Government Budget Measures Targeting MSMEs and SMEs to Boost Economic Recovery in India

The pandemic's waves have each presented unique challenges, yet there is optimism that the government's upcoming budget measures will aid economic recovery in 2022. The COVID-19 outbreak has slowed India's economy over the past two years, making it essential for the government to focus on reforms for MSMEs and SMEs, which have been significantly affected, to help them sustain through 2022-23.

MSMEs play a crucial role in employment, generating over half of the job opportunities in India. To support this sector, concessions in GST rates from 18% to 12%, tax-free export income, and subsidised interest rates are believed to be beneficial. These measures could empower MSMEs to compete globally. Additionally, the government's approach towards RBI's recent NPA stamping clarification should be more lenient to help SMEs resume business activities.

As the economy begins to recover, a revival in demand is anticipated over the next few quarters. Government spending on infrastructure is expected to continue, which will likely boost demand for commercial vehicles. The 'Gati Shakti Initiative,' launched by the Prime Minister, aims for maximum infrastructure fund allocation. This initiative will help NBFCs achieve 'Make in India' goals and stimulate credit demand, benefiting the overall economy.

Another focus for the FY23 Budget is expanding CNG availability and stations nationwide. Although clean fuel norms have encouraged a shift to Compressed Natural Gas (CNG), insufficient stations leave vehicle owners stranded. Increased investment in CNG infrastructure will enhance new vehicle demand.

The government should prioritise reforms for MSMEs and SMEs due to their significant impact on employment. Facilitating GST rate reductions and providing tax-free export income can strengthen these sectors. Additionally, a relaxed approach towards non-performing assets could enable SMEs to regain business momentum.

Increased government expenditure on infrastructure is expected to drive credit demand, aiding NBFCs' growth. This surge in credit demand will positively impact the economy as a whole. The 'Gati Shakti Initiative' is crucial for achieving these objectives by ensuring adequate infrastructure funding.

Umesh Revankar, Vice Chairman & MD of Shriram Transport Finance, authored this article.