Keeping the focus on job creation, the Budget has made several announcements to boost micro, small and medium enterprises or MSMEs. But unlike what most people thought, it is not the reduction in the corporate tax rate (from 30 per cent to 25 per cent for companies with turnover of `50-250 crore) or the `3,794 crore provision for credit support, capital/interest subsidy and innovations, which would have the biggest impact on the sector.
According to Anil Bharadwaj, Secretary General, Federation of Indian Micro & Small and Medium Enterprises, the biggest announcement for the MSME sector is extension of the facility of fixed-term employment to all sectors. "This is a big move as it allows MSMEs to hire contract labour. Most manufacturing MSMEs have seasonal production cycle and find it difficult to hire permanent labour," says Bharadwaj.
Besides, linking the GST Network database to the Trade Electronic Receivable Discounting System platform, and asking public sector banks to join the platform, address several issues that were stopping the bill discounting system from becoming successful. With GSTN database linked to the system, banks will be able to check easily if the supplies have reached the buyer. This will bring credibility to the system. Under bill discounting, banks pay the supplier the bill (after deducting a charge) raised to the buyer before the amount is due and then recover the money from the buyer. This helps suppliers get back money before it is due, unblocking working capital.
Of course, reduction in the corporate tax rate is a welcome move, but Bharadwaj of the FISME says they need a clarification if the same rate is applicable to MSMEs in proprietorship and partnership firms too. He says 97 per cent MSMEs are either proprietorship or partnership firms.
The `3,794 crore fund could be used to revive the credit-linked capital subsidy scheme, which has been lying defunct for the past two years, says former MSME Secretary K.K. Jalan. The scheme provides capital subsidy of 15 per cent (limited to `15 lakh) on institutional finance availed of by MSMEs for technology upgrade. It can also be given to SIDBI for financing of MSMEs.
The government's move to increase customs duties for sectors such as auto, furniture, mobile and electronic components would also help MSMEs by making imports more expensive.
Although the Budget announcement to increase the loan disbursement target under MUDRA to `3 lakh crore this year was touted as a big positive for MSMEs, the industry thinks otherwise. V.K. Bansal, President, Federation of Indian Small Businesses, says instead of increasing the MUDRA disbursement target to `3 lakh crore, which is not at all for MSMEs but for small traders, the government should have made a higher allocation for the MSME sector.
Steps like extending the government's contribution of 12 per cent of the wages of new employees in the EPF for all sectors for three years and allowing BBB-rated companies to tap the bond market may also help MSMEs.