The 63 million Micro, Small and Medium Enterprises (MSMEs), badly hit by demonetisation and the GST rollout, had been largely ignored in the Interim Budget earlier this year. All eyes are now on Finance Minister Nirmala Sitharaman to see what she can do for the MSME sector that accounts for around 8 per cent of India's GDP, over 40 per cent of total exports and employs over 117 million people. In fact, it is seen as the growth engine of the economy. Here are the main expectations of stakeholders:
FULL COVERAGE: Union Budget 2019
Improve access to credit:
According to the Federation of Indian Chambers of Commerce and Industry (FICCI), the upcoming Union Budget should address the two key MSMEs issues related to access to credit and access to market. "For instance, the government should review the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme to make it more effective and practical for enabling greater credit flow to units in the MSME sector," the body said in its pre-Budget memorandum.
The World Bank pegs the credit supply-demand mismatch in the sector at a whopping $230 billion. The liquidity crunch set off by the debt default crisis at Infrastructure Leasing & Financial Services Ltd (IL&FS) has exacerbated the problem. As per RBI data on deployment of gross bank credit, in April, the MSME sector bagged a meagre Rs 3.66 lakh crore, or less than 13 per cent of the total credit extended to the industry vertical in that month. In comparison, large enterprises had cornered credit to the tune of Rs 23.62 lakh crore.
Faster invoice processing:
According to Sachin Taparia, chairman of the community engagement platform, LocalCircles - which was part of the pre-budget meeting chaired by Sitharaman - many large corporates take several months to pay vendor invoices. However, this creates major cash flow hurdles for startups and MSMEs since they have limited funds at their disposal. "Government last year issued notification number S.O 5622 (E) mandating that all companies must disclose in their half-yearly filing any MSME payments that are pending for over 45 days. It is suggested that the same is made applicable to Government departments (Central and State) and PSUs and they must also be required to pay all MSME invoices within 45 days of invoice," Taparia told India Today.
Faster TDS and Input Tax Credit Refunds:
Many startups and MSMEs have reported a delay in tax deducted at source (TDS) refunds and hence now want the government to implement faster refunds within 45 days. According to Taparia, some small enterprises and startups have not got TDS refunds from returns filed in September 2018. MSMEs also want the government to engage in timely processing of input tax credit (ITC) refunds to address cash flow issues.
Reverse Charge Mechanism:
At the moment, many businesses are required to pay GST under the Reverse Charge Mechanism for services procured from abroad. These startups, especially in the early stages, also do not have enough GST output to offset ITC. Therefore, they are faced with an additional GST cost of 18 per cent, a cost they would not incur if their registered office was located outside India. Experts suggest that all startups - or at least those with a turnover of less than Rs 10 crore - should be exempted from GST under the Reverse Charge Mechanism for foreign vendor payments," Taparia said.
Enforce 20 per cent mandatory MSME procurement:
Discussions during the pre-consultation meeting put the spotlight on the issues that MSMEs face while doing business with the government. Stakeholders have long complained that it is highly time-consuming and difficult. "While [as per] the new rule 20 per cent of all procurement of government departments should be done through startups, the same is not being enforced. It is, therefore, requested that a mechanism is created that government department actively seek to work with MSMEs and startups and annual audits and conducted to ascertain the following of this rule," said Taparia.
According to FICCI, the government could also announce setting up of a Market Intelligence Cell for MSMEs that maps specific foreign markets for specific MSME clusters and accordingly provide information and training to MSMEs about consumer preferences, product specifications, technological developments and trade agreements. "Government could also consider incentivising MSMEs working on emerging technologies like Artificial Intelligence, Machine Learning for healthcare, Blockchain for land records and public records, and Big Data Analytics, etc. by providing various tax and non-tax benefits," the lobby added in its pre-Budget memorandum.
Union Minister Nitin Gadkari, who took over the MSME portfolio recently, has already announced that the Modi 2.0 government is ready to consider special policies to promote import-substitute products. Perhaps Sitharaman's maiden budget speech will touch upon this.Also read: Budget 2019 LIVE updates: Nirmala Sitharaman to present her maiden budget today; here's what to expect
With PTI inputs