Budget 2023: A chance to strengthen the competitiveness and independence of our MSMEs
India surpassed the United Kingdom to become the fifth-largest economy in the world in 2022, and it is on course to reach PM Narendra Modi‘s goal of a $5 trillion GDP by 2026–2027. India has emerged as a bright spot, expanding more quickly than most other significant emerging countries, despite worries about an impending global recession, supply disruptions, and the conflict between Russia and Ukraine.
This spirit of resiliency has been proven by the 6.3 crore micro, small, and medium-sized businesses, which account for 30% of the GDP and employ approximately 11 crore people. The MSME sector’s sales in a number of industries have risen to 90% of their pre-pandemic levels, and India’s small firms are directing a turnaround.
The government deserves a lot of credit for this recovery due to its pro-active measures, which include expanding the Emergency Credit Line Guarantee Scheme, revamping the Credit Guarantee Trust for Micro and Small Enterprises, and launching the Pradhan Mantri Employment Generation Programme to increase self-employment. Nevertheless, the mainly disorganised nature of our MSMEs, rising interest rates, and a deteriorating external environment necessitate constant attention to their problems.
The Union Budget 2023 offers our forward-thinking administration the chance to step up its efforts to make our MSMEs competitive and independent.
One such solution is to simplify the input tax credit for suppliers to online retailers. At the moment, vendors who sell their goods on e-commerce platforms must purchase input services like logistics, which are taxed at 18%. There is an accumulation of input tax credits if an online retailer sells clothing, which is subject to a 5% or 12% GST.
This causes valuable working capital to be stopped without any indication of future revenue, which can deter suppliers from using e-marketplaces. Due to this inverted duty structure, 2.9 lakh Meesho dealers selling goods subject to a GST rate of less than 18% observed an accumulation of input tax credits totaling Rs 265 crore between April and November 2022.
A small firm must have enough operating capital to cover all of its fixed costs, including paying rent, energy, and employee salaries as well as making investments in expansion. The government will help online retailers’ finances and advance their road toward digitisation by reducing the GST rates on the input services they use. In addition, receiving refunds for accrued input tax credits will help their financial flow.
Additionally, the GST relaxation for small online enterprises needs to be expedited. The GST Council announced a loosening of regulations for small businesses wishing to go online in a historic move last year. Small online merchants with a turnover of less than Rs 40 lakh for goods and services, and Rs 20 lakh for services, were exempt from the requirement to register for the GST, among other measures. These modifications, which were intended to achieve parity between online and offline merchants, were initially scheduled to take effect in January 2023 but will now be put into effect by October 2023.
Only 10% of our MSMEs are now online, so swift adoption of these new standards is essential to maximising their potential. In anticipation of the advantages of digitization, such as a significantly larger target market, better efficiencies, and simpler access to funding, millions of small businesses are waiting in the wings.
Our MSMEs may become competitive by leveraging the National Logistics Policy. The National Logistics Plan (NLP) intends to reduce logistics costs as a proportion of GDP from 13–14% to 8%, on par with developed countries. More MSMEs will adopt tech-powered logistics services as a result of decreased prices, but they will need assistance to meet the growing e-commerce demand from smaller towns and semi-rural areas.
To do this, the government may enlist India Post as a technologically advanced last-mile delivery partner who can make cash-on-delivery transactions possible at reasonable costs. Similar to this, it is possible to ship goods rapidly and affordably to the farthest reaches of the nation by utilising Indian Railways’ unmatched reach.
I have faith that the budget will address the aforementioned issues for MSMEs and move us one step closer to the goal of an Atmanirbhar Bharat because we have a visionary government laying out the country’s growth trajectory.