Budget 2010: A lost opportunity for MSMEs once again

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Rajeev Karwal | 27 Feb, 2010
Let me, at the outset, say that though overall it is a progressive budget with clear focus on infrastructure, agriculture and inclusiveness, it does not mean much for the MSME sector.

For the micro, small and medium enterprises, although there has been an apparent increase of approximately Rs. 800 crore, some of the major announcements which were expected in the budget were sorely missing.

It was expected that the MSMEs would atleast get a 50% reservation out of the total quota of 40% reservation of the priority sector lending. Internationally, in most of the developed/ developing countries, MSMEs get between 40% and 60% of the banking loans, whereas in India, it languishes between 8 – 10%. This is the biggest reason for MSMEs to not be able to grow, turn sick, or resort to taking money from the parallel economy at much higher rates.

There seems to be a lack of this understanding despite the fact that the government has announced that a high-level national council will be formed to oversee the implementation of the recommendations of Prime Minister’s Task Force on the MSME sector. It is also very sad to see that while a small or medium farmer, who is also a businessman is extended huge benefits, the unorganized and micro enterprises in the country do not get the same treatment, though they may be needing the support more than that farmer.

The credit support program of the MSME Ministry, which runs the Credit Guarantee Fund Scheme, has got an additional budget of about Rs. 73 crore i.e. the planned expenditure under this program has gone up from Rs. 99.12 crore to Rs. 172.75 crore. Through this scheme, the guarantee cover is provided for collateral-free credit facility, extended by Member Lending Institutions (MLIs), to the new as well as existing small enterprises on loans of upto Rs. 1 crore. While the objective is laudable, the fact remains that MLIs really have no compulsion or incentive to extend this facility to the needy small entrepreneurs, because in reality, the Credit Guarantee Trust doesn’t move fast enough to settle the issues related to the bad-debts, if any.

The allocation to ‘Quality of technology support institutions and programs’ has been raised from Rs. 251.64 crore to Rs. 333.50 crore. This, according to me, may not be at all enough to upgrade the tool-rooms and technical institutions of the 24 very important institutions and 4 programs that run under this scheme, namely Credit Linked Capital Subsidy Scheme, ISO Reimbursement Scheme, Schemes of National Manufacturing Competitiveness Program and Vertical Shaft Brick Kiln technology. The conditions of the various tool rooms and technology centres actually have to be seen to be believed. If machines have come, there are no specialists to operate them; and if machines & specialists both are present, then there are no funds to run these centres. Hence, the very purpose of the existence of these centres is defeated.

It is also surprising that the National Commission on the Enterprises in the unorganized and informal sector has zero allocation in this year’s budget, though till last year, it had a Rs. 1 crore budget. The Rajiv Gandhi Udyami Mitra Yojna, which provides handholding assistance to designated nodal agencies, namely Udyami Mitras, for providing handholding support to first-generation entrepreneus in dealing with various procedural and legal hurdles, has got an allocation of just Rs. 7 crore.

MSME Cluster Development Program, under which, special emphasis has been given to comprehensive development of clusters, including infrastructural development has seen an increase of about Rs 25 crore taking the total expenditure to Rs. 50.50 crore. But for a country of our size, this may be spread too thin and too wide to really have any major impact.

The special scheme recommended by PM’s Task Force has got an allocation of just Rs. 1 crore in this year’s budget. It has a massive agenda for immediate action to provide relief and incentives to MSMEs accompanied by institutional changes and detailing of programs in a time-bound manner. In addition to this, it also has suggested setting up of appropriate legal and regulatory structures to create a conducive environment for entrepreneurship and growth of MSMEs. It also has a task of setting up a special fund exclusively for micro-enterprises, and introduction of public procurement policy, which mandates government and PSUs to reach a target of 20% purchases from MSMEs. How all this can be achieved with an organization backed by Rs. 1 crore budget for the whole of 2010-11 is almost impossible for me to understand.

There have been some major additions of about Rs. 1300 crore in Khadi and Coir Board Industries but like last year, and the year before, both these sectors have spent 20-25% lesser than the budget that was allocated to them.

Some other initiatives which have been taken overall but will affect the SME sector positively are:

Extension of packing credit interest subvention of 2% for another year,
Raising of Audit requirement limit from Rs. 40 lakh to Rs. 60 lakh, and for professionals from Rs. 10 lakh to Rs. 15 lakh,
Exemption from capital gains on conversion from general partnership to limited liability partnership,
A one-time grant of Rs. 200 crore to Tirupur Textile Sector,
Government initiative to give more banking licenses and extend banking service for the under-banked and un-banked segments of the society,
Agreement signed with ADB for US$ 150 mn to implement Khadi Udyog Reform,
Doubling of corpus of micro-finance development and equity fund from Rs. 200 crore to Rs. 400 crore,
Allocation of Rs. 1000 crore to the National Social Security Fund for the employees of the unorganized sector.

Despite some sporadic initiatives visible here or there in this budget, there clearly seems to be a lack of a coherent approach towards a sustained development of the MSMEs. Let’s hope that there will be more focus, which will come up in the future for the hidden jewels of India, who have always got more lip-service than real support from the powers that be.

* Rajeev Karwal is the Founder Director & CEO of Milagrow Business & Knowledge Solutions.
* The views expressed by the author in this feature are entirely his own and do not necessarily reflect the views of SME Times.