India's Interim Budget 2024: A Comprehensive Guide for Small Businesses

The Interim Budget 2024, themed “Viksit Bharat Budget 2024,” unfolds a tapestry of provisions that directly impact Small Businesses. Let’s delve into more detailed perspectives on the key takeaways that can significantly benefit these enterprises.

Supporting Innovation: Extension of Tax Benefits for Start-ups

The continuation of existing tax rates for FY 2024-25 offers stability and predictability for small businesses, fostering strategic planning and financial management. This consistency allows entrepreneurs to focus on business growth rather than navigating frequent changes in tax policies.

Moreover, the extension of tax benefits for start-ups and investments by sovereign wealth funds/pension funds until March 2025 signifies sustained government support for entrepreneurial ventures. This support not only provides financial incentives but also instils confidence in investors, contributing to the growth of the small business ecosystem.

Additionally, widening the tax base through GST ensures a fair and inclusive business environment, reducing complexities and enhancing compliance for small businesses. Vayana’s consumer study in late 2023 found that a large majority of the MSMEs observed good conduct in filing their GST returns. This holds for all entities in the supply chain including – super stockists, wholesalers, distributors, and retailers. Overall, this reveals that MSMEs find it important to conduct their GST returns for good business hygiene. Greater alignment with tax policies made possible by a streamlined taxation system promotes transparency and accountability, fostering a level playing field for all enterprises. Moreover, as smaller businesses come into the fold of GST compliance, their digital footprint offers stronger creditworthiness and visibility to other business partners in the supply chain and even financiers.

Digital Transformation: Promoting Formalization and Financial Inclusion

Promoting formalization and financial inclusion are central to the government’s agenda, with the DPI framework facilitating seamless digital transactions. By embracing digital technologies, small businesses can streamline their operations, reduce costs, and improve customer experiences. Addressing a specific case of this, the Unified Payments Interface (UPI) seems to no longer be limited to domestic markets. It’s poised to be embraced globally by retailers, heralding a new era in B2B Trade. Discussions among NPCI, RBI, and SWIFT aim to enable UPI transactions in dollars, driving exponential growth. The RBI projects UPI to command 90% of global retail digital transactions within five years.

Coming back to the domestic scenario, the initiative brings more businesses into the formal financial system, leading to increased access to financial services, improved transparency, and greater efficiency in the economy. The Gujarat International Finance Tech-City (GIFT) – International Financial Services Centre (IFSC) serves as a robust gateway for global capital and financial services, further enhancing India’s position in the global financial landscape.

Boosting Local Economies: Injection of Funds into the Informal Sector

The injection of funds into the informal sector, particularly for street vendors, boosts local purchasing power, positively impacting small businesses within the supply chain. By increasing consumer spending, these initiatives stimulate economic activity and create demand for goods provided by small enterprises.

Furthermore, governmental efforts in poverty alleviation and DBT mechanisms contribute to economic stability, fostering sustainable livelihoods and skill development. As beneficiaries gain financial independence, they become potential customers or entrepreneurs themselves, further bolstering the MSME ecosystem.

Investing in the Future: Initiatives for Skill Development

Progress under initiatives like the Skill India Mission and the establishment of new institutions for higher learning, support skill development and entrepreneurial aspirations of the youth. By investing in human capital, the government cultivates a skilled workforce that can drive innovation and productivity in small enterprises.

Financial support through schemes like the PM Mudra Yojana and a surge in skilled workforce foster an environment ripe for innovation and growth. Success stories include a tailor opting for the credit to expand into a t-shirt printing business, employing more employees. Another example includes 2 hairdressers from Haryana who employed the credit to start their hairdressing academy to vocationally train residents. As seen, access to timely and affordable credit enables talent to pursue ambitious projects and drive economic progress.

Empowering Farmers: Direct Financial Assistance and eNAM Integration

Direct financial assistance to farmers and integration of mandis under eNAM positively influence agribusiness and food processing sectors, creating collaboration opportunities for small enterprises. By strengthening the agricultural value chain, small businesses gain access to a reliable source of raw materials and extend quality output to their customers, especially in the FMCG supply chain.

Driving Diversity: Fostering Gender Inclusivity in Business

Initiatives supporting women entrepreneurs and increased focus on female education promote gender inclusivity and diversity in the business landscape. By tapping into the entrepreneurial potential of women, the government unlocks new sources of innovation and growth in traditionally male-dominated industries. More particularly, in the last 5 years women-led start-ups have increased by 18% in India.

Leveraging fintech innovations and self-help groups, women-led enterprises thrive, contributing to economic empowerment and societal development. As women gain economic independence, they play a more significant role in driving consumer demand and shaping market trends, creating opportunities for small businesses to cater to diverse needs.

Green Business Practices: Integration of ESG Norms

Integration of ESG norms encourages corporations to adopt eco-friendly practices, benefiting small businesses in the supply chain. As demand for sustainable products and services grows, small enterprises that place focus on environmental responsibility gain a competitive edge and access new market segments. The government’s prioritization of sustainability initiatives, including commitments to achieve ‘Net Zero’ emissions by 2070, underscores its dedication to environmental stewardship. Measures such as viability gap funding for wind energy, mandatory blending of CNG, PNG, and compressed biogas, and financial assistance for renewable energy procurement demonstrate India’s transition towards a more sustainable and resilient economy.

More recently, banks have been advocating for incentives like relaxed risk-weighted assets (RWA) and cash reserve ratio (CRR) norms to encourage sustainability-linked loans. These loans correlate interest rates with a company’s sustainability performance, encouraging adherence to ESG standards.

Building Connections: Railway Corridor Programs and Foreign Investment

Implementation of Railway Corridor Programs and promotion of Foreign Investment creates opportunities for small businesses in transportation, logistics, and infrastructure development. By participating in large- scale projects, small enterprises can expand their capabilities and establish themselves as reliable partners in the supply chain. Enhanced connectivity and infrastructure facilitate effective domestic trade by reducing transportation costs and lead times. These improvements enable small businesses to gain compete advantage for larger corporations aspiring to participate and win the infra projects. A specific example of
this is the development of rural road infrastructure. It has been shown to facilitate the cultivation of cash crops and the commercialization of agricultural practices. This entails enabling rural residents to adopt modern farming techniques, thus enhancing their output for commercial sale in the market.

Manufacturing Reinforcement and Export Drive

Stability in customs rates and import duties reduces uncertainties for small businesses engaged in international trade, enabling informed decision-making, and enhanced operational efficiency. By minimizing fluctuations in import costs, businesses can better manage their expenses and stay buoyant in the global market.

Continued support for manufacturing and exports-led growth opportunities is evident in the allocation of funds to programs aimed at developing semiconductor and display manufacturing ecosystems. Implementation of schemes such as the Pradhan Mantri Matsya Sampada Yojana and the introduction of new schemes like biomanufacturing and bio-foundry support environmentally friendly alternatives. Overall, they align with global sustainability goals and create opportunities for small businesses in the green sector.

In navigating the economic landscape, small businesses should grasp the nuanced implications of the Interim Budget 2024. These in-depth takeaways underscore not only the immediate benefits but also the strategic positioning that small enterprises can leverage for sustained success in the evolving economic scenario.