Fe Insight

EXCLUSIVE: SME SNAP BUDGET POLL

A mixed bag for SMEs A sample of 118 SMEs give their perspective   An FE-CII poll of SME CEOs and top management reveals their mind and highlights key issues for the finance minister While there is a general sense of satisfaction amongst the small and medium enterprises (SMEs) regarding the provisions and suggestions in Budget 2005-06, there is a feeling that much more needs to be done by the government. In an exclusive poll done by the Confederation of Indian Industry (CII) for The Financial Express, where responses were recieved from 118 companies from 16 states across the country, some crucial issues were highlighted. Background and provisions The Small & Medium Enterprises Development Bill is expected to be tabled by the Minister for SSI, during the current Budget session of the Parliament. The initiative is intended to reduce the red tapism and multiplicity of laws applicable to the SSI sector and give it a growth impetus. Regarding dereservation, 108 items ( 30 from the Textiles & Hosiery sector) would be dereserved. It is intended to increase foreign and domestic investments and heighten the sector’s global competitiveness. Again, there is a provision for the corpus of the fund for the credit linked capital subsidy scheme to be enhanced from Rs 135 crore to Rs 173 crore. This is intended to encourage SSI units to invest in technology up-gradation of their units. Further, it would ensure competitive quality and costs of the products manufactured by the SSI units. It is hoped that the SME growth fund would encourage SSIs to venture into knowledge-based sectors, apart from the traditional manufacturing sectors. In the Budget, there was also an increase in the ceiling for SSI exemption based on turnover from the level of Rs 3 crore per year to Rs 4 crore per year. Further, SSI units will now have only two options: either full exemption on the first clearance of Rs 1 crore or normal duty on the first clearance of Rs 1 crore with Cenvat credit. The intended impact is to discourage SSI units to operate, as multiple entities, as has been the usual practice for availing the excise exemption. What do the SMEs feel about all these issues? Here is a synopsis of the snap poll which reveals the mind of SMEs in the country on the Budget. SME Bill • Majority of the respondents are satisfied with the tabling of the SMED Bill, in the current Budget session of the Parliament. • But they feel that the next crucial step, according to the respondents is the implementation and the delivery of the SMED Bill. • However, the inclusion of “ Medium” has raised many eyebrows, as this would bring the Indian small industry at par with the global SMEs. Dereservation • Majority of the respondents are satisfied with the process of dereservation, that has for the first time touched a three figure mark. • In light of the dismantling of QRs (Post Quota regime), the very existence of dereservation is questioned. • It is further suggested that the pace of dereservation be further enhanced. Credit-linked capital subsidy scheme for tech upgradation While the majority of the respondents are happy with the increase in the corpus of the fund for CLCSS, there is a general agreement about the low quantum of the increased corpus, as well as the limited coverage of sectors under the scheme. SME growth fund It is suggested that the scope of the fund be enhanced beyond the knowledge-based industries and the umbrella of the SME Growth fund should cover the traditional manufacturing sector among the SMEs, as well. Excise duty exmeption to SSIs While the majority of the respondents are happy with this initiative, it is however suggested that excise and sales tax be merged into a single tax. INFO KIT • Budget 2005-06 has dereserved 108 items, taking the process of liberalizing the sector further. The gradual and phased dereservation over the last 5 Union Budgets covers the following items. A total of 14 items including leather goods, shoes and toys in Budget 2001-02; 50 items under the categories of knitwear, auto-components, chemicals & agriculture, implements in Budget 2002-03; Another 75 items under the category of chemicals and agriculture and implements in Budget 2003-04; and further 85 items from food, wood, paper, rubber, chemicals, glass & ceramics, mechanical engineering, electrical appliances, equipments and components and auto-parts in Budget 2004-05. Budget 2005-06 has announced the dereservation of another 108 items (including 30 items from textiles and hosiery sectors) . However, pending the Notification of these 108 items, 605 items still remain in the reserved category. • With rail transport being a key infrastructure service for the small industry, lacunae in connectivity and efficiency of services have been adversely affecting its business activities. The industry had asked for greater public-private participation. The Rail Budget says private container companies will be allowed to operate. An attractive new scheme will be introduced to encourage private-public partnership in procurement requirements - the wagon investment scheme - would meet the anticipated incremental freight traffic in the coming years. The industry had suggested a minimum of 25% of its total purchase from SSI sector and that successful outsourcing ventures within Indian SME segment should be explored. The Rail Budget simply says there will be transparency in purchase and sale; new vendors for healthy competition will be developed; procurement will be made more economical.

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