2020 Union Budget and What’s in it for MSMEs

February 21, 2020
Harshna Paroha

“MSMEs are vital to keeping the wheels of the economy moving. They also create jobs, innovate and are risk-takers. Several measures for the MSMEs have been taken in the past few years. There are more steps proposed in this budget also.” – Nirmala Sitharaman, finance minister, at the Union Budget 2020

The new budget detailed how the government is planning to support the MSME sector to become more digitized, competitive and creditworthy. 

Here’s what the Budget presented for MSMEs:

  1. Allocation of funds: The government has allocated an all-time high amount of Rs. 7,572.20 crores for the Ministry of Micro, Small and Medium Enterprises 
  2. Reduction in turnover amount for audits: In an attempt to reduce the compliance burden on MSMEs, the union budget 2020 has proposed to raise the internal audit turnover threshold from Rs. 1 crore to Rs.5 crores. This will only be applicable for businesses who carry out less than 5% of its business transactions in cash.
  3. Digitised invoicing: The budget also proposes to launch an app-based invoice financing product that will minimise the cash-flow issues faced by MSMEs by solving the problem of delayed payments.
  4. Amendments to the Factoring Regulation Act 2011: This amendment will enable NBFCs to extend invoice financing to the MSMEs through TReDS, further improving cash flow while also allowing MSMEs to reinvest in operations and growth sooner.
  5. Extending the debt restructuring window: Previously the debt restructuring scheme helped over five lakh MSMEs either reduce their interest on a loan or extend the repayment window.  In lieu of how MSMEs benefit from this scheme, the government has urged that the RBI should consider extending the debt restructuring window till March 31, 2021.
  6. Government E-marketplace: In order to facilitate smooth procurement, GeM to create a Unified Procurement System for providing a single platform to MSMEs for procurement of goods, services and works.
  7. Scheme for hand-holding support: To make mid-size companies globally competitive, the budget also introduced a scheme of Rs 1,000 crore was also announced to extend handholding support to selected sectors such as pharmaceuticals, auto components and others will be given handholding support – for technology upgradations, R&D, business strategy
  8. Budget to provide training to SC/ST entrepreneurs: A sum of Rs 150 crore has been allocated to provide professional support to SC/ST entrepreneurs through training programmes.
  9. Increase in SFURTI allocation: The budget also outlined in an increase in funds Allocated for the ‘Scheme of Fund for Regeneration of Traditional Industries’ (SFURTI) to Rs 465 crore from Rs 125 crore.
  10. Restraint on import of MSMEs produced items: The budget also marked the need to restrain import of those items which are being produced by the country’s MSMEs sector. Customs duty is being raised on items like footwear and furniture.
  11. Working capital support: Sitharaman proposed to introduce a scheme that will allow banks to provide subordinated debt for entrepreneurs of MSMEs. This debt will work as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE). 

Overall the 2020 union budget has woven together with thoughtful proposals that seek to tackle varied issues faced by MSMEs in regards to cash inflow, working capital and financing.

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