February , 2021
Impact of Budget 2021 on MSME sector
11:05 am

Kishore Kumar Biswas


Budget 2021 has doubled the allocation for the MSME sector. The allocation has been raised to `15,700 crore from `7,572 crore in the previous fiscal. It has also focused on promoting domestic manufacturing to help the MSMEs. MSMEs have a very big role in the economy and Budget 2021 has helped the sector in different ways.   


The MSME sector in the Indian economy


The MSME sector has been important for its employment generation capabilities. It employs about 110 million people across the country. In terms of exports, the sector has been well known for being an integral part of the supply chain of different products. It contributes about 40% of its overall exports. It is also considered as an element of the growth accelerator of the economy because it produces about 30% of the total GDP of India. It has a huge presence in rural areas as it is estimated that more than half of the MSMEs operate in rural India.  


MSME and ‘Atmanirbhar Bharat’


A few months ago, the Union government brought in several changes in the definition of MSMEs. These changes have been considered as the biggest reforms in the sector. The classification of MSME has been revised. Under these revised criteria, an MSME unit would be placed under micro or small or medium categories by a combination of factors like level of investment in plant, type of machinery and turnover. The earlier classification was based only on investment in plant and machinery and nature of business - like manufacturing or services. The government is focusing on a vibrant MSME sector.  


Budget supports MSME in indirect ways


In addition to budgetary allocations, there have been some proposals that are meant to boost the sector. The Budget has focused on promoting internal economic activities as against promoting imports opportunities. Proposals for enhancement of import duty on mobile parts, auto parts, exemption of duty on steel scrap up to March 31, 2022 should help the MSME sector to a large extent. Moreover, the proposals of reduction in customs duty on steel products and rationalisation of duties on import of duty-free items are expected to impact the MSME sector positively.


There are many labour intensive sectors which employ a large number of skilled and semi skilled people in the country. India has a comparative advantage in these industries. So the Budget has addressed these areas. The Budget has highlighted on duty-free imports of items which are inputs of industries like garments, leather and handicrafts. This would help those sectors. Additionally, the budget proposal for relief to copper recycles through duty reduction on copper scrap and finished synthetic gemstones should also be positive for Indian MSMEs. Lastly, the budget has also proposed the introduction of a special framework of debt resolution for MSMEs.


Critique of budget allocation for MSMEs


Many observers consider that the majority of the allocation for 2021-22 is for the Emergency Credit Line Guarantee Scheme. But more could be done directly. It is true that the government has taken steps to increase the skill development of the MSME sector. The allocation of `300 crore for establishment of new technology centres for MSMEs is a positive step. According to the Federation of Indian Small, Micro and Medium Enterprises (FISME), reduction of customs duty on different items would be of help for the MSME sector as it would reduce their cost of production.


Some critiques think that as a huge number of people are involved in this sector and a large number units have been in crisis; the budgetary allocation is not enough. A few days ago, Biswanath Bhattacharya, President FOSMI told the BE that the units who had been suffering from the pre-Covid period needed special treatment. But those units which were affected in the Covid period were reaching their pre-Covid levels. It can only be hoped that the increased budgetary allocation for MSMEs will help the sector and positively reflect on the overall economy.



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