In recent times, MSMEs have gone through many adversities due to the Covid-19 pandemic, and they are facing the adversities due to inadequate liquidity, supply mismatches, shortage of labour and non-payment of dues. Cash starved MSMEs are expecting incentives and relief measures from the Government of India to improve their production capabilities, increase exports and generate employment opportunities. Certain key aspects concerning the MSME sector need immediate attention.
Frequent amendments to the GST regime and extensive compliance requirements under the GST laws increase time and expenses for MSMEs, and therefore, a simplified form for tax compliances, fine-tuned for MSMEs is expected. Industry experts are of the view that in order to enable MSMEs to benefit from professional services for their business growth, the government should reduce the GST rate on most of the professional services (to the extent provided to the MSME sector) from existing 18 per cent to 5 per cent.
Measures should be announced to reduce income tax rates for MSMEs on the lines of the manufacturing sector. In fact, most MSMEs carry on their businesses as proprietorship entities, partnerships and limited liability partnership structures, and they are paying income tax at high rates.
In order to address liquidity issues, the collateral- free loan limit extended under the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme be enhanced by the government to INR 5 crore for micro-units, INR 15 crores for small business and INR 35 crores for medium businesses.
It is understood that that the MSME body Federation of Indian Micro and Small & Medium Enterprises, which represents 740 MSME associations, has sought a temporary suspension of Basel norms (for three years) on the banking sector, in order to provide flexibility to the banks to support the cash-starved MSMEs. It may be noted that the Basel norms are international norms prescribed by the Switzerland-based Basel Committee on Banking Supervision to set common standards for banks across its member countries.
The government should take measures to make Trade Receivable Discounting System mechanism (“TReDS”) popular, and to enable more MSMEs to utiliSe this facility. TReDS refers to an online electronic institutional mechanism for facilitating financing of trade receivables of MSMEs through multiple financiers.
Acknowledging the upfront costs associated in adopting IT along with stiff competition faced from their established peers, in its budget and economic reforms, the government must focus on providing technological solutions that enable MSMEs to develop affordable products and address real issues.
If effective measures are taken to develop the MSME sector, the larger economic system will be automatically taken care of, as the MSME sector is reflective of the economic health of India.
This article was originally published in Business World on 28 January 2021 Written by: Arvind Sharma, Partner. Click here for original article
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