What MSME Expects from the Finance Minister

Stage is all set for the Hon’ble Finance minister Smt. Nirmala Sitharaman to present Union Budget 2020 and the entire nation from housewives to service class citizens to corporates to taxpayers to even non-taxpayers to MSMEs everyone has their own list of expectations. Honestly, to meet such a long list of expectations and to satisfy everyone from the speech from Parliament’s historic central hall is a major task. Every finance minister since independence has gone through this phase. 

But this is the second time that Nirmala Sitharaman should be experiencing this pre-budget-speech emotional pressure. 

Well actually, reforms are expected in a big way. The economy is passing through a rough patch and global cues are behaving very strangely. This Union Budget Speech from the Finance Minister will show govt’s vision and plan on how efficiently the reforms measures can revive the economy from the massive slow down, and giving tax benefits to the small & medium income group. 

There is no doubt that the economic slowdown in the country is at its 6-year low, some experts even call this a major slowdown of the past 15 years including the massive economic fall in 2008. MSMEs are recognized everywhere by everyone as the backbone of the Indian economic value chain. As a suggested formula SMEStreet would like to point out MSMEs’ happiness is Economic happiness of the country.

Here are few major demands that MSMEs wants from the Union Budget, this came out as a resolution after talking to over 35 experts, and over 300 MSMEs from various sectors across India.:

Easing  Banking Norms for MSME Credit: 

This is a historic problem which is repeatedly highlighted at forums related MSMEs that banking agencies treat MSMEs in a tough manner when it comes to giving them credit. This includes too much of documentation and parameters etc. However, there has to be a certain level of scrutiny which should be done, but there could be some eased out norms for MSMEs and well-defined timelines for this. A single window which normally gets discussed at such discussions should be made more visible on ground realities. 

We cannot rule out the fact that Govt. is working towards this subject and creation of credit guarantee fund is evidence. But this needs a stronger push from the Government. 

Infusing Liquidity for MSMEs: 

Government's focus on infusing liquidity in the market in the form of one-time bank credit through the Reserve bank has a major role to play in this area. Government had made efforts to revitalize the sectors by the launch of the 59-minute loan portal to enable easy access to credit for MSMEs and other technological and cash flow support programs. Banks and non-banking financial companies (NBFC’s) must play a formal and more important role in extending the credit to the MSME. Share of all three micro, small and medium enterprises is very small as compared to the outstanding credit to Large enterprises. 

GST Rationalisation for MSMEs

In a historic manner, GST was implemented in 2017 with an objective to simplify the tax filings and boost transparency. Moreover, when it was implemented, GST was in the news for its initial teething problems. These teething problems have actually made entire MSME sector cry so much that they are still paining. MSMEs complained about complications in their taxation processes and their cost of compliance have increased resulting in stress and focus on non-core areas. Union Budget 2020 can soften the GST rates and tax holidays that shall definitely boost the sector.

Promoting TReDS

In order to improvise the issue of working capital, Trade Receivables Discounting System (TReDS) have been beneficial in getting the fast credit from the group of financiers though the usage of the same was very low – government should focus on increasing the awareness about the usage and benefits of the TReDS. Linking of TReDS with GSTN was first announced in 2018 but the same has not been operationalized yet. The government should put efforts to expedite the same as it will give comfort to the lenders from the risk of fake invoices and having more transparency on the process. This shall help financers to extend more credit to the small enterprises as the lenders shall avoid lending to GST non-compliant vendors. 

Fund of Funds for MSMEs

The government may also announce a distressed fund for the MSME’s facing financial crunch to assist them during the difficult cash crisis situation. SMEStreet has done a small feature which can elaborate this point, read here. This fund may help the economy to boost by the growth of the MSME sector. 

Corporate Taxation Reduction: 

Though during current financial year, government has proposed the reduction in corporate tax rates for the manufacturing sector – finance minster may relook at the personal tax slabs and exemption limits including increasing the amount of deduction under 80 C of income tax act, 1961 for giving relief to the common man and MSME’s as lot of them operate as proprietorship concerns as well. The focus shall also be placed on reducing the tax rates for the partnership and LLP structures. Social Security for MSME employees: Government may launch the program to cover the MSME employee and provide social security to them in terms of insurance benefits and income protection for their families. Efforts should be placed on creating awareness amongst the MSME workers and employees.