MSMEs need funds for technological upgradation and green transition

MSMEs need funds for technological upgradation and green transition


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

With schemes providing funds for infrastructure creation, technology upgradation and climate change adaptation, the MSME sector will be able to contribute even more to the economy. Photo credit: Shiva SaravananS

Recently, Union MSME Minister Jitan Ram Manjhi said that six pillars have been identified as focus areas for the growth of the MSME sector – formalisation and access to credit, increased market access and adoption of e-commerce, higher productivity through modern technology, enhanced skill level in service sector and digitisation, support to globalise khadi, village and coir industries, and empowerment of women and artisans through enterprise creation.

Stability was maintained in the interim Union Budget presented in February this year, but the upcoming budget will have to strike a balance between boosting growth, curbing inflation, generating employment, promoting MSMEs, ease of doing business and boosting the manufacturing sector.

The second important area that needs to be prioritised is the development of infrastructure for sustainable economic growth, especially in industrial clusters.

The government has done a great job for the economy, with exports registering a compound annual growth rate (CAGR) of 8.5% over the last six years, growing from $478 billion in FY18 to $778 billion in FY24.

We are now targeting to reach $2 trillion by FY30, which requires a CAGR of 14.4%. This is a challenge in the current geopolitical situation, but is within reach. This requires support to exporters and the MSME sector by providing an enabling and supportive ecosystem.

Support to MSMEs for employment generation and enhancing exports

In the current situation, the importance of promoting MSMEs has increased even more as this sector is the backbone of the Indian economy and a major source of employment generation. To sustain and grow this sector in the current challenging situation, a strong demand of MSMEs is that the time limit for non-performing assets (NPA) should be increased from 90 days to 180 days. This will provide relief to this sector as many MSMEs are struggling due to this. The credit guarantee scheme for micro and small enterprises in the manufacturing sector should also be revamped.

The interest equalisation scheme strongly supports exports. The scheme may be extended for a period of five years. In view of the increase in interest rates as a result of the increase in the repo rate from 4.4% to 6.5% in the last two years, the subsidy rates may be restored to 3% to 5% for manufacturers in MSMEs and to 2% to 3% for all in respect of 410 tariff lines.

For the textiles and apparel sector, which is dominated by MSMEs, the exemption of duties and taxes on export products and the State and Central Taxes and Duties Remission schemes should be extended for the next five years for the sector.

The budget should consider relaunching the Emergency Credit Line Guarantee Scheme for MSME exporters for the next two years. This helped most of the MSME units in their exports.

The timeline for payment of MSME jobwork should be increased from the present 45 days to 120 days, as RBI has allowed a timeline of 180 days for realisation of export proceeds.

Until exporters receive payments from buyers, it will be difficult to pay MSME workers, causing money flow problems for exporters.

Another major scheme of the government is the PLI scheme, which is working well for large-scale industries. For the textile and apparel sector, the investment limit under the PLI scheme should be reduced to ₹25 crore and turnover limit to ₹70 crore. This will help MSME exporters to upgrade their technology and compete in the international market.

Encouraging green transition, research and development

Another important area of ​​concern is climate change. This has severely impacted MSMEs. Hence more soft funds should be made available to MSMEs to attempt a green transformation and promote growth with green resources. MSME clusters like Tirupur can tap significant export potential with this assistance.

Research, development and innovation are key to sustaining exports. Globally, research and development is encouraged and 35 of the 38 OECD countries either impose low taxes or provide high deductions on research and development expenditure.

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

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

(A. Sakthivel is Honorary President of Tirupur Exporters Association and former Chairman of Federation of Indian Export Organisations and Apparel Export Promotion Council)


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