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MSME Schemes 2020: What has been announced, used, and needed in 2021

As we face an even deadlier second wave of the pandemic this year, it would be interesting to see how last year's schemes fared thus far, so that a useful indicator of what worked and what didn't can be built.

6.3 crore of India’s Micro, Small, and Medium Enterprises (MSMEs) employ approximately 11 crore people. They were, however, among the hardest hit by the pandemic's first wave, which hampered their access to markets, credit, and financial security.

Simple things like the GST structure and filing calendar do not correspond to the definition of an MSME (small taxpayer) versus a large taxpayer. A micro-enterprise (with a turnover of up to Rs.5 crores) is expected to file returns once a quarter, whereas a larger company is expected to file monthly. As a result, if such a micro-enterprise is a vendor, supplier, or contractor for a larger company, the larger client frequently withholds the tax payment of the invoice, or even the entire invoice, until the enterprise declares the relevant returns. This is something that can be improved.

Creating local demand

MSMEs frequently struggle to compete fairly with larger corporations in the domestic market due to their smaller scale and scope. The 2020 Aatmanirbhar Bharat package announcements for MSMEs included one that barred global bidders for government tenders worth up to Rs.200 crores, including consultancy services and turnkey projects.

Technological advancements

The Credit Linked Capital Subsidy Scheme (CLCSS) was established a number of years ago to encourage investment in technological upgrades.

Payment cycles that are shorter

The government took action against those over whom it had authority. All Central Public Sector Enterprises (CPSEs) were given 45 days to release any outstanding payments.

Assistance with funding

A slew of financing assistance to local businesses is one of the important measures taken by the government to combat the pandemic and its impact on MSMEs.

Production-based incentive plan

Because of the high capital investment thresholds and production targets, the majority of businesses that benefited from this scheme over the last year were large MNCs or corporate firms.

Closing Thoughts

Last year's announcements were well-intended. The dipsticks mentioned above demonstrated that some worked reasonably well in specific pockets, while others had a lukewarm effect on the MSME sector. In conclusion, there are two key points to remember for the second wave. First, there are several major impediments to the way our MSMEs operate. Despite several well-intended announcements, the fact remains that every MSME faces a disproportionate number of compliance and regulatory burdens when compared to larger businesses. The government must completely shift its mindset from that of a regulator to that of a facilitator. Second, while financial and regulatory perks are beneficial, they do not close the loop for MSMEs. More structural changes that help recharge demand and improve MSME operational efficiencies through technology and skilled labor would be the long-term strategy to achieve the goal of increasing MSME contribution to 50% of India's GDP.

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