Union Budget 2024 has garnered appreciation from the industry for its multiple initiatives intended to ease the condition of small and medium sized businesses in India – a key generator of employment that has not been doing very well in recent years. The government had, in earlier years, come in for criticism for trying to drive India’s economic growth through large conglomerates and groups at the cost of the small and medium enterprises. However, the first budget after the ruling BJP’s weaker-than-expected showing in nationwide elections was notable for its incentives aimed at reviving the small and medium sector.
Among these was a Rs 100 crore collateral-free credit guarantee scheme, augmentation of Mudra loans from Rs 10 lakh to 20 lakh, and plans for “plug and play” industrial parks near 100 cities.
Credit Guarantee Scheme
The collateral-free credit guarantee scheme is a self-financing mechanism where an MSME that wants to avail of a credit guarantee facility for the term loan will have to pay an initial upfront guarantee fee, followed by an annual top-up fee based on the reduced balance of the loan.
Dr. Anchal Jain, Chief Executive Officer of electric bus maker, PMI Electro Mobility Solutions Private Limited, welcomed the government’s focus on MSMEs and their access to term loans for the purchase of machinery and equipment without requiring collateral or third-party guarantee. This, according to Dr. Jain, will benefit India’s 63 million MSMEs.
Among the sectors that stand to benefit are EV manufacturers and auto component makers, both of which currently comprise many small players unlike the traditional PV market.
Segments such as e-bus manufacturing will especially be benefited as they face working capital requirements pressure due to the long-term nature of their contracts with state governments. It will also benefit auto component manufacturers who enter into long-term contracts with OEMs.
Interestingly, the current definition of ‘medium’ sized industry caps the investment in such firms to Rs 50 crore, but the loan guarantee is up to Rs 100 crore, some industry officials pointed out.
Other experts in the field of manufacturing have also given a thumbs up to the government, as the credit guarantee scheme will play a role in modernising the manufacturing sector by enabling MSMEs to invest in advanced technologies and infrastructure.
Nishant Arya, Vice Chairman, of JBM Group, which is also a leading player in electric buses said that the government thrust towards skilling and focus on the SMES and manufacturing sector will ensure industry readiness for future dynamics.
Mudra Loans & Industrial Parks
By expanding Mudra loans, the budget will also encourage start-ups in the EV space, pointed out Harshwardhan Sharma, Head – Auto Retail Consulting Practice of Japanese consulting firm NRI (Nomura Research Institute).
He said that the FM’s upward revision of Mudra loans from Rs 10 lakh to 20 lakh will support small entrepreneurs in the automotive sector, and the reduction in customs duty on mobile PCBA and chargers may indirectly benefit the EV sector by reducing costs for electronic components.
Harshwardhan also added that the government’s “plug and play” industrial parks near 100 cities will provide infrastructure for automotive manufacturing units.
Even large auto component makers like Bharat Forge Ltd. have welcomed the government’s move to bolster MSMEs, modernise cities, and accelerate energy transition.
Mukund Vasudevan, Managing Director of bearings major SKF India and President SKF ISEA Region, also supported the steps for encouraging the manufacturing sector. “The provision of financial support to micro and small industries for shifting to cleaner forms of energy and the government’s taxonomy for climate finance, as planned by the government, will help improve the availability of funds for adapting to climate change and reducing greenhouse gas emissions,” Vasudevan said.
Samarth Kholkar, CEO & Co-Founder of Bengaluru-based multibrand EV retail firm BLive, also said that the government’s MSME focus will also drive generating jobs in the manufacturing sector and is likely to benefit 30 lakh youths, thereby bringing in disposable income, particularly the 2-wheeler segment also.”
Samarth said that governments’ overall push to stimulate the economy and focus on employment generation will see demand for EVs also coming back and benefiting sales of electric three-wheelers, which are largely used for cargo-based applications.