Budget 2020 India: The GST refunds to MSMEs have been delayed for over six months. In spite of instructions from the Finance Minister, the refunds are not forthcoming.
By Manguirish Pai Raikar
Union Budget 2020 India | Credit and Finance for MSMEs: Micro, Small and Medium Enterprises (MSMEs) were invited by the Commerce minister along with other six organisations heads pertaining to MSME to sort out their grievances on January 6, 2020. It was a marathon four and half-hour meeting with the minister and high-level officials of the Central Government including finance, industry, commerce, textiles, railways, corporate affairs, labour, and others who attended the meeting and deliberated on the points raised by the Industry representatives.
A host of issues were discussed threadbare. Even the criticism was well handled and some issues were referred to the concerned departments for further action. Now we expect a lot of reforms and policy guidelines benefitting MSMEs to be introduced and put to use in the near future. The government was also requested to bring in a change in the attitudes of the grassroots officials who continued to create roadblocks and harass the entrepreneurs. It was pointed out that not only the ease of doing business was important but also there was a dire need of improving the system to have ease of running the business.
It was pointed out during the discussion that the turnover based definition is the best definition to classify the MSME under the new GST regime. Turnover details of enterprises are being captured by GSTIN and therefore turnover based definition would be transparent, progressive and easier to implement.
The main grievance of the sector was delayed payment from their principles which included the government and PSUs. The GST refunds have also been delayed for over six months. In spite of instructions from the Finance Minister, the refunds are not forthcoming. In most of the states, the VAT assessments were being unduly delayed, denying the refunds due to assesses. This has caused hardships to the running units because of the blocked funds. It was suggested that in lieu of government payments, which has the sovereign guarantee, the banks should lend need-based funds without further collateral.
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As the payments are blocked for more than six months at times and further the GST payments, which have to be made on accruals, MSMEs go in red and default on repayments and are classified defaulters for no fault of theirs, it calls for a relook at the default classification of MSME sector. Secondly, the Facilitation councils are restricted to the capital city in most of the states and are not accessible. This act related to the recovery of delayed payments lacks teeth as there are no punitive actions and the person responsible cannot be penalised.
MSMEs in FY 15-16 had contributed Rs 39.36 Lakh crore to the gross value added (GVA) against Rs 124.58 lakh crore to total GVA of India comprising 31.6 per cent share in GVA. In total GDP of Rs 136.82 lakh crore, the Share of MSMEs is 28.77 per cent, according to the Annual Report Ministry of MSME 2017-18. In economics, GVA is the measure of the value of goods and services produced in an area, industry or sector of an economy. There are a total of 6.33 crore MSMEs out of which 1.97 crores are in manufacturing, 2.30 crore in trade and 2.06 crore in other services. MSMEs employ 11.29 crore people. MSMEs share of India’s total exports worth $303 billion for FY18 was 49 per cent at $147 billion, as per data from the RBI & Press information Bureau/DGCIS.
(Manguirish Pai Raikar is the Chairman – MSME at Assocham National Council. Views expressed are the author’s own.)