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India budget 2022: What’s in it for COVID-hit businesses?

It’s that time of year again in India! On February 1, the long-awaited Union Budget 2022 was unveiled in parliament. As India attempts to establish itself as a global manufacturing hub, it has become critical for India to overhaul its entire business environment. 

Let’s look at what the budget means for India’s SMEs and startup ecosystem. 

Tax relaxations and incentives

The government announced that tax breaks to businesses will be extended for another year until March 31, 2023. Last year, the Union government extended the eligibility for startups to seek tax breaks until March 31, 2022. In light of the COVID-19 outbreak, the government has extended tax breaks for startups for the first three years of their incorporation by another year. 

Furthermore, the government stated that an expert committee would be formed to evaluate and recommend appropriate measures to increase venture capital and private equity investments in startups.

Credit: indiabudget.gov.in

In addition, to create a globally competitive business environment, the government implemented a 15 per cent tax system for newly incorporated domestic manufacturing enterprises.

The Finance Minister recommended extending the deadline for beginning production or manufacturing under Section 115BAB by one year, from March 31, 2023, to March 31, 2024. Last year, the government extended the customs duty exemption for steel scrap by another year in order to provide relief to MSME secondary steel producers.

Launch of EoDB 2.0 

EoDB or Ease of Doing Business 2.0 is being released to make India even more business-friendly. The new phase will eliminate overlapping state compliances through standardisation, digitisation of manual procedures and interventions, and other means. 

Integrating central and state-level systems via IT bridges will provide a point of contact for all citizen-centric services. 

(Read more about EoDB here)

Suggestion crowdsourcing and effect assessment at the ground level will be encouraged with the active participation of individuals and companies. In recent years, India has witnessed a significant amount of FDI poured into the country, which has been made feasible by the country’s favourable economic environment. 

As a result of these initiatives, India is now ranked 63rd globally for ease of doing business, up from 100 in 2017.

Extension to credit line Schemes  

Extending the Emergency Credit Line Guarantee Scheme (ECLGS) to March 2023 will help MSMEs obtain the necessary credit to enable them to recover from the pandemic. Increasing the fund’s budget to INR 5 Lakh crores (INR 5 trillion) will help increase the number of beneficiaries. 

Similarly, the Credit Guarantee Trust revamping for Micro and Small Enterprises (CGTMSE) will give an additional INR 2 lakh crore in credit (INR 2 trillion). 

(Read about CGTMSE here)

RAMP, or Raising and Accelerating MSME Performance, is a new programme with a five-year budget of INR 6,000 crores (INR 60 billion) that aim to improve MSMEs’ competitiveness and participate in global value chains.

Linking of portals 

The government announced that portals such as Udyam, e-Shram, National Career Service (NCS), and Atmanirbhar Skilled Employee-Employer Mapping (ASEEM) would be linked. 

They will now serve as portals with live, organic datasets, providing G2C, B2C, and B2B services. Credit facilitation, skill development, and recruitment will be among the services offered to formalise the economy further and create entrepreneurial opportunities for everyone.

Good news for rural enterprises 

The government announced that a fund with blended capital, raised under the co-investment concept, will be facilitated through NABARD (National Bank for Agriculture and Rural Development) to finance agriculture and rural enterprises important to the farm produce value chain.

These startups’ activities will include farm-level rental of farm machinery, support for FPOs, and technology, including IT-based support.

Increased focus on digitisation

Digital Payments: The previous Budget’s financial support for the digital payment ecosystem will be maintained in 2022-23. 

Digital Banking: The Budget 2022 recommended that Scheduled Commercial Banks establish 75 digital banking units (DBUs) in 75 districts across the country. 

Digital University: Amid academic disruption created by the coronavirus pandemic, India will establish a digital university to provide students around the country with access to world-class quality education at their doorstep. The University will be built on a networked hub-spoke model, collaborating with the country’s best public universities and institutions. 

e-Passport: Budget 2022 announced that the issuance of Indian passports would soon be digitised utilising embedded chips and futuristic technologies to improve convenience for citizens travelling abroad. 

5G: The government will hold the necessary spectrum auctions in 2022 to facilitate the rollout of 5G mobile services by private telecom providers during the fiscal year 2022-23.

End-to-end platform to submit and manage e-bills

India announced a provision for an end-to-end platform for submitting and managing e-bills for government contracts. 

It also pledged to pay 75 per cent of running bills within ten days, which will boost liquidity for MSMEs serving government organisations. Suppliers and contractors will submit digitally signed bills and claims online and check their status from anywhere using the system. 

In order to reduce indirect costs for suppliers and work contractors, the use of surety bonds as a substitute for bank guarantees will be made acceptable in government procurements.

More business for India inc.

Furthermore, the government has announced an increase the capital expenditure by 35.4 per cent to INR 7.5 trillion, to increase orders for local defence enterprises.

Credit: indiabudget.gov.in

Apart from participating in infrastructure projects such as new roads and highways, and railways, Indian companies will receive orders for various other social welfare projects such as drinking water projects and housing projects. 

According to CEOs, Indian companies can also participate in the construction of an additional 100 cargo terminals over the next three years, as well as the expansion of highways by 25,000 kilometres, the establishment of four multi-modal national parks, the standardisation of metro systems, including civil structures, and the establishment of four pilot projects for coal gasification. 

Chief Economic Adviser V Anantha Nageswaran expressed confidence that India would reach a  $5 trillion economy by FY26 or the next year, based on 8 to 9 per cent growth.

During the Finance Minister’s post-Budget engagement with the media, he stated that GDP in dollar terms has already surpassed $3 trillion.  The Indian economy is expected to grow at a rate of 9.2 per cent in the current fiscal year and 8 to 8.5 per cent in the following fiscal year.

  • Here’s more information on the Union Budget 2022
  • Here are the broad aggregates of the Budget for easier understanding
  • Here’s the outlay on major schemes

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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