Budget 2018: What MSMEs want from Finance Minister Arun Jaitley
In the post-liberalisation era, the micro, small and medium enterprises (MSME) sector was looked upon as the last vestige of India's old economic order. Successive finance ministers and policy experts promoted big corporates with various dole-outs in the form of tax breaks and other policy measures.
But times have changed. Big corporates have failed to create jobs commensurate with the incentives they enjoyed all these years. And this has begun to hurt the economy as well as politics. More than a million youngsters enter India's job market every month, but only about 10,000 of them manage to get employment. The situation has petrified the government and this led Finance Minister Arun Jaitley to accept publicly that it was the SMEs sector that created jobs in India.
So, less than a fortnight away from Jaitley's final full-year budget, can we expect something big coming the way of the SME sector?
We don't know, what's in store for India's small guys. But in case the government
is actually looking to promote a sector that employs 40% of India's workforce and contributes 45% to India's manufacturing output, here is a list of things that the finance minister must focus on:
Incentive for job creation
It is no secret that SMEs create more number of jobs per rupee of investment. However the amount of investment by the SMEs is very small compared to large corporates. If the government gives incentives or tax break on the basis of new jobs created, it can go a long way in encouraging SMEs to invest more in their businesses by raise the number of employees.
Project funding for the MSME manufacturing sector
Government often talks about the lack of desire among SME owners to grow their businesses. Majority of the SMEs in India like to keep their size small to avoid regulations under the company's act and labour laws. While the argument is true to an extent, it is not the crux of the problem. A large number of SMEs are unable to get the funds required to take up bigger projects that can help them grow their size.
This is due to the lack of project financing facility by banks.
Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small enterprises says that " MSMEs find it difficult to get projects financed. There is general reluctance among bankers for financing manufacturing units, particularly term loan, because they find manufacturing processes more risky in comparison to consumer finance say of Car or Housing."
Bhardwaj wants the government to encourage Banks and RBI to provide term loan, beyond the normal prudential norm and "for this purpose special re-finance window should be opened for Banks”.
Availability of affordable workplace for MSMEs
Unlike big manufacturing houses that purchase or lease thousands of acres of land to set up their manufacturing units, the SMEs rely on industrial sheds and modular factories. While big corporates often get land and subsidized rates from the government, the MSMEs have to purchase or lease factories at market rates. If the Union government initiates a scheme that promotes setting up of affordable work sheds and modular factories for small scale industry, it can go a long way in addressing the problems of the MSME sector. The state governments would need to be a part of such scheme as land is a state subject.
Making GST filing simpler
Enough has been said about the problems introduced by the GST sector. The government has been telling the MSME sector that the problem in tax filing is just temporary and things will improve very soon. But if the government keep the number of returns per year to be 37 ( as is the case now) it will never be easy for MSME to comply with the new law with ease. It is time the government thinks about the number if returns a trader has to file under the GST. The sooner there is clarity on this subject, the better it would be for the MSMEs.
Minimum import price and tariff duties hurt the small players
This is a clear case of small vs big players. In a note sent to the finance ministry FISME has argued that Safeguard duties and Minimum Import Price (MIP) make MSMEs uncompetitive.
"For the last one year, the government is imposing different protective measures like Anti-Dumping Duty, Safeguard Duty on import of base metals e.g. Steel to protect the market of domestic manufacturers’ from ‘cheap’ imports. While the intention of the Government may be to support the domestic industry to be viable, these measures are causing enormous damage to the user industries viz., engineering sector, by making their products uncompetitive in both domestic and export market due to high cost of the basic metals."
While the government, by introducing import tariffs on steel is trying to save the big steel companies from going bankrupt, especially in the back drop of rising non-performing assets in the banking sector, it is hurting the small MSME's capacity to stay competitive. It is up to the government to decide who is more important to create jobs. MSMEs or big players?