Steps announced in the latest Union Budget are a long-term good augury for micro, small and medium enterprises (MSMEs), though in the near term, the benefits are expected to be moderate.
Among the announcements was a two per cent interest rate subvention on fresh loans for GST-registered MSMEs, which would benefit a fifth of all MSMEs in India. That said, the Rs 350 crore allocation for this would support only around 10 per cent of incremental MSME lending.
The move to allow participation of non-banking financial companies (NBFCs) in the Trade Receivables Discounting System (TReDS) is also welcome, given the chronic working capital funding issue faced by MSMEs. This opens a new lending avenue for NBFCs, which already accounted for about 13 per cent of MSME lending last fiscal.
As of March 2019, only 71 banks and five NBFC factors were registered on TReDS platforms. Since its inception in 2014, TReDS has seen just 2.5 lakh transactions, totaling Rs 6,700 crore, and needed a strong push.
The creation of a new payment platform by the central government, on its part, will facilitate faster payments for MSME vendors and ease their working capital and cashflow stress.
This apart, several new measures to help the startup ecosystem, including removal of the angel tax, are also a positive.