Synopsis–Finance Minister Nirmala Sitharaman’s measures to give a leg up to the MSME sector in the Budget have left the fraternity largely unimpressed.
To give a fillip to the cash strapped MSME sector, Finance Minister Nirmala Sitharaman announced several provisions in the Budget on Monday. Among them was also significantly enhancing the outlay for MSMEs, often referred to as the ‘growth engine’ of the economy. “We have taken a number of steps to support the MSME sector. In this Budget, I have provided Rs 15,700 crore to this sector, more than double the previous year,” she stated.
Sitharaman also announced a reduction in customs duty on account of the rise in iron and steel prices. “MSMEs and other user industries have been severely hit by a recent sharp rise in iron and steel prices. Therefore, we are reducing customs duty uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels. To provide relief to metal re-cyclers, mostly MSMEs, I am exempting duty on steel scrap for a period up to 31st March 2022,” the minister said while presenting her Budget speech in Parliament.
Measures inadequate, say MSMEs
However, MSMEs have not been so impressed with the provisions laid out. The MSMEs whom ET Digital spoke to said that there has been nothing that is specific to their interests in the Budget this year. “For MSMEs, this was a thoroughly missed opportunity. For instance, if you speak of customs duty, it won’t even be a drop in the ocean. The impact on customs duty reduction on steel imports would amount to a reduction of Rs 2 in steel prices. In the last 6 months, there has been an increase of Rs 35 approximately. So how would this make any difference?” questions Jayanth Mutha, Director, Himlite Products.
Under exemptions from audit, Sitharaman had also announced that in a move to further incentivise digital transactions and reduce compliance burden, the limit for tax audit would increase from Rs 5 crore to Rs 10 crore. “For someone to be eligible, 95% of the transactions need to happen digitally. So hardly anyone would match such criteria and avail of this benefit. Payment protection measures should have been in place for the sector where payments would come on time. MSMEs have just been left to survive on their own,” rues Mutha.
Moreover, experts are of the view that Rs 15,700 crore is too small an allocation given the scale and strength of the sector. “One major miss is the budget allocation for MSME. The sector is a major employer with a share of GDP being more than agriculture – 30% compared to 20% of agriculture. Another is related to indirect taxation, it is an established fact that taxation has fragmented MSMEs. Area and sector-based relaxations in indirect tax would have helped in consolidation,” says Kunal Sood, Partner, Grant Thornton Bharat.
The Budget also laid emphasis on ensuring faster resolution of cases, for which the NCLT framework would be strengthened, e-courts system implemented and alternate methods of debt resolution and special framework for MSMEs introduced.
Industry experts say that while the Budget did factor in easier compliances, creation of new companies and saving of taxes, any direct big intervention for MSMEs did not come by. “Incentives for MSMEs to enhance capabilities through technological induction, credit linked schemes and ensuring increased flow of credit was amiss. We expected some major support for MSMEs to help them in becoming ‘atmanirbhar.’ The Production Linked Incentive (PLI) scheme also has to be brought to the doorstep of MSMEs. At present, it is engaged around very large enterprises,” says Rajiv Chawla, Chairman, IamSMEofIndia.
In the context of technology upgradation, Chawla directs attention to the Credit Linked Capital Subsidy Scheme (CLCSS) which was introduced 15 years back. “Whenever an MSME buys modern technology, they are given a 15% capital subsidy up to Rs 15 lakh. We have been requesting the government to enhance this limit to Rs 75 lakh. Technology is an important pillar of ‘Atmanirbhar Bharat’ but no announcement on that front came in,” he highlights.
Experts feel that Rs 15,700 crore is a very small amount given to the sector. (Pic: Nirmala Sitharaman)
Impetus on exports missing
Some other changes proposed to benefit MSMEs included increasing duty from 10% to 15% on steel screws and plastic builder wares. “We are rationalising exemption on import of duty-free items as an incentive to exporters of garments, leather, and handicraft items. Almost all these items are made domestically by our MSMEs. We are withdrawing exemption on imports of certain kind of leathers as they are domestically produced in good quantity and quality, mostly by MSMEs,” Sitharaman said.
However, some aspects have not quite been addressed, as hoped by the industry. Rakesh Kumar, Director General, Export Promotion Council for Handicrafts (EPCH) says a lot of MSMEs are export-led and a special impetus on exports was missing in the Budget this year. He adds that the withdrawal of Duty Free Import Certificate scheme for handicrafts, garments and leather sector from March 31, 2021 will adversely impact the handicrafts sector. “The scheme had been helpful in providing embellishments, trimmings, consumables and tools to the handicrafts exporters to enhance the quality and look of the final product,” he explains.
Affirming Kumar’s views, exporters from the leather industry, say that the duty imposition on leather items has been a dampener. “A 10% duty has been levied on finished leather, wet blue chrome tanned leather and raw hides. These are base raw materials which everyone needs. After Covid, this is the time when we need support, so imposing duty now is not helpful,” Puran Dawar, Regional Chairman – North, Council for Leather Exports states.
Among other announcements was also revising the definition under the Companies Act, 2013 for Small Companies by increasing their thresholds for paid up capital from ‘not exceeding Rs 50 lakh’ to ‘not exceeding Rs 2 crore’ and turnover from ‘not exceeding Rs 2 crore’ to ‘not exceeding Rs 20 crore.’ Samir Sathe, Executive Vice President, Wadhwani Advantage at Wadhwani Foundation says that the act of increasing the threshold limits of the small company definitions is symbolic and not fundamentally disruptive. “It does not change the fundamental competitiveness of the small companies unless they build management capabilities to address,” he states.
MSMEs had been one of the worst hit in the pandemic’s aftermath. Severe financial crunch, shuttered manufacturing units and loss of jobs took its toll on a sector that had already been struggling to make ends meet. The virus outbreak had been the final blow for a host of small businesses in the country. As part of the first tranche of the Atmanirbhar Bharat Abhiyaan, Sitharaman had announced a Rs 3 lakh crore collateral free loan scheme for businesses, especially MSMEs in May last year.
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