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Union Budget 2019: MSMEs To Avail INR 1 Cr Credit Within 59 Minutes


The MSME sector has been provided employment to almost 120 Mn people and has been growing at a consistent rate of 10%

In Union Budget 2019, the finance minister proposed faster credit lines for MSMEs

The government has decided to extend the pension benefit to about 3 crore retail traders & small shopkeepers

Micro and Small Medium Enterprises (MSMEs) form the backbone of the national economic structure of India. They play a crucial role in creating employment opportunities as well as in the industrialisation of the rural and backward areas. With almost 63.4 Mn units across India, this sector has provided employment to almost 120 Mn people and has been growing at a consistent rate of 10%.

Comprising of manufacturing, service industry, logistics, infrastructure, food processing, packaging, chemicals and IT, MSMEs ward off the global economic shocks and are also an important employment generator for the country.

This sector currently contributes to over 28% of the GDP, 45% to manufacturing output, more than 40% of exports. According to DataLabs by Inc42, the total GVA (gross value added) of the Indian MSME sector by FY’20 is estimated to be $866 Bn, growing at a CAGR of 11.12%.

But despite its contributions, MSMEs suffer from many structural impediments. Factors such as credit deficit, lack of infrastructure and extremely low access to new technologies among others, have long held back small businesses. It is common knowledge that to flourish small and medium businesses need credit and reliable infrastructure and this is where Nirmala Sitharaman has focussed on predominantly in the Union Budget 2019. By providing benefits such as ease of availing INR 1 Cr credit within 59 minutes and promoting digital payments, among others.

MSMEs Are Important For India’s $5 Tn Aspirations

Amongst many reforms for the MSME sector, the government has taken the following steps for the growth of the sector in India:

  • Raising the ceiling for the lower corporate tax rate to 25% of companies with an annual turnover of up to INR 400 Cr from INR 250 Cr, enabling them to reinvest and expand
  • Enabling use of fintech in financing space for the growth of MSMEs

Reforms In The Union Budget 2018:

  • Unique IDs for enterprises, SMBs and MSMEs
  • The budgetary allocation from INR 6,481.96 Cr in 2017-18 went up to INR 6552.61 Cr in 2018-19
  • The allocation for individual schemes (apart from CGTMSE) went up by 59%, from INR 3,680 Cr in 2017-18 to INR 5,852.61 Cr in 2018-19

Reforms In The Union Budget 2019:

This year, reiterating on the great role of MSMEs in India’s growth, there are various measures taken by the finance minister in the 2019 budget aiming at bolstering the MSME ecosystem in India. Commenting on the reforms, Sanjay Sharma, MD & CEO, Aye Finance, said, “There are a lot of interesting areas that are in focus in the current budget. The primary focus of the budget has been on cranking up growth, job creation and improving the rural infrastructure.”

He further added, “This is critical to the broader national growth, especially as the ongoing digitization is making India an ever-connected market. The government pledging to create a payment platform for MSMEs for single-window filing of bills and payments, will not only make the process seamless for MSMEs, extending the purview of our formal economy, but also increase the digital footprint of their business. This will further ease MSME lending by creating superior visibility in the sector. We believe that India is making all the right moves in the right direction.”

Among the many pointers mentioned in the budget that benefit the MSME sector, some noteworthy ones’ brief:

  • For ease of access to credit for MSMEs, the government has provided a service for MSMEs to avail INR 1 Cr credit within 59 minutes through a dedicated online portal. Under interest subvention scheme for MSMEs, INR 350 Cr has been allocated for the year 2019-20 for 2% subvention for all GST-registered MSMEs on fresh or incremental loans.
  • Sitharaman spoke about the government’s efforts in the promotion of rural entrepreneurship through incubators and rural entrepreneurial skill development programmes for MSMEs. For the same, 80 livelihood business incubators and 20 technology business incubators will be developed by 2020 to help prop up 75K agritech entrepreneurs.
  • To discourage cash payments, TDS of 2% for withdrawals of INR 1 Cr in a year from bank accounts​​ for business payment purposes has been proposed. Further, low-cost digital modes of payments such as BHIM, UPI, Aadhaar Pay, certain debit cards can be used to promote a cashless economy. With many startups specialising in facilitating electronic invoices, this move of the government will promote the adaptability of them over cash driven paper invoices. The MSME sector will benefit with this as it enables formalisation of record keeping, especially when it comes to trade invoices.
  • Public sector banks will be provided INR 70K Cr to boost capital and improve lending capacity, which should act as a strong impetus to the economy. To further improve the ease of living, banks can leverage technology for online personal loans, doorstep banking and interoperability. In addition, the government will initiate steps to empower account holders. This will impact the credit supplies in the MSME sector, nearly 40% of which were through informal channels in 2018.
  • Encouraged by the overwhelming response, the Government of India has decided to extend the pension benefit to about 3 Cr three crore retail traders & small shopkeepers whose annual turnover is less than INR 1.5 Cr under a new scheme namely Pradhan Mantri Karam Yogi Maan-dhan Scheme. Enrolment into the scheme will be kept simple requiring only aadhaar and a bank account and rest will be on self-declaration.

Technological Innovations Revolutionising MSME

With the government also pushing fintech and other technological innovations for the MSMEs, the sector is embracing the power of technology to scale and become more efficient in India. Owing to this, the opportunities for startups and tech giants are set to grow multifold. Tech giants are keenly working with the MSMEs to understand its market, opportunities, and challenges to help them efficiently penetrate into this vibrant sector and support it in its scaling-up journey. This includes addressing the fundamental problems in financial inclusion, technology penetration as well as hiring and upskilling.

MSMEs are also being targetted increasingly by digital lending startups to provide them the ease of access to credit, which is an important aspect for any business. Backed by increasing internet penetration in Tier 2 and 3 cities, where MSME businesses are higher in number, new-age digital lending have disrupted the lending models of banks and non-banking financial companies.

While the core facilitators of these new-age innovative technologies for small businesses have been many such as products, services, and partnerships personalised for businesses by corporations such as Dell, MSMEs are seeing tremendous participation of giants as well. Dell, for one, has been working diligently by partnering with MSMEs on a variety of initiatives.

Curating 30+ solutions specially for MSMEs, Dell and its associates, including Microsoft, Intel, and McAfee, among others, unveiled the Dell Small Business Solution Centre in Bengaluru last year. The centre aims at hosting networking and collaboration events to further foster the Indian MSME and startup ecosystem. Furthermore, aiding their issues with taxes, such as the GST, it has teamed with SAP India, providing a pre-packaged ‘GST in a Box’ solution running on infrastructure solutions of Dell EMC.

Will MSME Potential Be Harnessed Fully Post Budget 2019?

The MSME sector in India has long been crippled by the lack of access to finance and a dearth of funds, an Under Intellecap report pegs the credit gap at a humongous INR 16.66 Lakh Cr. The fact that the credit gap has increased over the last five years is only makes it worse for millions of enterprises that form a part of the MSME sector. At such times, government focussing on the ease of access to credit for MSMEs will give a huge boost to the sector. Majority of these measures were recently proposed by the MSME committee to RBI under former SEBI chairman, UK Sinha.

“Over the years, MSMEs have been battling to get loans, given their inability to produce relevant assets as evidence. The introduction of the 1 Cr – 59 minute MSME loan brings great relief to small business owners, making easier accessibility and processing of loans through a single portal. This, in turn, will translate into the stability and growth of the sector”, said Sampad Swain, cofounder & CEO, Instamojo, applauding the measures by the government.

“The pension programme for 30 Mn retail traders is also an encouraging move, it not only brings a long-term life plan for these traders, but also helps towards the gradual formalising of this majorly unorganised sector”, he further added.

Furthermore, creating a payment platform to enable filing of bills and payment thereof, was a big step to ease their business. Especially because the government payments to suppliers and contractors are a major source of cash flow in this sector. Talking on the issue, Sitharaman said, “Investment in MSMEs will receive a big boost if these delays in payments are eliminated.”

While a lot of issues surrounding MSME sector were addressed in the new Union Budget, the existing structural problems of India’s business environment such as heavy tax compliance load and expensive credit cannot be wished away. However, the steps outlined in the Union Budget 2019 are a good starting point, as an unclear economic policy lowers business confidence and investment.

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