BUDGET 2023: Budget 2023: Scrapping of key MSME schemes worrying, say industry experts

The government has announced a number of schemes over the years to boost the MSME sector, but has also discontinued many useful ones, industry experts said. Key schemes such as the 2% interest subsidy for all GST registered MSMEs and the interest subsidy for incremental loans could have been expanded to support the sector, which is currently facing multiple national and global challenges, they noted.

“I would wonder why the MSME extension program, which provides a 2% interest subsidy for incremental loans to MSMEs, also ended and has never been extended thereafter. I think that this and the interest subsidy for incremental loans are incentives for the sector to invest more, develop more capacities, buy new technologies, etc. said Rajiv Chawla, Founder and Chairman of IamSMEofIndia, at ET Online’s Rising Bharat Summit.

The 2% interest subsidy scheme was announced by the government in November 2018 and existed until March 31, 2021. It was launched to provide interest relief to MSMEs on their outstanding new or incremental term loans or working capital in the measure of Rs 1 crore.

“Maybe the government is short of budget, maybe they think the schemes have outlived the utility for whatever reason. I think the MSME sector is really missing these good schemes,” Chawla said, adding that MSMEs require more support now than before.
Apart from reconsidering these schemes, the government should also look beyond output-linked incentive (PLI) schemes, said Anil Bhardwaj, general secretary of the Federation of Indian Micro, Small and Medium Enterprises (FISME). “For the MSME sector to grow, PLI-type schemes would not be very helpful because they require a very large outlay to take advantage of,” he said.

How are previously launched MSME schemes working?
In Budget 2022, the government announced measures such as the Emergency Credit Line Guarantee Scheme (ECLGS) for Covid-affected MSMEs. Another facility to restructure loans without downgrading the current asset classification was launched on August 21, 2020 to help MSMEs cope with the post-pandemic recovery. However, the scheme was discontinued on September 30, 2021. Commenting on the performance of previously launched MSME schemes and whether they had the expected results, Madan Padaki, co-founder and CEO of Global Alliance for Mass Entrepreneurship (GAME), said : “I think some of the schemes, especially the post-Covid ECLGS scheme, ensured that credit was available to MSMEs affected by the pandemic in an emergency. I think we’ve seen a lot of benefits from that scheme and we’ve really seen MSMEs benefit from these schemes. So I think some of these things have worked to some degree. But my key takeaway from all these schemes is that even at the Center and state level, there is no shortage of paper schemes. What really matters is how it is getting to the ground – what awareness is being created and how it is being implemented on the ground,” he added.

Challenges for MSMEs
Commenting on the challenges faced by small businesses, FISME’s Bharadwaj said that while some segments in the MSME sector have recovered, others are still struggling. “Some exporters or suppliers, particularly those serving Europe, were affected. Consumer spending, as you know, is affected by high inflation there, and industrial sectors have been hit by power shortages amid the ongoing war between Russia and Ukraine.”

A large number of product categories that were historically reserved for small-scale industries, and now called MSMEs, suffer from technology gaps. “So a massive technology upgrade is needed,” he added.

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