Tabled in the parliament by Finance Minister Nirmala Sitharaman, the Union Budget for 2020-21 had some significant announcements for Micro Small and Medium Enterprises (MSMEs).   The announcements for MSMEs were aimed at reducing the stress on working capital requirement.  Here are the key announcements made by the FM.

  • The Finance Minister started with the accomplishments of GST and how it had led to significant benefits to MSME by way of enhanced threshold and composition limits. She said the effective tax incidence on almost every commodity came down substantially. Through several rate reductions, an annual benefit of Rs one lakh crore has been extended to consumers. It amounts to 10% reduction in overall tax incidence. An average household now saves about 4% on its monthly spends on account of reduced GST rates.
  • The FM added that during this phase of maturing, GST did face certain challenges. This was natural as transition was daunting. GST Council has been proactive in resolving issues during transition. In the last two years the Government has added more than 60 lakh new taxpayers, a total of about 40 crore returns were filed, 800 crore invoices were uploaded, and 105 crore e-way bills were generated. A simplified new return system is being introduced from April 1, 2020.
  • She said the Government e-Marketplace (GeM) is moving ahead for creating a Unified Procurement System in the country for providing a single platform for procurement of goods, services and works. Stating that it offers a great opportunity for Medium, Small and micro Enterprises (MSMEs), she stated that 3.24 lakh vendors are already on this platform and is proposed to take its turnover to Rs 3 lakh crore.
  • A National Logistics Policy will be released soon and it will clarify the roles of the Union Government, State Governments and key regulators. It will create a single window e-logistics market and focus on generation of employment, skills and making MSMEs competitive.
  • The Government will make necessary amendments to the Factor Regulation Act 2011. This will enable NBFCs to extend invoice financing to the MSMEs through Trade Receivables Discounting System (TReDS), thereby enhancing their economic and financial sustainability.
  • Working capital credit remains a major issue for the MSMEs. For this, the FM proposed to introduce a scheme to provide subordinate debt for entrepreneurs of MSMEs. This subordinate debt will be provided by banks, would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE). The corpus of the CGTMSE would accordingly be augmented by the government.
  • More than five lakh MSMEs have benefitted from restructuring of debt permitted by RBI in the last year. The restructuring window was to end on March 31, 2020. Government has asked RBI to consider extending this window till March 31, 2021.
  • An app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flows mismatches for the MSMEs.
  • Currently, businesses having turnover of more than Rupees one crore are required to get their books of accounts audited by an accountant. In order to reduce the compliance burden on small retailers, traders, shopkeepers who comprise the MSME sector, the FM proposes to raise by five times the turnover threshold for audit from the existing Rs 1 crore to Rs 5 crore. However, this increased limit shall apply only to those businesses which carry out less than 5% of their business transactions in cash.

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