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What must Budget 2016 focus for MSMEs
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Masroor Lodi | 16 Feb, 2016
MSMEs - Small Businesses, Big Impact
With 45% contribution to Indian economy's industrial production and about 40% share in India's exports, MSMEs (Micro, Small and Medium Enterprises) are the backbone of India's economy. About 8% of India's GDP comes from MSMEs. They are also the major job creators for the country and generate employment for about 1.3 million people every year.
They play an important role in building indigenous technology and are in sync with the government's vision of 'Make in India'. By the very nature of their smaller size and scale, MSMEs are greatly positioned to distribute the wealth more equally and create a balanced development across regions.
So what?
Considering the above, MSMEs can and should increase their percentage contribution to the GDP to fuel balanced growth of the country.
An increase in the percentage contribution of MSMEs to India's GDP is absolutely possible, if some of the global economies are an indicator. Consider, for example, Taiwan which has about 85% contribution of MSMEs in the total GDP of the country. The biggest economy of the world, USA, sees about 48% contribution of MSMEs to the country's GDP. Even other BRICS nations have a clearly promising data - 22% (Brazil), 35% (Russia) and 57% (South Africa) contribution of MSMEs to the respective economies' GDP.
Action items for Budget 2016
The Union Budget 2016 is soon going to be out and the Finance Minister has signalled positive steps to support MSMEs in the forthcoming budget. Here are some of the priorities that I believe should be focused in the budget.
Financing
The Cabinet has already approved a Rs. 3000 cr. Mudra Credit Guarantee Fund (CGF) for small entrepreneurs. However, there is a need for easy, quick credit line for MSMEs as many a time the schemes remain on paper and do not reach the intended beneficiaries. Therefore, the budget should focus on introducing a well-oiled mechanism, or drastically improving the existing ones, for quick and easy disbursal of finances to eligible MSMEs.
MSMEs are pivotal in developing a healthy ecosystem for manufacturing and services sectors. Therefore, directly incentivizing MSMEs for improved performance on multiple fronts such as vendor development, innovation, technology, skill development, and indigenization should be considered. These incentives could be in the form of tax rebates and reliefs in indirect taxes along with credit access on lower and easy terms.
There is an absence of clarity on the Goods and Services Tax (GST) implementation. The government should offer clarity on it so that when the GST is introduced there is smooth migration across the entire ecosystem.
Talent
Lack of skilled talent is a strategic as well as operational challenge for MSMEs. Skill shortage cripples their routine product and service delivery, and impedes any possible expansions. MSMEs normally hire raw talent and then train them according to their needs at the expense of productive time lost on training. Rewarding MSMEs for taking initiatives towards skill development can help in not just taking care of the lost time of MSMEs on training but also encouraging them to produce more skilled manpower that can be absorbed by other MSMEs. Over time such a movement can help in putting the MSMEs in a stronger position when competing in international markets as the quality of goods improves and the cost of production goes down.
Government has received proposals on this front and we are hopeful that the forthcoming budget will consider these seriously.
Technology adoption at MSMEs
Technology is a business enabler and can bring process efficiencies and standardization through automation.
While MSMEs compete with the best in the international markets and have to adhere to global standards, they usually have technology constraints seriously hampering their competitiveness. There is a crying need to ensure modern technology is cheaper or subsidized for this sector. Another important area to work upon is to build an effective ecosystem for technology transfer.
In November 2015 Government launched Technology Acquisition and Development Fund (TADF) to catalyse the manufacturing growth in MSME sector. This initiative is aimed to encourage introduction of green technologies in Indian MSMEs as they expand their businesses. There should be a concerted effort to bring institutions, MSMEs and academia together to work on technology development, implementation and scaling up.
Our Incubation Centre at The Entrepreneurship School deeply focuses on commercializing the innovation and scaling up the technology. We mostly guide small businesses in this space but also engage with large players such as Volvo in making the innovation accepted across stakeholder groups and smoothly implemented.
In conclusion...
MSMEs are a solid source of foreign exchange for the country and deserve required support from the government.
Apart from what is mentioned in the foregoing paragraphs, the government should provide for enabling infrastructure in the form of land allocation, top class infra at national and regional levels such as platforms to connect with research institutes and universities, knowledge infra and B2B access and technology support.
Another important area to focus will be 'ease of doing business' which the government is already talking about. Remember that MSMEs have limited resources. A needed but only minimum regulatory framework can go a long way in conserving the limited resources of MSMEs. Some of the things to be done in regulatory domain could be lower tax slab for first 8-10 years, relief from TDS, increasing the limit of Service Tax compliance, etc.
I genuinely hope to see a bright budget for this high-opportunity sector. What is your take on this? Please leave your comments.
(Mr. Masroor Lodi is the Cofounder and Director of The Entrepreneurship School. The views are personal.)
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MSME wish list for the budget
R.srivathsan | Wed Feb 24 00:01:49 2016
There is a strong need for creation of VITTHA AROGYA Kendra ( financial hospital) for bringing back all MSME under stressed category to proper health by proper and timely infusion of funds and guiding the entrepreneur to streamline his activity and give him the necessary time and fund to correct and become a healthy MSME. The present Banking staff cannot do this. Introduction of venture capitalist on the board of Financial hospitals will make MSME more prosperous and accelerate the entrepreneurship. The present Banking norms must be reviewed with respect to MSME weak financial base.
MSME - Bankruptcy law
Bhagawath Prasad | Thu Feb 18 04:04:36 2016
Sir,
Banks must go slow on MSME when account is stressed,look at scenario when MSME looses existing customers,while he is roping in another customer,exited customer delaying payments for the suplies,during this time,MSME will be under stress for servicing term loans and external borrowings,while waiting for payments to come,he needs to satisfy new customers to clock revenues.generally MSME needs atleast 6 months to settle,during this time, operational expenses,procurement and supplies are at priority,servicing term loans and paying taxes will be 2nd 3rd priority,but, three bounced instalments will get reported to CIBIL ,while he is busy in clicking revenue,third part banker calls will be bombarding him and disturbs and raises BP for them to derail,in addition to it while traveling for business,his credit cards gets locked,because issuer has been alerted by CIBIL,post which he collapses and gets down to bankruptcy,now look at the fun,newly proposed bankruptcy law will close the coffin by final nail,cascading effect is his entire family,workers are on road,loss of employment,loss of revenue to government,headache to bankers and tax authorities to recover,government wants to increase enetrprenurship,but regulations,rating agencies scares bankers,rating agencies can only read numbers,not the character of MSME,in my opinion they should facilitate MSME with BRIDGE LOANS, whenever they get stressed,appoint professionals to read character of MSME not for closing businesses.
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Re: MSME - Bankruptcy law
R.srivathsan | Tue Feb 23 23:50:51 2016
This is the opinion of all MSME whether he is running well or in the stressed loan category. MSME to be considered as one of the backbone of India skill development. Whatever law, statutory norms, regulations must be reviewed in terms of bringing health and support MSME than just closing. It is like A man SNEEZES two times and he is immediately put behind bars for creating noise pollution and air pollution and bacteria polution and close his career for ever. Apply similar practices to any govt employee and he make mistake two times immediately arrest him and sell of his properties. Is it the way we have to treat our own Indian citizenry. The l;letter is harsh but it is the reality.
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Shailesh Deshmukh | Tue Feb 16 17:54:03 2016
The more amount shoud be budgeted for MCGF and more importantly it should be implemented and beneifit should be seen
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