MSME credit growth: Can the 2024 Budget close the gap?

The MSMEs, or the Micro, Macro, and Medium Enterprises, contribute about 30% of the country's GDP, employing over 11 crore people. This sector has been playing a massive role in the economy, earning the nickname backbone of the economy. 

India is working hard to become a developed nation with a $5 trillion economy by 2025. The answer to this lies in the FY 2024-2025. 

In this blog, we will be taking a deep dive into how this Interim Budget 2024 will address MSME credit growth. 

Throwback on the Budget of 2023

The past BudgetBudget touches on sectors such as fisheries, agriculture and infrastructure, focusing on impacting millions of small businesses. 

It focuses on:

1. Credit Guarantee 

It introduces collateral-free guaranteed credit of Rs 2 lakh crore, aiming to reduce the cost of credit by about 1%.

The Aatmanirbhar Bharat was introduced to focus on traditional artisans and craftspeople, aiming to improve their products' quality, scale, and reach. It is not just a scheme of financial support but an advanced skill and knowledge of modern digital techniques with local and global markets. 

2. A relief fund for MSMEs- through Vivad se Vishwas 1

The 95% loss amount during the pandemic by MSMEs is to be returned by the Government as a relief to meet the ends caused by economic disruption.

3. Entity DigiLocker

It is a secure online platform where MSMEs, large businesses, and charitable trusts can store and share their documents without worrying about breaching. 

4. Presumptive Taxation

A proposal to support the timely payment to MSMEs and to deduct any payment only after the MSMEs get their payment.

To provide a unified Skill India Digital platform to enable demand-based formal skilling to connect with different employees and promote better access to entrepreneurial schemes. 

Achievement of FY2023

• So, looking back, the Ministry of MSME spent Rs. 23,583.90 crores in FY2023, which saw a 260% increase from FY19, which was Rs. 6,513.13 crores ($786.75 million).
• Despite initiatives like Mudra Yojana and Stand Up India offering subsidised interest rates and mitigating lender risk, it still yielded uneven results. 
• Compared to 2022, the credit access for medium, micro, and small industries slowed a decline in 2023.
• Compared to 47.8% in 2022, the credit to medium industries grew by 13.2% in June '23 and for micro and small industries by 13% compared to 29.2% in 2022. 

The sluggish growth raises crucial questions on how effective the Budget 2024 is. 

To find out how FY24 will impact the MSME credit growth, let's look at our reports from Union Finance Minister Nirmala Sitharaman. 

Before we jump on the BudgetBudget 2024, dive in to understand what went wrong. 

Factors Affecting the MSME Credit Growth

Look at some of the significant issues that could be the leading reasons why many MSMEs and Small and Medium-sized Enterprises face. There are: 

1. Too Complex Rules and Complaints- Having to go through too many rules and complex compliances can prevent many lenders from lending loans to small businesses. 

2. Lack of Government Initiatives- Due to improper connectivity, many small and medium-sized enterprises and MSMEs in rural areas may lack knowledge about government schemes and initiatives. 

3. Poor Credit Infrastructure- One of the main reasons for slow MSME credit growth in India might be a lack of proper credit infrastructure. It creates a physical barrier to accessing loans. 

4. Lack of Credit - The interest rate can daunt many SMEs and startups in India. Even if there are innovative ideas, a lack of credit scores, schemes, and high-interest rates can put them off. 

5. Collateral requirements and complex documentation- Other major elements hindering MSME credit growth are the filling of complex documentation and acquiring collateral can be hard on startups, SMEs, and MSMEs. 

How Interim Budget 2024 will Impact MSME Credit Growth 

On 1st Feb 2024, our FM presented the Interim Budget for FY24, highlighting our country's booming economy. During the 58-minute speech, FM Nirmala Sitharaman mentioned how India, for the past 3 consecutive years, has been witnessing a 7% GDP growth. 

To propel MSMEs' credit growth, here's what there are:

1. PM Mudra Yojana

Under this, it sanctioned about 43 crore loans to Rs. 22.5 Lakh Crore for youth aspiring to be entrepreneurs. It includes schemes such as Fund of Funds, Startup India, and Startup Credit Guarantee to encourage youth to become "rozgardata." It is a scheme focusing on empowering women entrepreneurs and youth. 

2. Tax Benefits 

Union Finance Minister Nirmala Sitharaman introduces a corpus of Rs. 1 lakh crore with 50 50-year interest-free loans. It is to provide long-term financial or refinancing with long tenors and even less or zero interest rates. 

The Emergency Credit Line Guarantee Scheme (ECLGS) was introduced under Aatmanirbir Bharat and TReDS to resolve any delayed payments for MSMEs. It focuses on timely and adequate finances, the latest technologies and appropriate training for the MSMEs to grow and compete globally. 

Conclusion 

To conclude, the Interim Budget 2024 will reflect on the MSME credit growth this year for many startups, SMEs and MSMEs to flourish. However, this 2024 budget should ensure that the issues faced by this economic sector are addressed through customised initiatives and schemes and by reducing the documentation and collateral process. 

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MVIKAS provides small and medium-sized businesses opportunities to compete globally through digital and easy loan access. Connect with them for better growth and high-quality logistics services. 

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