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Impact of Budget 2021-22 on the MSME Sector

Growth of domestic businesses in India and promotion of local products and services have been key focus areas for the Central government. Therefore, the 2021-22 Union Budget made provisions to give a new impetus to the Micro, Small and Medium Enterprises (MSME) sector, paying special attention to businesses saddled with heavy loans.

But, how exactly do companies with existing business loans benefit from this Budget? And what does it mean for those who need an infusion of credit to keep their businesses running?

Here’s how the Budget is set to make an impact on such businesses.

The necessity for credit inflow

Noting fears that financial institutions may have problems providing business loans to companies from the MSME sector after the recent economic slowdown, the 2021-22 Budget seeks to furnish a better line of credit for these businesses.

Funding issues have slowed down the growth of MSMEs that require new technology or increased labour inputs to further develop their businesses. Along with improving credit allocation and undertaking duty rationalization to encourage Indian-made products, both private and government funds are expected to be made accessible to MSMEs through plans that encourage their long-term domestic growth and make them strong players in international markets.

Bringing in committees to address stressed debts is a positive step as it will enhance lending for financially viable MSME businesses. Its effects might be witnessed through easier access to a business loan and reduced business loan interest rates.

Credit benefits through fund allocation

Fund allocation to MSMEs has increased from the existing amount of ₹ 7572 crores to ₹ 15,700 crores in the 2021-22 Budget. There is also a proposal to build new technology centres that will directly benefit them.

Raw material prices are likely to drop with a reduction in custom duties on scraps of the steel and ferrous and non-ferrous varieties. Custom duty on steel scraps will be exempted till 31st March, 2022.

These steps are likely to make loans easier to come by for MSME businesses. This is because lenders can see that the government has clear plans to develop this sector in the near future. Small entrepreneurs with quality ideas will get loans more easily.

A lot of MSME entities may have existing business loans that could be creating an additional burden for them. The provisions mentioned above will help in managing such MSME loans and encourage a rise in the number of businesses in the future.

Duty rationalization and other financial relief

Financial relief for those in need of business loans will come through the introduction of Collateral-free Automatic Loans for businesses worth ₹ 3 lakh crores. With the existing financial ecosystem already boasting of services to help secure MSME loansfor businesses, this step should make handling business finance easier.

Another area where the impact of the Budget on MSME may be felt is the expected revision in the customs duty structure. The government has planned to review upwards of 400 existing exceptions.

Customs duty has been rationalized on duty-free items that are essential for garments, leather and handicraft items, steel screws, plastic builder wares, prawn feed, finished gemstones, gold and silver. A uniform custom duty of 7.5% has been proposed to be levied on semis, flats, and long products of non-alloys, alloys and stainless steel.

Financially speaking, better access to raw materials and a bigger market for finished products will help lenders repose trust in the future growth of the MSME sector.

Legal and regulatory relief for removing credit barriers

Legal issues often come in the way of securing an MSME loan, and some of the provisions made in the 2021-22 Budget are likely to help with overcoming that hurdle.

The National Company Law Tribunal (NCLT) framework will be strengthened for a more efficient resolution of cases. The implementation of e-courts along with a special framework for MSMEs seeks to help with this process.

Businesses adversely affected by the recent pandemic will also get relief through alternate methods of debt resolution.

Small taxpayers with a taxable income of up to 50 Lakh and disputed income of up to 10 Lakh will benefit from a Faceless Dispute Resolution Committee. New disputes, thus, can find resolutions at the initial stage and existing disputes can be fast-tracked.

Companies that were being held back from obtaining a credit line because of pending court battles can now hope for relief.


MSME businesses have taken a hit during the 2020 lockdown and will need policy aids and low-interest business loans to get back on their feet.

Financial institutions are already providing entrepreneurs with assistance for insurance, business loans and investments.

On the government level, implementation of the schemes mentioned above is likely to be a step in the right direction.


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