For a sector that has been hammered by demonetisation and the chaotic implementation of the Goods and Services Tax (GST
), Finance Minister Piyush Goyal
had very little in his interim budget announcement that was new or could provide some succor to the MSME sector.
From sanctioning loans upto Rs. 1 crore in 59 minutes to providing GST-Registered SME units with 2% interest rebate on fresh or incremental loan of Rs. 1 crore, Goyal’s announcement only reiterated what Prime Minister Narendra Modi announced on November 3, 2018. Terming it as a ‘Diwali gift” for the sector, Modi had laid out the key pillars to help MSMEs, which included access to credit, access to market, technology upgradation and ease of doing business.
Modi had announced the launch of the 59-minute loan portal to enable easy access to credit for MSMEs. He had said loans up to Rs. 1 crore can be granted in-principle approval through this portal, in just 59-minutes. “In the time taken for you to reach your office, you can now get a loan. We had run a pilot and I had set a target of 72,000 MSMEs under this. As of today 72,680 have been on boarded,” Modi had said. Goyal, however, did not use the opportunity of interim budget to disclose the latest numbers around the scheme.
“Regarding the Government’s 59-minute loan scheme, we still do not have any data on how many loans have been given and how much money has been disbursed, not sanctioned. So, without the required data, it’s difficult to say anything,” says Anil Bhardwaj, Secretary General, Federation of Indian Micro Small & Medium Enterprises (FISME).
The Prime Minister had also announced that loan option for GST registered firms will now be available through the GST portal itself. “When you file GST returns, you will be asked if you want a loan. GST registered firms will also get a 2 % interest subvention on fresh or incremental loans. Being a part of the GST and being an honest taxpayer will become your strength,” Modi had said.
The only update we get from the interim budget today and Modi’s November speech is that transactions on Government e-Marketplace (GeM) has gone up from Rs. 14,000 crore to Rs 17,500 crore. In November 1.5 lakh suppliers had registered with GeM, out of which 40,000 were MSMEs. Current numbers were not provided in the budget speech.
The big miss
The sector would be disappointed that there was nothing done to ease the credit woes. According to the Economic Survey 2017-18, data on credit disbursed by banks shows that out of a total outstanding credit of Rs 26,041 billion as in November 2017, 82.6% of the amount was lent to large enterprises and MSMEs got only 17.4 % of total credit. The recent turmoil in the NBFC sector has added to the pressure. The interim budget made no mention on this stress and did nothing to improve the situation.
The sector was also hoping for some announcement in indirect tax and income tax, but Goyal disappointed everyone. Finance Minister Arun Jaitley had proposed reduction of corporate tax rate from 30% to 25% over a four-year period in the Union Budget for 2015-16. The government is gradually bringing down the tax rate to 25%. However, this applies to only the registered firms. The expectation was to extend this norm to the proprietor and partnership firms, which constitute the majority of the total number of MSMEs in India.
“We were expecting some direct tax benefits in income tax for the industry – that did not come. Also, some specific schemes to ease the access to credit for MSMEs also have not been considered this time,” says Bhardwaj.
Investment allowance or weighted deduction (15%) on plant and machinery was done away with in 2017. In order to encourage capital investments in the MSME sector, the sector was hoping the government reintroduces this.
When it comes to indirect tax, one of the key demands was around the foreign trade policy: The MEIS and the SEIS schemes have received good response from merchandise and service exporters. However, the current distribution of FTP incentives is majorly for automobile and pharmaceutical companies. The government could have chosen to have a wider distribution of schemes across various products to benefit the MSME sector.
“Though there were mixed expectations from interim budget 2019 from an indirect tax perspective, it was bewildering that no indirect tax changes have been proposed. There was an expectation that there could be changes to incentivize domestic manufacturing in industries like electronics, pharma, paper etc., but no change being proposed from indirect tax is a complete surprise and quite unexpected,” says Saloni Roy, Partner, Deloitte India.
According to Roy considerable modifications to promote manufacturing electric vehicles and batteries for electric vehicle / mobile phones were introduced couple of days ago which also raised questions as to why they were timed so close to the Budget, but not during the budget itself. “In terms of the Finance Minister’s budget speech today where he mentioned ten visions including digital India and make in India, one could expect rationalization of indirect taxes towards attaining and accomplishing these goals,” says Roy.
This infographic highlights the schemes mentioned during the Interim Budget session and those that will positively impact the MSME and startup ecosystem in India.
In a limbo
Interim budget is not meant to have any big-bang announcement, but for a sector that is facing considerable headwind, it would be a missed opportunity. Focus on rural upliftment to provide indirect push to the MSME segment, reviving and rehabilitating sick MSMEs, exemptions from capital gains tax, addressing the concerns in the NBFC sector and increasing the target for lending under MUDRA Yojana would have gone a long way in providing some relief.
“MUDRA Yojana has done a commendable work in providing credit to relatively smaller and aspiring entrepreneurs in India. We understand that the welfare schemes cannot be completely avoided as this is an election year, while the government also needs to stick to its Fiscal Deficit targets. So, the capacity of MUDRA couldn’t be increased as was being anticipated by the industry. However, it is the need of the hour to generate employment and provide a favorable atmosphere to the MSME sector. We hope that this area, alongside the implementation, will be looked into when the government announces its full budget later this year,” said Vivek Tiwari, MD & CEO, Satya MicroCapital.
Periodicity and speedy refund of GST returns was another issue the sector wanted the government to tackle.
“Given the very limitation of this budget, being an interim one, I did not expect any significant announcement this time. In his Budget Speech, the FM has merely laid down all the decisions of the GST Council, particularly related to the MSME sector,” says Sumit Dutt Majumder, Ex- Chairman, Central Board of Indirect taxes and Customs (CBEC)
Majumder adds that while there have been few good things for MSMEs, many GST related MSMEs’ concerns await the nod of GST Council. This budget did not address many of such concerns. “I do not think the MSME sector’s demand for a new definition criterion has been taken up this time.