Union Budget 2019 India: The government should decide on allocating money in infrastructure in this year’s budget through public expenditure in the creation of assets where there is a greater multiplier effect for companies like MSMEs as well such as housing.
Union Budget 2019 India: Even as the ruling party BJP had announced multiple sops for micro, small, and medium enterprises (MSME) including enhancing credit guarantee scheme, support in technology adoption, skill centres, along with creating a national retail policy and welfare board etc., the MSME community — the backbone of the Indian economy, is expecting ground level changes by the government in this year’s budget in areas that can fuel their growth. MSMEs, which have been impacted by developments such as demonetisation, the introduction of GST etc., seek change in the way the government is approaching to offer support to the sector, according to Anil Bhardwaj — secretary general at Federation of Indian Micro & Small and Medium Enterprises. Below are edited excerpts of his interaction with Financial Express Online.
Are you looking at any particular sector in terms of allocating money by the government that can have a multiplier effect on MSMEs growth?
There must be specific outlays for specific sectors. They can create market access opportunities or business opportunities for suppliers. Hence here MSMEs’ expectations can be met if the government starts spending on infrastructure especially housing where more than 66 per cent of the product lines are related to MSMEs such as curtains, furniture, flooring, painting etc. So if the housing sector booms, all these small sectors also booms.
Since both exports and private consumption aren’t doing well to boost the economy, the government should decide on allocating money in infrastructure in this year’s budget through public expenditure in the creation of assets where there is a greater multiplier effect for companies like MSMEs as well such as housing. Also, MSMEs have vested interest in that as when the central government is spending on something then 25 per cent procurement of products and services from MSMEs. So this benefits MSMEs directly.
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What government must look at to enhance access to finance beyond encouraging banks to lend?
With respect to access to finance, there are multiple issues but it depends on how much of them government looks at. Currently, because the government is running in deficit, so they are getting all the savings through the public sector banks by paying them a higher interest rate. This leaves little liquidity with banks to invest in the market and hence they can’t lend capital to businesses. So it is important for the government to avoid overspending because it would lead to less money with banks to lend. They have to curtail spend on unproductive things such as increasing salaries of public sector employees, giving it to farmers in the budget because it neither creates asset nor it remains with banks for giving loans.
Would you be looking at the revision of GST slabs?
Yes. Many areas, which were earlier tax-free like services, are now being taxed at around 18 per cent. Had the government let the money it collected through GST remain in people’s pockets, their purchasing power would have increased leading to better business for MSMEs. Now the government is spending the money the way it wants while it is not very efficient in allocating funds. After the GST, the common man’s purchasing power has decreased. That’s why there is an impact on economic growth. Hence, tax rates should be reduced so that economic buoyancy can be generated. India, otherwise, has become a highly over-taxed society. While all these look like macro issues but these are central to MSMEs growth.
Micro enterprises particularly have often highlighted the issue of harassment from local authorities. Do you expect something to ensure that it ends?
Typically micro-enterprises face the problem of the cost of regulations, that is, the harassment that they had to go through in dealing with local police and authorities. While small and medium enterprises also suffer but the smaller you are the more vulnerable you are towards such harassment. Unfortunately, there is not much that the central government can do here as most of the regulations are of the state. States have so far not understood the importance of small businesses. The central government has its own limitations and states’ do whatever they have to.