By Rama Krishna Kuppa
The total number of MSMEs both registered and unregistered together is estimated at about 42.50 million in India. They constitute around 40 percent of total India’s workforce inevitably making it the backbone of the country’s economy. The strength of this backbone allows the country to grow seamlessly. However, with decisions like demonetisation and GST, MSMEs have faced severe disruptions.
This financial year, we are expecting a few modifications that can benefit MSMEs and allow them to sustain for a longer time. We observed that the aggregate turnover is a crucial parameter for deciding the eligibility of a supplier to avail the benefit of tax exemption. It is also noted that as much as 18 percent is to be paid as GST, when the turnover is above Rs 20 lakh.
From an IT perspective, when a startup or an MSME would invest a significant amount in Research & Development, it may not add revenue value until long term. In such cases, when an MSMEs invests its time and money in innovation and development, records loss and yet had to pay GST, businesses lose their spirit for growth. It adds a sense of discouragement for long-term growth and also makes them vulnerable. In order to truly benefit MSMEs, it would be nice to observe tax on profit rather than the turnover.
Second, many MSMEs struggle for finance to sustain their business and for day-to-day operations. Public sector banks have a low propensity to give loan to such enterprises due to their perception of business viability and profitability, lack of confidence and disregard to experiment with something new. In such a scenario, it becomes very difficult for enterprises to raise the required money. Fortunately, there are many private fintech companies that have entered the scenario.
The news of Prime Minister Narendra Modi launching an online portal that can sanction upto 1 crore within an hour has provided the much required succour to the ecosystem. Recently, the RBI has announced a one-time restructuring of MSME loans that have defaulted, but are not non-performing as on 1 January – this elicited a tremendous approval from the small enterprise owners. There is lot of expectations from the upcoming budget. There is hope that government will come up with more measures that will ease the process and time to get loans for small businesses.
Third, the government has to promote digital lending sector. This is an extension of the point mentioned above vis-a-vis loans for SMEs. Many SMEs, especially in the service sector do not have fixed assets. This becomes a big hindrance when they approach traditional banks and non banking financial companies for loans. The lending institutes consider them as risky and non- credit worthy. As a result, they are forced to borrow from the informal lending sector, which charges much higher interest rates than those from the formal sector.
According to a joint study by Omidyar Network and BCG, digital lending to MSMEs is projected to see a 10-15 fold increase by 2023. In view of this, it is important that the government allocate more money to the digital lending sector to allow easier access to credit to MSMEs.
The writer is Founder & CEO, ONGO Framework.