With a promise of “never before” like Union Budget, our Finance Minister has raised expectations of all segments of the economy, especially that of the Micro, Small and Medium Enterprises (“MSME”), whose revenues have dwindled multifold due to the Covid-19 pandemic and forced many of them to shut their businesses.
MSMEs are the growth engine of our economy and require low working capital. MSME sector is the second largest sector after agriculture, and it helps us achieve entrepreneurial, growth, and employment objectives simultaneously. This sector not only generates the highest employment per-capita investment, but also arrests rural-urban migration, and provides a sustainable living to a majority of the rural households. The thrust of the Upcoming Budget should be on empowering rural India and creating employment opportunities for the rural youth through a series of measures such as skill training, encouraging creative and new ideas, providing capital and infrastructure, and making it easy to do business.
While immediate measures were announced by the government in May 2020 to provide relief to MSMEs in the wake of the Covid-19 pandemic, all eyes are on the upcoming Union Budget. Measures to be announced in the upcoming Union Budget should be as an extension of the immediate short-term relief measures announced in May 2020, and suitable improvements should be announced to develop a sustainable MSME sector in the long run. For instance, a specific expectation from the MSME industry is to enhance the collateral-free loan limit extended under the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme to INR 5 crore for micro-units, INR 15 crores for small business and INR 35 crores for medium businesses. The objective of the government should be to empower MSMEs to unleash their potential, and this would happen if they have access to funds at economical rates, and in a timely manner.
Cash-starved MSMEs are looking at measures to revive their operations and boost their revenues. Therefore, banks and financial institutions should be encouraged to extend credit facilities to needful MSMEs. Several MSMEs are unaware of the Trade Receivable Discounting System mechanism (“TReDS”) platform, which facilitates financing of trade receivables of MSMEs through financiers. The Union Budget should allocate more funds to develop the TReDS platform and incentivize MSMEs to use the same for undertaking their business operations.
Further, several MSMEs would look to avail professional services to revive their businesses, and it may be noted that the GST on professional services is levied at the rate of 18 per cent. The MSME industry expects GST rates to be reduced to 5 per cent on professional services sought by its constituents. Additionally, given the frequent amendments to GST laws and detailed compliance requirements, MSMEs have been spending enormous time and incurring huge costs for complying with the GST laws. This calls for a simplified regime of tax compliances specifically tailored for MSMEs. This would significantly help MSMEs to adopt digital technologies, enhance efficiencies and bring down costs of operations. Further, with a view to boost consumption, the government may consider reducing personal taxes, for a specific time period.
On the compliance front, it is understood that around 14 per cent of the compliance laws have criminal penalties associated with them, and the government should take suitable measures to remove criminal penalties, especially for minor offenses. This would help MSMEs to undertake business operations seamlessly and compete globally.
Start-ups play a pivotal role in assisting MSMEs to adopt new-age technologies such as automation, the Internet of Things, and machine learning. The technology and digital sector has become a key part in empowering MSMEs and will be the game-changer at this critical juncture. The government should consider providing hybrid incentives to MSMEs and start-ups to help MSMEs compete with their well-established peers.
This article was originally published in Economic Times on 1 February 2021 Written by: Arvind Sharma, Partner. Click here for original article
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