‘Budget 2022 should extend on-tap TLTRO scheme for 18 months not only to support MSMEs but economy too’

Credit and Finance for MSMEs: The government, at a policy level, should encourage collaboration within the financial ecosystem especially for the benefit of the MSME sector.

msme budget expectations
With Udyam, validation of an MSME is done via online registration. However, online registration still remains a challenge for many MSMEs. (Image: pexels)

By Harshvardhan Lunia  

Credit and Finance for MSMEs: India has approximately 6.3 crore MSMEs that contribute towards around 30 per cent of India’s GDP through national and international trade, as per IBEF Nov 2021 report. While the MSME sector contributes massively to the Indian economy, it has been adversely affected due to the pandemic. As the budget session nears, there is a lot of conversation going around about the relief that the MSME sector needs from this budget. With the third wave of the pandemic gripping the country, the growth of the MSME sector has been slow. Hence, the MSMEs are optimistic about the following measures in Budget 2022 that will help in the improvement of financial services: 

Extension of the On-Tap TLTRO Scheme 

The Targeted Long Term Repo Operations, commonly known as the TLTRO, and TLTRO 2.0 introduced by RBI worked well for the MSME sector by increasing liquidity of working capital. In the past two years, over 1 lakh crores were kept aside for the growth of MSMEs. The on-tap TLTRO scheme ended on December 31, 2021. It is expected that the 2022 budget will extend the TLTRO scheme for another 18 months to support the capital transmission and to aid in not only the economic boost for the MSME sector but also for the economy.

Extension of relief measures from Covid Wave 1 

During the first wave of the pandemic, the government announced a few measures under the Atmanirbhar Bharat Abhiyaan for the MSMEs to strengthen the state of the MSME sector. The measures ensured a continuous flow of working capital and delayed moratoriums for stressed MSMEs. Currently, we are in the third wave and the situation for MSMEs still needs improvement. Therefore, an extension of some of the key measures from the Covid wave 1 relief fund will benefit the MSME sector.  

Modifications of the CGTMSE scheme 

The addition of Rs 4000 crore to the CGTMSE scheme during the pandemic provided assistance of financial access. The scheme has been modified to cover loans up to a maximum interest rate of 18 per cent. This is significantly hampering financial inclusion because lenders are unable to extend loans that are not priced for a risk premium. The transformative impact of CGTMSE has given wings to millions of young entrepreneurs of India. While most have bankable ideas for sure, they lack collateral security or even third-party guarantees to access credit. CGTMSE has provided guarantees to enable these entrepreneurs in getting access to credit leading to setting up viable micro and small enterprises.

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Improvements in the Udyam 

With Udyam, validation of an MSME is done via online registration. However, online registration still remains a challenge for many MSMEs. Removal of GSTIN for Udyam registration was a progressive step towards identifying smaller businesses that do not have huge turnovers. Practically, all small and micro businesses qualify for Udyam, however, a certain respite is needed for bootstrapped businesses that face challenges to gain access to capital. The expectation for this year’s budget is to make some improvements to Udyam and not mandate the registration of all small businesses under the Udyam scheme. All loans below Rs 20 lakhs given to registered businesses may be granted PSL status. It is important to recognize that financial inclusion spurs economic growth. 

Collaborative Financial Ecosystem 

The government, at a policy level, should encourage collaboration within the financial ecosystem especially for the benefit of the MSME sector. Banks and non-banking financial companies (NBFCs) should be encouraged to partner with fintech that have a strong tech background to help not just reach a wider base of MSMEs but also assess the credit better. This will help the underserved MSMEs with ease of working capital loans disbursal and help them focus on what’s most important – growing their business. 

Harshvardhan Lunia is the CEO & Co-founder at Lendingkart. Views expressed are the author’s own.

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