Although the ongoing digital revolution has allowed better connectivity while enabling MSMEs and SMEs to gain exposure to the global market, they still struggle to stay afloat amidst these changing times.
By Ankit Gupta
The contribution made by the Indian MSME sector to the economy is huge. However, despite that MSMEs often face a multitude of challenges that restrict their growth. Plagued with numerous issues like lack of sustainability, insufficient funds, limited access to resources as well as marketing channels and heavy competition from large entities, small enterprises often fail to meet their true potential. Although the ongoing digital revolution has allowed better connectivity while enabling MSMEs and SMEs to gain exposure to the global market, they still struggle to stay afloat amidst these changing times.
However, with the 2019 Union Budget approaching fast, the scenario may change soon. Below are the five expectations for SMEs from the upcoming budget.
Following the demonetization of high-value currencies in 2016, SMEs in India struggled to generate revenues due to the cash crunch. Further, the introduction of GST in 2017 and the non-performing assets problem in public sector banks, added to the despair of the SME sector. Thankfully, the government has finally addressed this issue and is committed to making improvements to the state of the country’s small-business community. Prime Minister Narendra Modi, in November last year, announced a slew of measures aimed at providing MSMEs with better access to credit, while effectively bringing down their cost of funds at the same time. While the announcements made just months before the election may seem like a publicity stunt, mitigation of compliance burden, easing of working capital blockages and reduced tax rates are some of the tax sops that the Modi government is speculated to present in the 2019 Union Budget.
Easy availability of loans
Unavailability of finance is one of the major issues faced by the SMEs. With a drastic decline in public sector banks’ (PSB) share in lending to the MSME sector, small businesses often fail to get loans on time. However, the rise of fintech players in the last few years offered a much-needed respite to such enterprises. In addition to this, Modi’s announcements of launching an online portal that can sanction loans up to Rs 1 crore within just 59 minutes, also came as a piece of good news to SMEs. And, more recently, RBI’s decision to permit a one-time restructuring of MSME loans that have defaulted, but are not non-performing as on 1 January, has received a positive response from the small business owners. Now, it’s quite likely that the government has a few more tricks up its sleeve, which will enable the small businesses to get easy access to loans.
Reduction in GST
GST was implemented nearly two years ago, but MSMEs are yet to recover from the blow. The GST council in the last few months has been focusing on measures intended to ease the impact of GST on the SME sector. The government could consider reducing the GST rates to a great extent in the forthcoming budget. Keeping in mind the undue hardships faced by SMEs of the country, union finance minister Arun Jaitley is expected to increase the sales threshold for compulsory GST registration from Rs 20 lakh to somewhere between Rs 50-75 lakh. Further, the government may introduce a concessional tax scheme for small service providers. Now, we are yet to see if all these announcements will take place in the 2019 Union Budget.
Increased investment in the digital lending sector
Since most SMEs operating in the service sector do not own fixed assets, traditional banks and NBFCs find them risky and non-creditworthy. As a result, small businesses are often forced to borrow capital from the informal lending sector which charges a significantly higher interest rate than those in the formal sector. This is where the digital lending sector comes in. With MSMEs and SMEs becoming more digitally adaptive, digital lending platforms have the potential to fuel the growth of India’s SME sector. According to a joint study released by Omidyar Network and BCG, digital lending to MSMEs is projected to see a 10-15 fold increase by 2023, allowing for easier access to credit. Hence, it’s safe to say that the government could consider allocating more money in the digital lending sector in the upcoming budget.
Tax breaks continue to be the need of the hour for the SMEs ahead of the budget announcements in February. While the government had previously announced tax exemption and tax holiday for the SME sector, the 2019 Union Budget can prove to the turning point for the small businesses in India. Just like startups, the SME sector could benefit largely if the government announces tax holiday. However, it’s likely that only businesses that have a yearly revenue under a certain limit will qualify for tax breaks.
(Ankit Gupta is the vice president & COO at ExportersIndia.com. Views are the author’s own.)