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MSMEs need funds for tech upgrades, green transition

With schemes that provide funds for infrastructure creation, technology upgradation and climate change adaptation, the MSME sector will be able to contribute even more for the economy
| Photo Credit: Siva SaravananS

Recently, Union Minister for MSMEs Jitan Ram Manjhi said six pillars were identified as focus areas for the growth of the MSME sector — formalisation and access to credit, increased access to market and e-commerce adoption, higher productivity through modern technology, enhanced skill levels and digitalisation in the service sector, support to Khadi, Village, and Coir industry to globalise them, and empowerment of women and artisans, through enterprise creation.

While the interim Union Budget presented in February this year maintained stability, the upcoming Budget must strike a balance to fuel growth, curb inflation, generate employment, promote MSMEs, support ease of doing business, and promote the manufacturing sector.

The other important area that must be prioritised is infrastructure development for sustainable economic growth, especially in industrial clusters.

The Government did exceedingly well for the economy with exports clocking a Compounded Annul Growth Rate (CAGR) of 8.5% in the last six years moving from $478 billion in FY18 to $778 billion in FY24.

We are now aiming to reach $2 trillion by FY30, which requires a CAGR of 14.4%. This is a challenge in the current geo-political situation but within the realm of the reach. It requires supporting exporters and the MSME sector by providing an enabling and supportive ecosystem.

Supporting MSMEs to generate employment, increase exports

The importance of bolstering MSMEs is more important in the current situation as the sector is the backbone of the Indian economy and a key employment generator. For this sector to sustain and grow in the current challenging situation, one strong demand by the MSMEs is that the non-performing asset (NPA) timeline be extended to 180 days from 90 days. It will provide relief to the sector as many MSMEs are struggling because of this. The Credit Guarantee Scheme for micro and small enterprises in the manufacturing sector must also be revamped.

The Interest Equalisation Scheme emphatically supports exports. This scheme may be extended for a period of five years. Coming to the rise in interest rates consequent to the increase in repo rate from 4.4% to 6.5% in the last two years, the subvention rates may be restored from 3% to 5% for manufacturers in MSMEs and from 2% to 3% for all in respect of 410 tariff lines.

For the textile and garment sector, which is dominated by MSMEs, the Remission of Duties and Taxes on Exported Products and Rebate of State and Central Taxes and Levies schemes should be extended for another five years for the sector.

The Budget must consider reintroducing the Emergency Credit Line Guarantee Scheme for MSME exporters for another two years. This supported most MSME units with their exports.

The timeline for payments to MSME jobwork must be extended to 120 days from the current 45 days as the RBI permits a time limit of 180 days for the realisation of export proceeds.

Unless the payment from buyers are realised by exporters, it will be difficult to pay MSME workers, which will create fund flow issues for exporters.

Another flagship scheme of the government is the PLI scheme, which is working well for large-scale industries. For the textile and garment sector, the investment limit under the PLI scheme must be brought down to ₹25 crore and the turnover limit must be reduced to ₹70 crores. This will help MSME exporters to upgrade their technologies and compete in the international market.

Incentivise green transition, R&D

Another significant area of concern is climate change. This has impacted MSMEs severely. Hence more soft funds must be made available for MSMEs to attempt a green transition and to fuel growth with green resources. MSME clusters like Tiruppur can tap into significant export potential with this support.

Research, development and innovation are key to sustaining exports. R&D globally is incentivised and 35 out of 38 OECD countries provide either lower taxes or higher deductions on R&D expenditure.

We expect that the weighted tax deduction under Section 35(2AB) may be increased to 300% and the benefit under Section 35(2AB) also be extended to limited liability partnerships (LLP), partnership firms and proprietary firms, as MSME units largely fall in these categories.

With schemes that provide funds for infrastructure creation, technology upgradation and climate change adaptation, the MSME sector will be able to contribute even more for the economy

(A. Sakthivel is honorary chairman of Tiruppur Exporters Association and former chairman of Federation of Indian Export Organisations and Apparel Export Promotion Council)

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