Going forward, these measures will create a more enabling environment for MSMEs.
The RBI and policymakers have also been doing their bit to facilitate NBFCs, having recognised the contribution of NBFCs in supporting real economic activity and meeting the credit demand, especially reaching the unbanked. The recent RBI Scale based norms is another welcome step for the industry that will elevate the status of NBFCs in line with several other public sector NBFCs. Under these revised norms, NBFCs can be expected to attain more operational flexibility to meet the increasing credit demand and aid India’s economic growth.
According to an ICRA report, in 2023 non-bank lenders will focus on reviving growth by improving asset quality supported by increasing retail demand and liquidity. As part of the same, MSME sector and other developing sectors will witness increased participation from NBFCs. Also, with the introduction of 5G services in the country, more NBFCs will tap into exploring Artificial Intelligence and Machine Learning for offering services or full-fledged applications.
