By Pushkar Mukewar, CEO/Co-Founder, Drip Capital
This time of the year, conversation in India generally veers towards the Union Budget as it provides a roadmap to how the country will function within the next year. To be sure, there will be a lot of welfare measures and some crowd-pleasing steps. But the trade industry is looking for more in the upcoming Budget.
Just as the country’s Micro, Medium and Small Enterprises (MSMEs) were recovering from covid-19’s second wave damage, the Omicron variant hit. Now, small industries are hoping for a helping hand from the Budget. The MSME sector, in particular, is anticipating that the government will relieve some long-standing pain points and provide them with more assistance. For instance, in 2021, the government announced that it was earmarking Rs 15,700 crore to aid MSMEs through various schemes. This year, the sector is looking for more policy decisions that will allow MSMEs to become an integral component of the Global Value Chains (GVCs).
GVCs are simply the mechanism by which production processes for different goods are carried out in various countries. A Brookings report says that ‘more than two-thirds of world trade today takes place within value chains that cross at least one border during production and often many borders.’ The report adds that breaking up the production process provides new opportunities for integrating rich and poor economies, with potential benefits for each.
In India, MSMEs are well-placed to be a part of the GVCs but face challenges at the integration stage. Efficiency, productivity, and quality are often not seen in the light of a global production process. To improve these aspects, MSMEs need a boost in infrastructure, easy access to credit, as well as robust policy support, which is why MSMEs are looking towards the Finance Minister to see what the new Budget holds in store.
Indian MSME traders want the government to prioritize rebuilding a more sustainable and resilient domestic supply chain, so they can sustain and grow and eventually become a valued part of the GVCs. With that thought in mind, the following appears on the MSME wishlist from Budget 2022.
Improved Access to Funds: Various government initiatives and private players have tried to address this long-standing demand. However, not enough has been done. This time around, the MSME sector hopes for a simplified tax structure coupled with measures to incentivise lending to MSMEs. With the right and sufficient incentives, non-banking financial companies can better aid and lend to the credit-starved MSMEs.
GST Rationalisation: Strictly speaking, this is not a Budget demand as GST comes under the GST Council.
However, a request has been made to the Finance Minister to rationalise GST on raw materials. Various MSME associations and traders’ organisations have also asked the Finance Minister to exempt small traders from GST. This will benefit new small businesses, particularly those using e-commerce platforms.
Import Duty on Raw Materials: Apart from GST, high import duties also impact raw material prices. The All-India Council of Associations (AICA) of MSMEs has been speaking out about the rising raw materials prices, urging the government to slash or remove import duty on crucial raw materials. The industry hopes the government to resolve this issue in the upcoming Budget.
Improved Infrastructure: Every Finance Minister talks about infrastructure in the Budget, and in this space, the allocation of funds occurs regularly to improve warehousing and freight capabilities. In addition, some industry observers have also said that the government should make a statement on the much-awaited National Logistics Policy, which promises sweeping changes in logistics infrastructure.
Focus on Technology: A digital ecosystem is essential for MSMEs to join the GVCs. But given that more than half of India’s MSMEs hail from rural areas, digital reliance is not uniform given primary challenges like lack of connectivity and limited technical knowledge. To resolve this issue, a section of MSMEs has asked the government to push local language and mobile-first apps to help them digitise areas like financial management and workforce management. Increased digitisation of MSMEs will enable these businesses to integrate better with the global supply chain.
Overall, MSMEs want the road ahead to be smoother than before. With better access to credit, affordable raw materials, and improved digitisation, there is no reason why India’s MSMEs cannot be a valuable part of the GVCs.
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