Union budget 2020-2021 expectations: What MSMEs want?

Finance minister shall be presenting the budget on February 1, 2020 and everyone including corporates, individuals, taxpayers, professional have some expectations from the upcoming budget. This shall be the second budget of the FM Nirmala Sitharaman and we expect the reforms and measures to focus on reviving the economy from the massive slow down, and giving tax benefits to the small & medium income group. Considering the slowdown in the economy and growth at a 6-year low, MSMEs which form part of the backbone of the Indian value chain are expecting a big relief and reforms in the upcoming budget.

Finance minister shall be presenting the budget on February 1, 2020 and everyone including corporates, individuals, taxpayers, professional have some expectations from the upcoming budget. This shall be the second budget of the FM Nirmala Sitharaman and we expect the reforms and measures to focus on reviving the economy from the massive slow down, and giving tax benefits to the small & medium income group. Considering the slowdown in the economy and growth at a 6-year low, MSME’s which form part of the backbone of the Indian value chain are expecting a big relief and reforms in the upcoming budget.

• Control the inflation: Reforms should be brought to control the inflation and ensuring that the same does not rise beyond a specified level. If the prices can be controlled than that shall be the biggest boost for the common man and small businesses.  

• Extending credit facilities: While the MSME sector – micro, small and medium enterprises – has made worthy contributions to labour–intensive employment and exports, issues with regard to limited availability and usage of formal credit have gone unaddressed. Government should focus on infusing liquidity in the market in form of one-time bank credit though Reserve bank has major role to pay 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’s. Share of all three micro, small and medium enterprises is very small as compared to the outstanding credit to Large enterprises.

• Rationalisation of GST: Rationalisation is the top issue of the MSME sector which contributes close to 29% of the country GDP and act as the backbone of the Indian economy. GST was implemented in 2017 with an objective to simplify the tax filings and boost transparency. Instead of simplification – GST has resulted in complications for the small businessman and increased cost of compliance resulting in stress and focus on non-core areas. If the budget can soften the GST rates and tax holidays that shall definitely boost the sector.

• Efforts on awareness of TReDS: Working capital is a big issue for the MSME’s specially the same arising out of the delay in receipt of payments from the Large enterprises resulting in financial crisis for this group. 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 TReDS with GSTN: Linking of TReDS with GSTN was first announced in 2018 but the same has not been operationalized yet. 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 for MSME’s: It is expected that government may announce fund of funds of around INR 10,000 crores for private equity firms and corporations interested in investing in MSME sector for the growth. Government may also announce a distressed fund for the MSME’s facing financial crunch to assist them during the difficult cash crisis situation. This distressed fund may help the economy to boost by the growth of the MSME sector.

• Interest subvention: Government may continue the 2 percent interest subvention for all GST registered MSMEs, on fresh or incremental loans.

• Reduction in Corporate tax rates: 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. 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 the creating awareness amongst the MSME workers and employees.