In its third straight term, the PM Modi’s government has clear objectives: a roadmap for fiscal consolidation and a framework for medium-term economic interventions, focusing on employment, skilling, MSMEs, and the middle class. The Honourable Finance Minister Nirmala Sitharaman presented her seventh consecutive budget, marking the first Budget by the BJP-led NDA government since its re-election in June. 

The budget places special attention on MSMEs and labour-intensive manufacturing, introducing a new assessment model for MSME credit by public sector banks based on digital footprints rather than only on assets and turnover criteria. The credit guarantee scheme envisaging pooling of credit risks of MSMEs is a welcome step. 

K K Lalpuria, CEO and ED, Indo Count Industries comments, “The Union Budget 2024 is a progressive step towards fostering economic growth and enhancing the competitiveness of Indian industries. The reduction of the corporate tax rate for foreign companies to 35% and the simplification of FDI rules are commendable measures that will attract more international investments, benefiting sectors across the board. For the textile industry, the focus on MSMEs and the emphasis on employment and skilling are particularly noteworthy. The initiatives for job creation, skilling programs, and financial support for MSMEs will significantly bolster the textile sector, enabling us to scale up operations, enhance productivity, and remain globally competitive. Additionally, the allocation of Rs 2.66 trillion for rural development and the introduction of the PM Surya Ghar Muft Bijli Yojana will have a positive ripple effect on the textile industry by improving infrastructure and reducing energy costs. Overall, this budget lays a strong foundation for sustainable growth and innovation, and we look forward to leveraging these opportunities to drive further advancements in the textile sector."

• Prepare a financial sector vision and strategy document and prepare the sector in terms of size, capacity and skills for the next 5 years 

• Credit guarantee scheme facilitating term loans to MSMEs for the purchase of machinery and equipment without collateral or third party guarantee. 

• Self-financing guarantee fund will be constituted to provide guarantee cover up to Rs 1 billion to each applicant 

• PSBs to assess MSMEs for credit by in-house methodology, instead of relying on external assessment.

• MSMEs under Special Mention Account (SMA) to be provided credit through a guarantee by the government-promoted fund.

• The limit of the ‘Tarun’ category of Mudra loan is increased from Rs 1 million to Rs 2 million for the entrepreneurs who have repaid their loan. 

• The onboarding Turnover floor for TReDS platform revised downward to Rs 2.5 billion from Rs 5 billion.

• Likely to boost lithium-ion battery manufacturing in India and lower manufacturing costs of batteries, leading to lower Electric Vehicle prices. Further, PLI will enhance growth for the industry while schemes for EVs will drive faster adoption.  

• It will enhance disposable income and stimulate demand in both urban and rural regions driving demand for two-wheelers and tractors (rural). 

• It will encourage domestic production and instil a competitive edge.

• The government reemphasises its intent to make India ‘Aatmanirbhar’. The duty removal on specified capital goods and key components is likely to improve the cost competitiveness of domestic players and promote indigenous manufacturing. 

Rahul Garg, CEO & Founder, Mogilx projects his views saying, "The removal of angel tax is a welcome move for India's startup ecosystem. This, coupled with the establishment of a Rs 10 billion VC fund for the space economy, will foster innovation. The budget’s focus on manufacturing, with the introduction of plug-and-play industrial parks, is progressive. MSMEs will benefit significantly from the credit guarantee scheme, new assessment models by PSU banks, and increased Mudra loan limits. The substantial allocation of Rs 11 trillion for infrastructure especially nature resilient is crucial for building a Viksit Bharat. The strategic shift towards nuclear energy as a major power source is visionary. Finally, the emphasis on cultural heritage through the development of the Vishnupad, Mahabodhi temple corridors, Rajgir, and Nalanda is a welcome addition."

This is in line with the government’s vision of Viksit Bharat 2047 

• Availability of account aggregator data has enabled financiers to lend proactively to MSMEs. Banks account for a significant share of MSME lending. Bank credit to Industrial MSMEs has grown by over 13% CAGR in the last two years. Additionally, there has been a significant improvement in overall delinquencies from over 12% in FY17 to 2.3% in Q2 FY24. MSMEs have an estimated credit gap of approximately Rs 28 trillion. 

• Additionally enabling public sector banks to create in-house, technology-driven underwriting skills utilising MSMEs’ digital footprint and bring them into the formal credit system is a positive step.

 

• Further the Mudra loan hike also seems to be in line with the inflation movement over the past decade when the limits were initially established.

• SIDBI to open branches across all major MSME clusters within 3 years for direct credit.

Hence the introduction of such schemes would enable MSMEs to access funds for capital expenditure at competitive rates and reduce working capital requirements. 

 

(Data Source: CareEdge Ratings. Quotes: Indo Count Industries & Mogilx)