Budget 2022: GST parity, a key to empower India's MSMEs

 







With the advent of digitisation, India witnessed the unlocking of new avenues of economic growth. The rise of fintech, e-commerce, edtech, SaaS and other new-age businesses over the last two years have provided further ammunition for us to be considered a digital powerhouse. But, if India wants to become a US$ 1 trillion digital economy by 2025, one of the major sectors that will immensely contribute to this goal is the country’s Micro, Small, and Medium Enterprises (MSMEs).
Characteristic of our country’s age-old entrepreneurial spirit, MSMEs account for 90 percent of all enterprises in the country. This excludes the nearly 15 million small family-run businesses like boutiques and mom-and-pop stores. Though MSMEs contribute about 30 percent towards India’s annual GDP and are widely acknowledged as the backbone of our economy, their role as a catalyst for socio-economic transformation has been underestimated and underserved.

It is a known fact that digitally-enabled MSMEs have the potential to grow twice as fast as their offline counterparts. Yet, despite the wave of digitisation that has swept the country and permeated our day-to-day lives, only around 10 percent of India’s small businesses sell online.

The current government has made deliberate efforts to encourage the development of MSMEs and promote ease of doing business. But, if the true economic potential of digitisation is to be realised, adopting a light-touch compliance regime will enable many more MSMEs to sell online.

To achieve this, the e-commerce industry expects the government to address some of the real and perceived compliance challenges around digitisation. Efforts need to be made to simplify the GST system, rationalise rates and harmonise GST thresholds between offline and online sellers.

As it stands, it is mandatory for online businesses to register under GST regardless of turnover. In the offline world, this only applies to businesses with a turnover of over Rs 40 lakhs. Based on market intelligence and secondary research, it is estimated that about five crore MSMEs are unable to sell online due to mandatory GST requirements.

To quote an example, in Q4 2021, over three lakh suppliers dropped out of the Meesho seller registration process at the GST stage. It is important to note that many small businesses are often run by one or two family members and often don’t have the manpower or liquidity buffer to carry out and pay for GST compliance requirements. The absence of digitisation has not just reduced earnings of MSMEs, it has also translated into reduced tax revenues for the Government.

Bringing MSMEs into the digital fold has the potential to push economic growth into higher gear. However, a singular focus on augmenting offline MSME businesses with online distribution by harmonising GST laws could be a game-changing economic transformation opportunity.

The government has acknowledged the importance of MSMEs to India’s $5 trillion ambition. The expectations from this budget is for the government to create equitable playing fields for MSMEs, irrespective of their channels of commerce. Harnessing the full potential of this sector’s innate, time-tested, proven entrepreneurial energy can propel our economy to even greater heights.

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