Indian SME is undoubtedly a strong contributor to the economy. The SME sector generates significant employment while inputting considerably to the industrial output.
While the union government continues to float policies and schemes to smoothen business challenges for the SME, there are further hopes from the Union Budget this year. Like year on year, the SME looks forward to business loan aids, easier compliances, tax reliefs, etc. for it to thrive. However, this year, among other things, the one big change which has occurred in the life of an SME or an MSME, is shift to a cashless economy.
There is significant amount of uncertainty amongst business owners on what their model needs to be. Cash transactions have significantly reduced and the mood is to wait and watch. The expectation therefore from every person in the business community will be towards measures that can get the money rolling again, whilst this happens a large pie of people are also waiting to know the benefits derived from the demonetization initiative and how that benefit is going to come back to them.
A few areas that will benefit an SME/MSME; if the union government budget has announcements in the below bands:
There is an acute need to improve the infrastructure in areas where factories are set-up. Good roads, adequate water supply and uninterrupted electricity with may be incentives to use solar power will help small manufacturers carry out their work effectively and efficiently. The investment made in here however will need very strong governance, to make sure the money reaches where it must and is used for the purpose it has to be. Guidelines to state governments and locally elected political bodies along with targets for improvement of will help.
With banks full, easy availability of working capital loans at a better lending rate will help small players sustain and invest in growth. This will allow multiple players to enter into the market only for healthy competition, that ultimately leads to benefits for the customer in the form of quality and price.
Budget that dictates a healthy percentage of loans to be allotted to smaller businesses with specific financial stability will be a welcome move. This will ensure that the money does not roll back only to large corporates. Doing this for the government is not going to be easy though as availability of the funds now does not reduce NPA’s and large scale loan disbursal without appropriate methods to evaluate or breach in the use of these methods can also lead to a poor result. A fine balance will need to be maintained.
Our tax structure is due for a rejig and with this government taking the unconventional and unpopular route, it will be super to see them announcing some really good tax reforms. Whilst it seems almost impossible to implement the system anytime soon, announcement of BTT (Banking transaction tax) with GST will make a big shift in the way the economy will run.
BTT will give an opportunity to widen the tax collection area and therefore allow elimination of income tax and get the gauge to online transactions. If this is not possible increase in applicability of income tax from a current 2.5 lacs is definitely on the cards. It will be on the wish list of SMEs, reduction in service tax, both applicability of service tax from may be Rs 10 Lacs to 25 Lacs and rate drastically slashed down.
A similar exercise with VAT will be a blessing, If the rates cannot be slashed completely, it could be for transactions done using online medium to a certain amount. These moves can help discourage cash transactions whilst boost the rolling of money in the market.
4) Special Incentives, Investments and others
Special incentives and tax benefits in the energy sector, food, transportation and technology could be on the cards. Incentives to boost exports and enable Indian products to become competitive in the world market will be received well. Incentives and rewards to comply by quality, adherence to standards and investment made in RnD and self-development will help improve overall performance of the SME/MSME sector and the credibility of the Indian products and services in the world market will improve.
The budget must help simplify the tax rules; improve tax compliances and lower tax litigations. The use of technology should be efficiently and diligently put in action to facilitate a full-fledged online automated system for completing all type of clearances, approvals and formalities required for starting and operating a business and bringing a maintainable model of development for the SME industry.
The wish list can go on and on but what is most important and crucial in the budget this time is its implementation. With the timing of the budget changed, most announcements must see the day light sooner than otherwise. Also, it is imperative that the government does not end up announcing an unrealistically pleasing budget in the attempt to damage control from the negative publicity that the recent demonetization has attracted and the election time-zone. Boost in the right areas to get the money spinning again, this time within the system and clear cut long term policy will help set India Inc. back on the growth trajectory.