What should the MSME sector expect from the Union Budget 2023?
3 min read 27 Dec 2022, 11:04 PM ISTIndia is the fifth-largest economy and is poised to be the third-largest in the near future.
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India is the fifth-largest economy and is poised to be the third-largest in the near future. A 5 trillion USD economy size is in sight. 2047 is the target for India to be a developed nation. All these require a strong MSME sector and also require a larger industry sector.
Any person with a cursory interest in the MSME Sector is aware of the criticality of the sector to the economy. India has close to 64 Million MSMEs. However, the problem is over 94% of them are micro and about 4.5 % are in the small and medium sectors whereas just 1% are large companies. Large companies without an exception are dependent on MSMEs for the supply of goods and services and also as consumers of their products. So the large and the small companies exist to add value to each other. One can safely say that neither can exist without the other. Automobile, Pharma, Chemicals, and Engineering in manufacturing to travel and tourism in the services – all see this symbiotic relationship between the large sector and the MSMEs.
The budget is around the corner and many memoranda have been presented or are in the process of being presented to the Finance Ministry. The Ministry, of course, will consider them in the context of the priorities for the government in the context of domestic and international economic situations and challenges. As the Chair of the MSME committee of the Bombay Chamber of Commerce and Industry, I have been part of such deliberations and recommendations.
So what should the MSME sector expect from the FM on the 1st February 2023, when she raises to present the Budget for fiscal 2023 – 24? But the better question to my mind is, why should the MSME sector expect from the FM on the 1st February 2023, when she raises to present the Budget for fiscal 2023 – 24?
MSME Sector is considered a priority sector by banks for lending. The government created the ECGLS and CGTSME windows for lending to MSMEs stressed during the Covid disruption. The TREDS platform has been created for faster settlement of dues to MSMEs. So what else should the government be expected to do? Some direct tax sops? Change in GST rates? Reclassification of some items? Additional export benefits? Import duties reduction or increase, depending on where the business sits? The larger question is what do SMEs need? Some short time sops or a long-term sustainable growth opportunity. I am convinced that the long-term sustainable model must be pivoted on Industry helping industry rather than Government helping the industry. It is often mentioned that the business of the government is not business but what is also true is that the business of business is business. So the question is, what can large corporations and medium corporations do for the growth of their customers and supplier-vendor ecosystem? Actually three areas!
Let’s start with the supply chain. Large corporates can assist by prioritising buying from Indian MSMEs. The oft-repeated excuse for not doing so are – quality and scale. But the auto industry has demonstrated that this is possible. Some of the Indian auto ancillaries are billion dollar corporations with world class quality. This has been possible because the OEMs invested time, money but more importantly effort in building the supplier ecosystem. India has huge advantages in chemicals, pharma, electronics, and textiles that are waiting to be explored. If large corporates were to invest time, money, and effort in building good quality systems and effort to train the supplier teams, these industries can be world beaters.
The second area is the quality of manpower. Today engineering graduates and MBAs prefer large corporates as employment options but SMEs are never on the radar. Not their fault! The HR systems, business processes, and compensation structures of large corporates are definitely more attractive. But large corporates can work towards training personnel in their SME ecosystems to ensure appropriate systems and HR practices are instituted to make them attractive employers.
With TREDS, a large part of supply chain finance can be addressed. Large corporates must actively consider being part of it and encourage all their suppliers to join. This will ensure prompt and competitive financing for MSMEs which addresses the problem of access to finance. This is the third area for intervention and collaboration.
Large corporates must step up the game and MSMEs must be willing to scale. There is a benefit for all in this process. Government support must be limited to creating an enabling ecosystem and facilitating an architecture for sustainable growth.
Industry supporting industry to grow in a mutually beneficial and sustainable way is the true meaning of Atmanirbhar Bharat.
Author: Mr. Rajan Raje, CEO of Nichem Solutions & member of MSME Forum, Bombay Chamber of Commerce & Industry
