Budget 2020: ‘Handicapped’ service MSMEs must be offered these schemes for $5 trillion GDP vision

Updated: January 25, 2020 11:25:27 AM

Budget 2020 India: Service SMEs are always hungry for more work to occupy themselves and their employees. Even those who have enough business are eager to grow by expanding.

Budget 2020, Union Budget 2020 India, Budget 2020 India, Budget 2020-21Budget 2020-21: The government should provide subsidies to SMEs who repay their unsecured loans on time.

By Satya Prabhakar

Union Budget 2020 India | Ease of Doing Business for MSMEs: The services sector today powers around 53 per cent of India’s GDP and is growing faster than the industrial and agricultural sectors. In the next 10 years, $4 trillion will be added by the services sector and it currently has nearly 16 million SME service providers (SPs) contributing more than 50 per cent of overall services GDP. These service SMEs are the real engine driving our country’s economic output. However, service SMEs are handicapped by the following factors:

  • Always eager to find more work: Service SMEs are always hungry for more work to occupy themselves and their employees. Even those who have enough business are eager to grow by expanding.
  • No Name Awareness or Credibility: Unlike big brands, most service SMEs are not well-known. Even when discovered, it takes a lot of time for customers to carefully evaluate and reference. 
  • Limited means to reach to the relevant audience: TV, Radio, Print, Outdoor, etc. are not affordable for most service SMEs as they require large upfront spends. SMEs are primarily interested in channels that will directly help them grow their business, reaching customers ideally in a 5 km radius.
  • Constrained for capital: Service SMEs are always constrained for capital to grow and given many of them don’t have any significant physical assets which can be used as collateral, banks are not easily willing to lend to them.

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The Union Budget 2020 should seek to address these challenges head-on as service SMEs can really propel India’s vision of achieving a $5 trillion by 2025. The government could look at the following schemes to promote the development of service SMEs:

  • Subsidies for SMEs: Government should provide subsidies to SMEs who repay their unsecured loans on time. This will promote positive and desirable credit behaviour that will not only result in a direct benefit to service SMEs but also have a positive effect on the proclivity of banks to lend to service SMEs.
  • 5 per cent GST on SME marketing investments: The current slab of 18 per cent is quite restrictive and lowering this to 5% will free up some capital for SMEs that could look at reinvesting this capital for business growth.
  • Subsidized training programs: Service SMEs rely squarely on their skills to add value to service requests from consumers. The government should look to leverage technology in developing innovative training programs that lower costs for service SMEs.
  • Occupational insurance for those working in hazardous jobs: There are several jobs especially in-home services (such as moving & packing, roof waterproofing, etc.) which pose an inherent risk to workers. Insurance that protects such risks will go a long way in increasing the supply of such workers.

The smartphone revolution in India has made possible a technology revolution that lubricates the wheels of commerce between consumers and service SMEs. If the last 10 years were about the product and B2C e-commerce, the next 10 will be all about service commerce. With slowing growth and looming macro uncertainty, the 2020 Union budget is a strong opportunity for the Indian government to signal its commitment to service SMEs who can be a powerful force in unleashing India’s growth potential. The next 10 years could well be India’s golden decade.

(Satya Prabhakar is the CEO and Founder at Sulekha. Views expressed are the author’s own.)

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