Budget 2022: How about reduction in GST rates for MSMEs and Covid-affected industries, FM?
Our vibrant MSMEs form the backbone of our economy contributing 30% of our GDP and 50% of our exports. They employ more than 12 crore people in the country and create new jobs every year. MSMEs undoubtedly play a huge role in generating prosperity for any nation. It is vital that this sector is nurtured and supported by the government, especially during these difficult times. While MSMEs have always had some burning issues in India, the year that went by was a roller-coaster ride that still offered a ray of hope. Union budget 2022 scheduled on February 1 could be the right time to build on this hope by ushering in the changes required to help MSMEs.
At SMERGERS, an investment banking platform, we work with thousands of small business owners and here's a list of common requests we hear from them:
Reduction in GST rates for MSMEs and Covid-affected industries: All businesses beyond a Rs 20 lakh turnover threshold are expected to register and pay GST. The rates for particular goods or services are the same be it from a large corporate or from an MSME. To build an inclusive economy, the government will have to shed its universal outlook approach. It should come up with attractive rates for MSMEs to make them more competitive and help them thrive in the market. This should be a priority for industries that were dealt a deadly blow by the pandemic - restaurants, tour operators, hotels, pubs, salons, training institutes, real estate, and services sectors which may not survive unless there is a GST waiver.
Rationalize GST filing requirements: There are various filing frequencies and registration waivers depending on the turnover of a company. This more often leads to mismatch and confusion in the GST filings, given the fact that one needs to claim input credits based on the other parties' filings. Many times, it leads to working capital discrepancies and lost money for MSMEs, which transact with smaller businesses that file quarterly returns or do not file at all. While there is GST waiver on exports, small exporters are still required to file GST and later claim a refund, which is an opportunity for corruption.
Increase ESI and EPF registration thresholds: MSMEs employ around 12 crore people and would create even more jobs if not for the mandatory ESI & EPF requirements. The threshold of 10 and 20 employees respectively needs to be increased to encourage MSMEs to create more jobs. Small businesses shy away from hiring more employees due to the compliance burden and associated costs. Such hindrances prevent and discourage small businesses from moving to the next level. Government should analyse and address them with appropriate policy modifications.
PLI scheme for MSMEs: While the (Production Linked Incentive) PLI scheme would help us move to an Atmanirbhar Bharat, a scheme dedicated to MSMEs would help us reach this goal much faster and in a more equitable manner. The Rs 100-crore investment limit for availing this benefit is hardly feasible for any small and medium enterprise. Only large corporates, that are already enjoying several other benefits, can benefit from the scheme currently.
Moratorium and low-interest loans: CGTMSE loans need to be enhanced and moratoriums need to be further extended for MSMEs in sectors that have been badly hit. Other options include interest-free periods, restructuring the loans for longer periods with a reduced interest burden, and even encouraging alterative form of financing for MSMEs through equity and bond markets.
Executive training for business owners: UK finance minister, Rishi Sunak, newly introduced a "Help to Grow" scheme to assist business owners to get formal business and technology education to better themselves and their businesses. This is highly required in our country as many of our business owners are still reluctant to leverage technology and are unaware of management concepts. Starting with a simple email, website, etc to promote their business, to be able to buy high-tech machines and improve their operational processes through data analytics, MSMEs can greatly improve their productivity through management and technical education. They also need to be trained on government policies/schemes which they can benefit from as many business owners are unaware of such schemes.
Budget for better infrastructure: India's cost of transportation, power and storage is one of the highest in the world. Robust infra projects such as better roads, industrial hubs, ports, airports, storage facilities, power stations, etc will allow MSMEs to further their potential and reach further customers. MSMEs exports can be further boosted with these measures. Developing MSME clusters and industrial areas need to be taken up on a war footing. It is also important to build a support ecosystem to provide accounting, legal, and other technical support to MSMEs in these clusters. The Modi government recently announced the vision to see our industries amongst the top five in the world in every sector and if we want to do that India needs to improve its supply chain infrastructure quickly.
Faster payments from the Government to MSMEs: Last but not the least, while the GeM portal and annual target of 25% procurement from the MSME sector and has opened a new market for smaller businesses, challenges still remain. High EMDs/deposits, large order sizes which MSMEs cannot serve, painfully delayed payments and processes, etc need to be addressed. After the 2021 budget, the government has been urging ministries, PSUs, and CPSEs to clear MSME dues within 45 days. But still, the government is known to be notorious for making payments and has had a bad reputation amongst private players. Faster payments, especially to MSMEs which are cash strapped, need to be strictly enforced on all Government bodies and PSUs and a separate budget must be carved out for all the previous arrears.
India's MSME sector has already started seeing increased global orders and it's time we facilitate and build capacities to be able to absorb large orders from developed markets. Given the right ecosystem, our MSMEs have the ability to deliver quality products and services to the world.
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