Budget Needs Focus On Spending, Borrowing And Growth

Each year, India’s government, led by the Finance Minister, is expected to earmark its resources for spending on various matters of public finance. The government also carries the burden of trying to balance the budget. Equally crucial during Parliament’s annual budgeting exercise is the announcement of the government’s economic policy measures.

The upcoming budget is crucial from the policy perspective, especially for Micro, Small and Medium Enterprises (MSMEs) in India. Many of these businesses have been driven to the brink in recent months owing to the Covid19 pandemic.

Our vantage point as insights and analysis provider to the banking sector gives us a unique perspective on the economy’s performance in the throes of this pandemic and factors that might revive growth. Across industries, we’ve witnessed several business closures, layoffs and cutbacks in economic spending, while also seeing businesses behave differently.

We are hopeful that the government’s upcoming policy announcements during Budget 2021 will restore the backbone of the Indian economy—MSMEs. An effective way to catalyse growth would be to emphasise on a ‘bottom-up’ approach, seeding and nurturing business activity at the grassroots level. With this in mind, we urge the government to kindly consider the following recommendations in the upcoming Union Budget 2021:

Fiscal Deficit: In the current fiscal, the government has increased its borrowing target to Rs 12 Lakh crore versus the pre-COVID target of approx Rs 8 Lakh crore. While recent commentary suggests that the Rs 12 Lakh crore would be sufficient for this financial year, it may set expectations of a higher borrowing target for the next year. However, the Finance Minister recently said that she will overlook the fiscal deficit target this year due to the pandemic. We can expect the budget announcements to focus on driving consumer spending, higher borrowing targets and measures to drive economic growth. 

MSME: The new Udyam registration portal for MSMEs launched in July 2020 along with the new MSME definition has seen registration of almost 11 lakh MSMEs till November. Given that Udyam is integrated with CBDT and GST, we see such integrations as drivers of data transparency for India’s small businesses. In particular, for GST, we expect to see more disclosure by the GST network to help lenders and partners assess this financial data source with much ease.

Tax Break: The MSME community believes that while headline numbers suggest a revival in the economy, ground realities are different. There is a need for one-time tax breaks for 2020-21 to small businesses to spur revival post the pandemic.

GST: The current GST consent architecture is complicated and cumbersome for small businesses. Consent is required every time there is a need to extract invoice related data. We recommend a seamless architecture under the current initiative where a one-time consent can be provided (with limited validity) to access GST data.

Data Centres: The creation of data centre parks in the 2019-20 budget was a welcome move for the IT industry. It is expected to lower data centre costs in India. We expect to see further such initiatives that may benefit digitisation efforts and lower costs for such projects.

The author is Co-Founder and CEO of Crediwatch