Union Budget 2021: Key Announcements For MSME Sector

Following the economic slowdown in 2020, the COVID-hit MSME sector had pinned its hope on Union Budget 2021, seeking ground-breaking reforms that would facilitate a smooth revival. And, the announcements made that day did not fail them.  In India’s first-ever digital-only Union Budget, Finance Minister, Nirmala Sitharaman made some key proposals concerning the micro, small, and medium enterprises.

Union Budget 2021 – Announcements About The MSME Sector

Here is a rundown of some key highlights from Union Budget 2021 concerning India’s MSME sector:

Budget Allocation

The Budget estimates for the MSME sector in FY 20-21 stood at Rs. 7,572 crore. However, for this fiscal year, the Finance Ministry allocated Rs. 15,700 crore, which is more than double the previous year’s allotment.  A significant portion of this allocation for FY 21 – 22 has been made keeping in mind the Emergency Credit Line Guarantee Scheme (ECLGS).

Resolution Of Insolvency 

The National Company Law Tribunal (NCLT) infrastructure has not been greatly successful in providing effective solutions; insolvency cases are still pending. To combat this issue, the Finance Minister announced the following measures:

• Introduction of changes to reinforce the framework of NCLT  
• Implementation of new ecosystems, for instance, e-courts to conduct virtual hearings to resolve and close cases efficiently

Besides these, the Indian government shall also introduce effective debt resolution methods and special guidelines for MSMEs soon.

Reduction In Custom Duty

There has been a severe impact on India’s MSME sector owing to the significant rise in iron and steel prices. Thus, the government has taken measures to provide relief to this segment.  In Union Budget 2021, the Finance Ministry proposed to impose customs duty uniformly at 7.5% from 12.5% on semis, flat, and long products composed of alloy, non-alloy, and stainless steel. The Finance Ministry also announced that micro, small, and medium enterprises wouldn’t have to pay customs duty on importing steel scrap until the end of Financial Year 21-22.  This measure is set to reduce the variable costs of the steel mills, which are a vital part of this country’s MSME sector. A proposal has also been made in Union Budget 2021 to increase duty on steel screws and plastic builders waresby 5%. The Finance Minister also proposed more than 400 old customs will be put under review, and a new customs duty structure will be put in place by 1 October 2021.  Besides these, Union Budget 2021 also included exemptions on mobile phone parts to boost the local manufacturing operations.  Customs duty on some parts of mobile phones has been increased from NIL to 2.5%. 

One Person Company (OPC) Amendments

The government announced reforms concerning OPCs to boost the growth of both start-ups and MSMEs. The Finance Ministry took measures to lift restrictions on paid-up capital and turnover. Hence, the process of setting up of One Person Companies has now become exceedingly convenient for start-ups.  The current measures allow OPCs to convert into other forms of business as per their convenience. The Finance Minister also announced that NRIs are eligible to establish OPCs in India and the residency limits concerning Indian citizens has been reduced from 180 days to 120 days. 

Set Up Of Mega Textile Parks

India’s textile industry is one of the leading exporters of textiles and apparel across the world. Besides providing employment opportunities, it makes significant contributions to the country’s GDP.   The Finance Ministry announced that in addition to the Production-linked Incentive (PLI) scheme, a new initiative would be launched to set up 7 new textile parks over 3 years.  These textile parks will be equipped with advanced facilities to ensure quick turnaround time and minimise outflow of funds owing to logistics. It’s a significant move to reclaim the textile exports market, currently dominated by Asian countries like Vietnam and Bangladesh.  Aside from boosting employment, it will ensure that the textile sector becomes globally competitive. 

Privatisation Of Ports

In FY 21-22, the operations of seven significant ports worth Rs. 2,000 crore will be privatised. Moreover, the Finance Minister also announced a subsidy of Rs. 1,624 crore over 5 years, which is expected to foster the growth of Indian shipping companies.  But, the persisting issue of container shortage was not addressed during the presentation of Union Budget 2021. 

Tax Holiday Extension

To increase tax revenue in the long-term and facilitate foreign investment in start-ups, the government extended eligibility for claiming tax holidays in this budget.  Moreover, a proposal was also made for capital gains exemptions concerning investments in start-ups till the end of FY 21-22.

Bottom Line

Many experts have termed Union Budget 2021 as progressive and well-thought-out owing to these measures. The proposals positively reflect the government’s dedication toward providing support to MSMEs and start-ups in their quest to make India self-reliant.