Budget’s much-needed leg-up for small units

CRISIL SME TRACKER

UNION Budget 2020-21 has attempted to address a fundamental concern of micro, small and medium enterprises (MSMES) — their competitiveness. The announcement on enabling easier debt in the form of quasi-equity augurs well for the competitiveness of these units, whose contribution to exports is over 45 per cent.

An evaluation of 13,000 MSMES using the CRISIL Quantix database shows that working capital comprises over half of their need for debt.

In this context, the push given to the Trade Receivables Discounting System (TREDS) platform — the institutional mechanism that facilitates financing of MSMES’ receivables — is a positive, too. It was announced in the previous year’s Budget that non-banking financial companies (NBFCS) could register and participate on TREDS. The latest Budget lays out an amendment in the Factoring Regulation Act to implement this.

This may not be enough to boost the participation of large companies and MSMES alike on

TREDS, though. As of March 2019, the platform had only banks and five NBFC factors registered on it, and had seen only 2.5 lakh transactions worth a total of ~6,700 crore since its inception in 2014.

The extension of loan restructuring for another year (till March 2021) is also expected to provide relief to a sector that accounts for about 9 per cent of the banking system’s gross non-performing assets.

Other positive measures for the sector in the Budget include a provision for enhancement of risk covers at competitive rates through schemes such as NIRVIK for export; 100 per cent tax exemption for three out of 10 years for companies with a turnover of up to ~100 crore (up from ~25 crore earlier); and some easing in compliance, such as doing away with the need for audits for MSMES with a turnover of up to ~5 crore.

Besides, an app-based invoice financing loan product is to be launched, though its modalities and execution remain monitorables.