Lack of funding, low cash reserves, layoffs, pay cuts, and shutting down operations would be the best terms to describe the year 2020 for small businesses and startups. As India aspires to be a $5 Trillion economy by 2025, its growth trajectory largely depends on how we extend support to startups and small businesses. The MSME and startups need monetary priming for running businesses as they are suffering from massive liquidity, supply crunch, shortage of labour, and non-payment of dues.

Below is the budget allocation for MSME and startups proposed by Finance Minister Nirmala Sitharaman:

Fund Allocation

The Union Budget has allocated Rs 15700 crores to the MSME sector which is double the fund allocated in the previous budget.

To mitigate the stress endured by the startups and MSMEs in the lockdown, the government has announced Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) under Aatmanirbhar Bharat Abhiyan Package. The scheme was valid till October that was extended by Nov 2020, which now has been extended till 21 March 2021.

This year’s budget has given relief to the startups and MSMEs with the relaxation of norms for setting up a business and enabling the ease of doing business.

Incentivizing the OPC

Startups that are run by a single individual known as OPCs (One Person Company) have been granted to do business without any restrictions on paid-up capital and turnover. The new norms have also allowed the conversion of an OPC into any other private company at any time since earlier the conversion to private or the public could happen if only the paid-up share capital surpassed Rs 50 lakhs or its average turnover reached Rs 2 crores. The residency limit for an Indian citizen to set up an OPC has been reduced to 120 days from 182 days, also allowing NRIs to incorporate OPCs in India. It will incentivize investments from NRIs in startups in India.

Extending the Tax Holiday

To boost startup investments, the Government has exempted all the startups from paying taxes along with capital gain exemption till the next financial year i.e., 31st March 2022.

Boosting digital payments

As UPI transactions have witnessed a rise in the pandemic, the Union budget has allocated ₹1,500 crores for a scheme to incentivize digital payments, which will provide financial incentives to startups and MSMEs to promote digital modes of payment.

With the new budget, hope this year’s budget brings a wave of positivity and recovery to the MSME and startup businesses in India.