MSME Budget 2021: All highlights for the MSME sector

4 min readFeb 3, 2021

The union budget was presented by Nirmala Sitharaman on February 1st, 2021. She in her third budget speech on Monday announced a handful of measures to boost the startup and MSME ecosystems.

MSMEs were looking for game-changing reforms to accelerate their growth back to the pre-Covid era and to also help them deal with digital growth. This was the first-ever digital budget. It largely catered to small businesses with respect to ease of doing business by relaxing certain normas around setting up businesses and incentivizing funding for startups

Below are the key highlights of what all Sitharaman offered to startups & MSMEs in the budget-

Incentivising OPC Setup:

In order to benefit startups in setting up one person companies (OPCs), it was announced that OPCs can grow without any restrictions on paid-up capital and turnover. Sitharaman also allowed their conversion into any other type of company at any time. The budget also reduced the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and allowed NRIs to incorporate OPCs in India.

Extending Tax Holiday

To boost startup investments in the country, the budget proposed an extension of eligibility for claiming tax holidays for startups. Along with this it also proposed capital gains exemption for investment in startups till March 31, 2022. “In order to incentivise startups in the country, I propose to extend the eligibility for claiming tax holiday for startups by one more year to March 31, 2022…” Sitharaman said.

Digital Payments Boost

Sitharaman announced earmarking Rs 1,500 crores for a proposed scheme “that will provide financial incentive to promote digital modes of payment.” She said that there has been a manifold increase in digital payments in the recent past, this scheme is to further boost the digital revolution in the country.

Insolvency Resolution

In order to ensure faster resolution of cases, Sitharaman said that the National Company Law Tribunal (NCLT) framework will be strengthened & the e-courts system will be implemented. Also the alternate methods of debt resolution and special framework for MSMEs will be introduced.

Budgetary Allocation:

The budget allocated Rs 15,700 crores to the MSME sector which is roughly double of the preceding budget amount of Rs 7,572 crore

Customs Duty Slashed

The government said that it is reducing Customs duty uniformly to 7.5 percent on semis, flat, and long products of non-alloy, alloy, and stainless steels. This is done to MSMEs and other user industries that have been severely hit by a recent jump in iron and steel prices.

Sitharaman also announced ending duties on steel scrap for a period up to 31st March 2022 to provide relief to metal recyclers, mostly which are MSMEs. The minister also proposed an increase in duty from 10 per cent to 15 percent on steel screws and plastic builder wares to benefit MSMEs affected by the COVID19 crisis.

Withdrawing Exemption on Imports

The budget announced withdrawing exemption on imports of ‘certain’ kind of leathers as they are domestically produced in good quantity and quality by MSMEs. This was done to promote the ‘Vocal for Local’ ideology.

Revising Definition

Finance Minister proposed to revise the definition under the Companies Act, 2013 for Small Companies by increasing their thresholds for Paid-up capital from “not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore” and turnover from “not exceeding Rs 2 crore” to “not exceeding Rs 20 crore”. This will benefit more than two lakh companies in easing their compliance requirements. This was a good move as there is a crucial need to address and resolve the structural issues so as to help MSMEs to scale and move up the value chain.

What’s Ahead

Micro, small and medium enterprises (MSMEs) are the growth accelerators of the Indian economy, contributing about 30% of the country’s gross domestic product (GDP). In terms of exports, they are an integral part of the supply chain and contribute about 40% of the overall exports. This sector plays an important part in the growth of the country. The government understands this, thus it has provided several measures for MSMEs to prosper.

Also with rapid development in the fields of information technology and hardware, the world is about to witness a fourth industrial revolution. The concept of ‘Industry 4.0’ is going to change the way India manufactures, designs, and refurbishes the products. Driven by the power of big data, high computing capacity, artificial intelligence, and analytics, Industry 4.0 aims to completely digitise the manufacturing sector.