MSMEs expect supportive policy measures to improve their competitiveness

The year gone by (2023) witnessed key policy announcements to strengthen and promote the global competitiveness of the MSME sector. Specifically, the government enhanced the credit coverage ceiling under the Credit Guarantee Scheme for micro and small enterprises to Rs. 5 crore from Rs 2 crore, besides halving the annual guaranteed fees.

The government is promoting exports from micro, small and medium enterprises through various schemes such as the International Cooperation Scheme. One such initiative is the establishment of Export Facilitation Cells in various field offices of the Union Ministry of MSME. In 2023, the government established seven such Export Facilitation Cells across various parts of the country to support MSMEs in export documentation and compliance procedures.

A prominent initiative taken by the government is the launch of the revamped MSME Competitive (LEAN) Scheme to enhance the global competitiveness of local MSMEs. The central government has increased its funding contribution under the revamped scheme and introduced some operational changes to improve overall scheme performance. Under this scheme, the government offers training on productivity and efficiency improvement practices such as KANBAN, Kaizen and Poka Yoka through certified consultants. The government has also taken other measures as mentioned in the following table to promote global competition and exports of MSMEs in 2023:

India-South Korea agreement

?India renewed its agreement with South Korea to promote partnership in areas such as organising B2B meetings, facilitating technology cooperation and other forms of business linkages between MSMEs of both the countries.

India-Japan cooperation

?Experts from Japan trained Indian MSMEs in Puducherry and Bhiwadi on productivity improvement tools such as 5S and Kaizen under the India-Japan Industrial Competitiveness Partnership Roadmap

In 2024, we expect the government to take more policy measures to strengthen the MSME sector and increase exports. The government may correct inverted duty structure in sectors such as textile, engineering and leather to provide relief for MSMEs, whose input tax credit is stuck because of higher tax rate on final product compared to the tax rate on inputs. There are also other demands from the MSME industry such as waiver of Tax Collection at Source (TCS) on zero-rated supplies made through e-commerce. Under the current regime, e-commerce operators have to collect TCS at 1% from sellers even on zero-rated supplies. Even though sellers can claim refund of this TCS, it temporarily blocks the liquidity of MSME sellers and increases compliance burden.

We can expect the government to facilitate collaboration between Indian and Taiwanese MSMEs across diverse manufacturing sectors in the current year. Taiwan will host the 3rd India-Taiwan SME Cooperation Forum this year and India has suggested to include electronics, auto-components and renewable energy as focus sectors of this forum to promote business collaboration between both the sides.

In yet another move, the government may extend the MSME Competitive (Lean) scheme to MSMEs in the service sectors, such as logistics, healthcare, tourism, hospitality etc. to facilitate productivity improvement in these sectors as well.

The industry is also expecting the government to take more steps to meet the gap in working capital credit, reduce compliance burden under various laws, address delayed payment issues from large corporate buyers and facilitate greater access to government procurement.