Budget 2019

Budget 2019: What MSMEs Expect From Nirmala Sitharaman's Maiden Term as the Finance Minister

As Nirmala Sitharaman sets the stage for presenting her maiden budget in the Parliament on July 5, here's what the MSME sector demands
Budget 2019: What MSMEs Expect From Nirmala Sitharaman's Maiden Term as the Finance Minister
Image credit: Ministry of Finance
Entrepreneur Staff
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7 min read

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All eyes are set on Finance Minister Nirmala Sitharaman as she sets the stage for presenting her maiden budget in the Parliament on July 5. After serving a long term as India’s Defense Minister, Nirmala Sitharaman has taken on a new role, the path to which won’t be easy. Ever since the Narendra Modi-led NDA government was first elected in 2014, the economic focus has somewhat shifted to the startups.

However, being the backbone of the nation’s economy, Micro, Small and Medium Enterprises (MSMEs) weren’t ignored either. Having slumped momentarily by demonetization and haphazard implementation of GST, the sector was privileged with the 59-minute loan portal to enable easy access to credit; a two-per cent interest subvention for all GST registered MSMEs, among other steps taken for ease of doing business.

Ahead of the big presentation, Sitharaman has held 5 pre-Budget consultations with the representatives of financial and capital market, Social Sector Groups, Infrastructure & Climate Change, Industrial Services & Trade Associations along with Agricultural and Rural Development to ascertain the concerns of each industry and work her budget accordingly. The discussions brought many grave issues to the front for MSMEs too.

Liquidity Crisis

Despite being India’s second-largest job creators with about 65 million of them accounting for about 120 million jobs, MSMEs had a tough time in flourishing due to the cash crunch. While the failure of IL&FS is feared to have dried up a key source of funds for MSMEs, the INR 1 crore limit is also not helping the liquidity crisis for non-banking financial companies (NBFCs).

According to KNN India, The Federation of Indian Micro and Small and Medium Enterprises (FISME) has submitted a pre-budget memorandum to the Finance Minister suggesting measures to bring fiscal reforms to check the liquidity crisis in the MSME sector. To facilitate the demand, Sitharaman is said to be considering fiscal incentives such as interest rate subvention and lower tax rates for up to a certain turnover threshold for key MSME sectors.

This year’s budget is very crucial to spur the demand for products and services during the current year. “The outlay of Government expenditure is expected to boost the overall economy. Our user Industries like FMCG, Beverages, Pharma and Auto sectors would revive provided the Government would increase the overall liquidity condition in the country coupled with consumption-driven growth,” believes Sunu Mathew, MD, LEAP India Pvt Ltd.

Empowering Businesses

Earlier in the year, all companies with turnover of more than INR 500 crore were asked to operate through Trade Receivables e-Discounting System (TReDS) platform to ensure that that there is no cash flow problem for MSMEs. To ensure the same, FISME has proposed creating a multi-stakeholder agency which will deal with big data of GST, bank transactions and ROC filings for bringing all listed companies on TReDS.

Notably, MSME Minister Nitin Gadkari had mentioned the expected employment increase in the MSME sector. Soon after, Commerce Minister Piyush Goyal also jumped to support greater participation of MSMEs in developing countries. RBI’s recent decision of lowering the Repo Rate gives a positive indication that the government would take some steps towards promoting SME’s in the coming budget.

Government has been striving to facilitate a conducive environment for MSMEs by noteworthy reforms like the return under eight labour laws and mandate of filing 10 Union regulations only once a year. “We hope that the government will focus more on the empowering of businesses, enabling ease of business and building a stronger infrastructure across the country which is crucial for the development of MSME’s,” shared Sunil Tayal, Co-Founder, Step Industries.

Facilitating E-commerce

MSMEs have been struggling to accept the digitization, which has been the biggest bottleneck in their path to success. However, the government figures suggest that out of 1.5 lakh suppliers who are now registered with Government eMarketplace (GeM), 40,000 are MSMEs. Interestingly, all Public Sector Undertakings of the Union Government have been instructed to compulsorily become a part of GeM and get their vendors registered too.

The Indian e-commerce sector has been witnessing unprecedented growth. According to global consultancy PwC, India’s e-commerce market will exceed $100 billion by 2022, with online retail and travel holding more than 90 per cent share. The new e-commerce regulations make it a perfect time for the homegrown companies to take over the game and up their ante.

Wishing for the Budget to bring tax sops for merchants who accept digital payments beyond the threshold, Piyush Khaitan, MD &Founder, NeoGrowth shared, “This will also facilitate avoiding tax evasion and ability of Merchants to borrow more as actual sales will be visible to the lender. FM should also open up a separate window for funds for fintech NBFCs on lending to SMEs with a cap of loans up to Rs.10 lacs and include the same under Priority Sector lending.”

Tax Sops

Talking about the tax sops, the industry suggested rationalization of various taxes like security transaction tax in the capital market, setting-up of a separate bond exchange and to make the corporate tax progressive to incentivize small medium-sized companies during the pre-Budget consultations. Custom duty rates are at the top of MSMEs’ list. Mansukhani has gone as far as demanding for the customs duty to be made 0per cent on raw materials.

The revival of the investment cycle and boosting the consumption across the country are expected to be the key priorities in the FY19-20 Budget. “Increase in personal income tax exemption limit and rationalization of corporate tax would certainly raise disposable income of the middle-class people of which a portion would come to textile and apparel sector,” opined Madhusudhan Bhageria, CMD, Filatex India Ltd.

Post GST implementation, logistics as a sector is evolving and expecting good support from the Government on bringing reforms in how the goods are stored and transported in the country. “There is an immediate need for bringing inefficiencies in adopting multiple measures to bring down the cost drastically, this would make many businesses viable,” suggested Mathew.

Incentive Schemes

The interim budget didn’t mention any relevant incentives for the MSMEs but might consider fiscal incentives like interest rate subvention, lower tax rates for up to a certain turnover threshold for certain sectors in the Union Budget. A big opportunity for the spur of ‘Make in India’ and generating employment would be an investment in medical equipment, shares Vinod Ramnani, Director, Opto Circuits India Ltd.

“The Government should come up with incentives to manufacture medical equipment in India and should discourage current import of cheap medical equipment from China,” he pointed. Investment in building credibility for medical equipment manufactured in India to cater to developed countries by providing investment incentives and cluster-based development would work positively for the overall growth of the healthcare sector.

Having led the defence ministry, Sitharaman is expected to be aware of the hardships Defense related exports must be facing and hence, Sartaj Singh, Director, Solar industries India limited would like to see at least 12 per cent increase in budget allocation of Funds for Capital & Revenue procurement for Defense. “As Ministry of Defense has set high targets for Defence-related exports, Incentives to the Defense Industries should be provided for exports related to Defense.”

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