Page 11 - Union Budget, 2022

Union Budget, 2022

INSIGHTS FOR MSME, BANKING AND REAL ESTATE

MSME sector (Micro, Small and Medium Enterprises) has been the worst hit during the pandemic. Though, the Government
announced measures in trying to revive the MSME sector, full recovery has not yet been achieved especially in the informal segment
and in specific industries of the formal segment. Economic revival would not be complete without the revival of the MSME sector.
The Government, as part of the Budget, has announced few important measures for stimulating the said sector. In order to improve
the ease of doing of business for MSMEs and formalise the MSME sector, various Government portals would be interlinked with
free transition of data, and in addition to easing compliance, the scope of these portals would be widened to improve business
opportunities, skill development and even recruitment. On the most important aspect of capital/cash flow management of the
MSMEs, the Government has extended the Emergency Credit Line Guarantee Scheme (“ECGLS”) scheme by one more year and
with additional earmarked Rs. 50,000 crores for the hospitality sector. The extension of the scheme is a critical step considering the
fact that the confidence of scope of continued run of business without lockdowns, have been revived only in the last few months
after a successful vaccination campaign and a lighter Omicron wave. Favourable response can be expected for the extension subject
to no new disruption from the pandemic. On the other hand, this scheme would additionally encourage banks to lend to MSMEs.
On the banking front, the overall credit growth has improved after a set-back in the previous year due to the pandemic and has
reached the pre-pandemic levels, which is a good sign. As per the National Economic Survey (“NES”), the growth of credit extended
by the banks has picked up sharply in December, 2021 to 9.2% as on 31 December 2021 as against 5.3% at the beginning of April
st
2021 and the improvement in credit disbursements by NBFCs as a percentage of GDP (13.7% as at March 2021 as against 12.1% in
March 2020) signifies improved access to capital for various sectors. It would be pertinent to watch out for the impact of revision of
policy rates, if any, during the ensuring financial year on the banking sector. The Monetary Policy Committee (“MPC”) has done a
commendable job of maintaining the policy rates throughout the year without any change and managing inflation within the target
range. With the global scenario necessitating a change in policy rates, MPC monetary policy review throughout the year needs to be
tracked closely. Any increase in the Repo rates, which is passed on to the borrower, could increase the NPA rates significantly, which
could further impact the banking sector. As announced last year, the National Asset Reconstruction Company, which was established
to clean up the books of the banks and ensure that the realisable value of the assets are collected, has started functioning. As against
the initial target of Rs.2 lakh crores, assets worth Rs. 82,845 crores have been identified, of which NPA accounts worth Rs.50,000
crores is expected to be transferred to the NARCL by March 2022. It’s performance in the current year would be critical for the
banking sector.

For the real estate sector, the Government has announced for construction of 80 lakh houses under PM Awas Yojana. Further, the
increased capital expenditure spending on creation of infrastructure would have significant impact on real estate development. More
importantly, the announcement to develop Tier II and Tier III cities to make them future ready to manage inflow of population,
would give required impetus to the real estate sector in these regions, in the medium and long term. The initiative announced to
digitalise the management of land documents and to facilitate registration of deeds anywhere, would transform the real estate sector
once implemented, and make real estate transactions more seamless. Though direct impact on real estate sector is expected more
from the State Government policies and monetary policy, the budget proposals have a mix of short, medium and long term measures,
which can impact the real estate sector positively.

Overall, in the case of MSME, the measures specifically announced and the other supply side measures such as the PLI scheme, is
expected to have positive impact. In the case of real estate sector, there has been broad policy measures which are announced whereas
in the case of banking, its only the continuation or enhancement of the measures already announced in the past.

Najeeb Baig
CEO

Aatma Capital

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