As budget season comes around, there is that inevitable, and justified, focus on small businesses, or MSMEs (micro, small and medium enterprises), but there is an urgency this time around, something not seen since the pandemic.
Of course, considering that MSMEs constitute a third of India’s GDP, a third of manufacturing, and nearly half of its exports, it is but natural in any given year. But this time around, it is anything but normal, considering how the world of business and trade has been upended all over the world, and in India, in less than a year’s time.
Thanks to Donald Trump’s tariff war, there has been an upsetting of the apple cart that was a global order, and a trade mechanism, built on bilateral and multilateral co-operation has now turned into a free-for-all where, shockingly, might could just be right, and everyone’s back to the drawing board to do a SWOT analysis (strengths, weakness, opportunities and threats) of their economies.
For India, it is a crucible test the nation has to endure – Trump’s 50 per cent tariff on nearly half of India’s goods export to its biggest export market has hit it hard, job losses are estimated in the hundreds of thousands in some of the export-oriented sectors, while Trump is already threatening 500 per cent tariffs. And remember, Trump is yet to eye India’s prized export area – pharma as well as services sector, including the big-ticket IT services.
Last year, there was a nearly five per cent increase in allocation to MSME sector, including a credit guarantee scheme, incentives for exporters, and a Fund of Funds for startups. But the new situation has given compelling reasons for the government to double down on MSMEs. The question is, will Nirmala Sitharaman hold out a helping hand, and more precisely, what will that helping hand hold?
While the sector has been receiving credit support amply since the pandemic – easier access, longer credit period, and simpler eligibility norms, the belief is that more of the same continues to be the need of the hour, but for a different reason.
In one word, Atmanirbhar Bharat.
While India’s hopes still lie in a trade deal being worked out, its next-best-thing strategy involves a more self-sufficient ecosystem and focusing on the domestic markets, as well as, of course, trade deal with other blocs. As Ravi Saxena, CEO and founder of the appliance brand WonderChef, who by the way exports to the US and other countries, calls it “constraints turning into a “real opportunity.”
“Constraints on imports of finished goods from China is pushing established brands (in India) to build local supply chains. Many companies that earlier relied on imports are now supporting MSMEs with technology, know-how and capital,” Saxena said, adding, “This creates a golden window for manufacturing MSMEs to scale, upgrade quality and become export-competitive, benefitting the broader economy.”
But there is a hitch here – getting money for this fresh push, with raw material costs being high and most MSMEs struggling to get funds. “The budget must address this imbalance by...enabling factories to focus on value addition and exports.”
It is ironic that the very year that Indian exports got their biggest knocking yet with the tariff whammy, could directly lead to a course correction for Indian small-scale manufacturing. The focus has shifted from importing cheap raw material and assembling goods, to trying to master the whole ecosystem domestically, right from raw materials or components to the technology know-how to scaling up manufacturing and looking at broader markets domestically as well as abroad.
So how can the budget help? Credit, credit, credit is the simple answer – making capital easier to access for small businesses and simplifying local compliance could go a long way. Another C could well complete the picture – Customs Duty. As economist Rahul Ahluwalia, founder and director of Foundation for Economic Development, puts it, “Rationalising customs duty will enable MSMEs to get inputs at globally competitive prices and reduce disputes and delays at customs, opening up huge global markets for them."