Budget FY23's extended ECLGS, RAMP to boost MSMEs: Ind-Ra

The Union Budget FY23 is expected to have a positive impact on the micro, small and medium enterprise (MSME) sector, said India Ratings and Research (Ind-Ra).

The budget has given an incentive for international trade and extended previous schemes to provide the much-needed relief to MSMEs.

"The extension in the scope of ECLGS by Rs 50 billion, making a total of Rs 5 trillion to be availed by March 2023, will support the liquidity and debt servicing of most MSMEs," the ratings agency said.

"MSMEs will be able to free-up their working capital funds and swap their previously availed high interest-bearing term loans with lower cost ECLGS loans. However, the working capital of MSMEs remaining stuck in the form of either inventory or debtors will remain a key concern, as it might deplete the newly sanctioned funds in the short term and increase the financial leverage."

As of November 2021, Rs 2.82 trillion has already been sanctioned to 13 million MSMEs.

Besides, the Rs 60 billion 'Raising and Accelerating MSME Performance' (RAMP) programme is another budget scheme that is expected to positively impact the MSMEs.

The Centre has allocated Rs 60 billion for the RAMP programme for MSMEs for the coming five years, which is inclusive of the Rs 37.50 billion RAMP programme launched by the World Bank in June 2021.

The World Bank had earmarked this funding for the period FY22-FY26 under the 'Credit Linked Capital Subsidy' and 'Technology Upgradation Scheme'.

"It will nudge MSMEs to scale-up their capacity. Also, the large-scale, cost-effective integration to be implemented under the RAPM scheme will enable the Ministry of MSME and states to improve its monitoring and evaluation capacity which will bridge the information gap and improve the efficiency of the system.

"Furthermore, the RAMP programme will help the MSME sector in scaling up, by providing formal sources of finance, a platform where MSMEs and suppliers can come together and fintech solutions for financial assistance," Ind-Ra said.

However, the eligibility criteria are still awaited.

Furthermore, the agency expects a positive impact on the hospitality sector from the budgetary provisions.

"The Rs 50 billion earmarked for the hospitality sector and related enterprises will provide the much-needed liquidity support.

"In FY21, the hospitality sector witnessed a major setback on account of a sharp decline in the occupancy and footfall due to the Covid-19 pandemic."