Making India. All eyes on the Budget

The largely cash-dependent MSME sector is once again pinning hopes on the Union Budget’s proposals for 2017-18, to pull it out from the impact of demonetisation, which has led to job losses and fewer orders, especially in the domestic market.

As it is, the sector has been facing challenges on the ‘ease of doing business’, with poor credit flow and rising bad loans. However, with the prospects of a National MSME Policy brightening after the one-member panel, headed by former Cabinet Secretary Prabhat Kumar presented its report to MSME Minister Kalraj Mishra last week, the sector is banking on Budget incentives, such as tax breaks and higher allocations, as well as lower interest rates for bank loans.

What further raises expectations of the sector is the announcement by the Prime Minister on New Year’s Eve that credit guarantee limit for the MSMEs would be raised from ₹1 crore to ₹2 crore.

The industry, which has been awaiting a national policy for long, is hoping that it includes some provision for sector-specific dedicated industrial estate/clusters, supported by respective State governments.

Another long-standing demand is to exempt MSMEs from all compliance, inspection and labour laws for a certain period.

“In order to make MSMEs grow vertically, MSMEs should be facilitated with tax benefits linked to direct employment generated by MSMEs and start-up businesses. As per policy benefits, MSMEs adopting the latest clean and green technologies across sectors should be incentivised by the government,” Sanjay Bhatia, President, FICCI-CMSME, said at a recent event.

However, till a national MSME policy is formulated, the Centre, on its part, has emphasised the need to map the sector’s expanse and has made it mandatory for all enterprises to update their details on the MSME data bank.

At the FICCI event, MSME Secretary KK Jalan announced the Centre’s plan to identify 25-30 sub-sectors in MSMEs and focus on these to raise productivity.

On the finance aspect, Jalan suggested that a dedicated financing institute could be established, on the lines of a private sector non-banking financial company. His suggestion came in the backdrop of decline in SME credit by banks.

The MSME sector, said to be the “cradle” of the Prime Minister’s ‘Make in India’ programme, on its part, has been demanding an enabling ecosystem for long.

However, to improve competitiveness, MSMEs need to make full use of ‘Digital India’ and sell their products and services online. This will help them reduce procurement as well as overall costs of goods sold which, in turn, will improve profitability. Going forward, the sector does need some hand-holding by the Finance Ministry, as the number of sick units has been rising. Even though the MSME Ministry has come out with a scheme for revival and rehabilitation of sick enterprises under which banks have been asked to set up various branch-wise committees to take up cases of revival, the fact that the sector accounts for 45 per cent of non-performing assets or bad loans is a matter of grave concern.

According to Reserve Bank of India figures, the number of sick MSMEs has risen to 4,86,291 in 2016, and owes ₹40,642.50 crore to banks as outstanding.

With lack of orders, inability to pay wages and huge job losses following the currency ban, the challenges facing the sector have mounted. This has been articulated by none other than SBI chief Arundhati Bhattacharya.

In an interview to a newswire in December, Bhattacharya had said: “I think the SME sector will need some hand-holding because they don’t really have any staying power; they don’t have deep pockets. They make a day-to-day living and their margins are compressed in any case.”

With the Budget on Wednesday, the MSME sector, which comprises about 40 million registered units employing about a 100 million people, and contributes 8 per cent to the GDP, has every reason to expect some hand-holding from the Centre.

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