Union Budget 2021 : What’s in for MSMEs

Finance Minister Nirmala Sitharaman presented the Union Budget 2021 on 1st of February. Multiple schemes for various sectors were covered in the Budget presentation including MSMEs and startups. Just like all other industries, the MSME sector has also been greatly impacted by the pandemic which eventually lead to the shutdown of various businesses and an increase in unemployment. Although this pandemic has not ended even now, small businesses are slowly rising from the ashes and that is why Budget 2021 was a crucial event for all of them. Let us now attempt to understand what is in for MSMEs in the Budget 2021.

  • The Budget saw that the Finance Minister allocated a sum of Rs 15,700 crore for the Ministry of MSMEs (Mirco, Small and Medium Enterprises). The budget allotment of this year as regards the MSME sector is approximately twice as that of last year’s. There are proposed changes as well to aid MSMEs regarding customs duty on leather, gemstones, khadi, etc. to uplift domestic processing. Custom duties will also be raised by the government on silk and cotton for the sake of farmers.
  • Besides the Aatmanirbhar Bharat project, the government has planned to launch seven textile parks within a period of three years to raise investment and production. This initiative targets to boost domestic production, generate employment, and turn India into a global champ in exports. Encouraging production could suggest an increasing possibility of reliance on small businesses for the production of goods which would mean generation of greater employment opportunities and this would eventually contribute enormously to the economy. The government has planned to equal the level of nylon chain with that of polyester and has also decided to do the same with other fibres of the same kind to facilitate this. The rates of BCD yarn, nylon chips, caprolactam and nylon are now evenly reduced to 5%. This step is expected to aid textile industries, MSMEs and exports. 
  • Industries, especially MSMEs, have been severely hit by a sharp rise in steel and iron prices. The budget shows plans to bring down the customs duty evenly to 7.5% on long, flat and semis products of non- alloy, alloy, and stainless steel. Moreover, there is an exemption on the steel scrap duty till the 31st of March 2022 to give relief to metal recycles, who often happen to be the MSMEs. Furthermore, the Countervailing Duty (CVD) and Anti-Dumping duty (ADD) on some steel commodities are being nullified. The duty on copper scrap has been reduced from 5% to 2.5% to provide help to copper recycler.
  • The duty on plastic builder and steel screws wares is increased to 15% from 10%. It is raised to 15% from 5% for prawn feed. For the sake of incentivising exporters of handicraft products, leather, and 36 garments, our Finance Minister said that our government is attempting to justify exemption on the import duty-free items. Noe, most of these commodities are being produced by domestic MSMEs. The exemption given to importing certain types of leather is getting nullified as they are being produced in great quality and excellent quantity by the domestic MSMEs.
  • There is an increment in the customs duty on completed synthetic gemstones to boost domestic processing. 
  • In a big upliftment for startups, the government has stimulated incorporation of one-person firms. Such firms will be permitted to develop without any check on paid-up turnover or capital and can transform into any other kind of firm at any time, as per the details supplied by the government.
  • To upgrade credit discipline and safeguard the interest of the small debtors, NBFC (non-banking financial companies) can reclaim loans which are over only ₹100 crore. The Budget has also announced various alternative ways of debt resolution for MSMEs.
  • The Budget has also made the announcement that under Section 2(85) of Companies Act, 2013, the definition of small companies will be amended. The government plans to do this through an increase in the thresholds of paid-up capital to ₹2 crore from ₹50 lakh, and turnover to ₹20 crore from ₹2 crore. Now, through this, numerous companies comes under the definition of “small companies” and this guarantees ease of consent under Companies Act. During this period of pandemic, this is going to be of great help for MSMEs.


  • Pros: The Budget doesn’t impose taxes of increased amount on startups or businesses. The emphasis is more on the convenience aspect and on doing business with ease from the MSME’s perspective, by relieving them compliance burdens.
  • Cons: The government has focused on an all-round Union Budget. The focus on MSMEs which are financially destroyed and require instant financial relief, is little. Hopefully, the scheme of Aatmanirbhar Bharat will prove advantageous for MSMEs that are in the need to expand and grow this year.

Leave a Comment