Budget 2024- De-risk MSME credit inflows, boost credit access for advanced manufacturing, says Deloitte India

Budget 2024: De-risk MSME credit inflows, boost credit access for advanced manufacturing, says Deloitte India

De-risking of credit inflows to MSMEs in the manufacturing sector is required for capital investment and skill development to develop the capability for advanced manufacturing of intermediary goods, said audit and consulting firm Deloitte India in its pre-budget expectation booklet.

Recent data from the Reserve Bank of India revealed 13.2 per cent credit growth for medium-sized industries in June 2023 (compared with 47.8 per cent the previous year), with the micro and small industries experiencing a 13 per cent increase (compared with 29.2 per cent the prior year). Despite ongoing credit accessibility initiatives, there remains a significant need for innovative solutions to address the credit gap faced by MSMEs.

Moreover, as on 1 April 2023, the Credit Guarantee Scheme for Micro and Small Enterprises raised the credit limit from Rs 2 crore to Rs 5 crore, along with a 50 per cent reduction in annual guaranteed fees. However, as per a UK Sinha committee (constituted by RBI) report in 2019, the estimated MSME credit gap was between Rs 20-25 lakh crore. “Substantial efforts are still necessary to bridge this gap in support of MSMEs,” said Easwaran and Kanchan.

Deloitte India also recommended greater credit access to MSMEs to enhance their capability in advance manufacturing for the semiconductor, medical equipment, and industrial equipment segments. “Only 15–20 per cent of the MSMEs have access to formal credit. Greater formalisation could see demand for formal credit jump by 30–50 per cent.”

With respect to Goods and Services Tax (GST) related compliances for e-commerce businesses, Deloitte India sought respite for exporters and e-commerce operators as well.

At present, as per section 52 of the CGST Act, an e-commerce operator is required to collect TCS (tax collected at source) at 1 per cent of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator. Taxable supplies do not include the exemption of nil-rated supplies but include zero-rated supplies.

Given this, essentially, even when there is no GST liability payable on zero-rated supplies under a LUT (letter of undertaking), e-commerce operators are required to collect GST TCS in the absence of any separate GST collection by suppliers. The supplier is required to subsequently claim a cash refund of such GST TCS collected by the e-commerce operator.

“This results in cash flow issue for exporters and an increase in compliances for e-commerce operators and suppliers engaged in exports. The government should come forward with suitable amendments to exempt GST TCS obligations on e-commerce operators on facilitation of zero-rated supplies, to help with the cash flow issue for exporters and facilitate the ease of compliances,” said Peeyush Vaish, Partner and TMT Industry Leader, Deloitte India.

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