March 3, 2015
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Union Budget: MSMEs deserve more attention

The Budget is over. During the last few weeks we discussed a number of issues facing the micro, small and medium enterprise sector. The expectations were high and if we compare them now with what has been offered in the Budget 2015, we will obviously find a number of pain points. There are no big bang reforms and not enough tax sops. Increase in service tax, cut in MSME ministry budget for some key schemes, lack of specific guidelines on skill development are some striking drawbacks.

On the other hand, it will be wrong to say that the Budget is all about negatives. We all know that availability of low-cost credit is critical to growth of the MSME sector and the decision to set up Mudra Bank with a corpus of Rs. 20,000 crore is a welcome one in this regard. Similarly, it is encouraging to see allocation of Rs 1,000 crore for technology start-ups. In addition, a credit guarantee fund of Rs 3,000 crore will help small business units to fight their funding needs to some extent.

There is another positive measure the Finance Minister states in his Budget speech: the government will unveil a comprehensive Bankruptcy Code by 2015-16. The new code will meet global standards and provide necessary judicial capacity. Such a step will certainly contribute to the improvement of the business environment. In addition, the proposal to help MSMEs get rid of the irritating problem of delayed payment by setting up a system for financing of their trade receivables is another good idea.

On tax front – although increase in service tax and absence of MSME sector-specific tax relaxation is unfortunate – I think the Finance Minister set a positive note on implementation of GST from April 1, 2016. In addition, the effort to move towards the new tax regime is also evident in some proposals for changes in the indirect tax system, such as subsuming of Education Cess and the Secondary and Higher Education Cess in Central Excise duty and permission to issue digitally signed invoices and electronic records. I hope the government will be able to undertake this transition in a systematic manner and the GST roll-out will not miss the deadline again.

In addition, what I view as another big positive of the budget is the proposal to increase allocation for capital spending in the infrastructure segments. This will not only help the industry, including the MSMEs, but will also have a very positive impact on our socio-economic scenario. In addition, the proposal to widen the social security net through insurance and pension schemes is another praiseworthy move. The relaxed fiscal target also sounds logical as it will give some room to hike infra spending and meet the Finance Commission's recommendations to transfer more revenue to the state governments.

Overall, the Budget seems a balanced one, but having said this I still want to repeat one thing again – it clearly falls short of the struggling MSME sector's expectations, and I hope some strong initiatives will be announced in the course of the year to adequately compensate for this. I invite your opinions.

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