‘Addressing poor access to collateral-free loans, strengthening SFCs to help unlock MSMEs’ true potential’

Updated: Feb 04, 2021 12:27 PM

Union Budget 2021 India: The introduction of TDS on e-commerce sellers with gross merchandise sales of above Rs 5 lakh can block SME sellers' liquidity on digital platforms and prove counterproductive for the sector.

Budget 2021-22, Union Budget 2021The government should conduct a voluntary certification programme for MSMEs so that they are encouraged to adopt global standards.
  • By Deepak Sood

Indian Union Budget 2021-22 | Ease of Doing Business for MSMEs: In the Union Budget 2021–2022, Finance Minister Nirmala Sitharaman has made a genuine effort to invigorate the economy by thrusting on essential growth areas such as infrastructure, affordable housing, healthcare, agriculture, and MSMEs. The FM announced several measures that would positively impact the startups and MSMEs. The first is an increase in capital expenditure for the sector from Rs 15,700 crore compared to Rs 7,572 crore, which reaffirms the government’s commitment to economic reforms, improving ease of doing business, and increasing infrastructure spending.

The other measures that would impact the startups and MSMEs are to reduce the compliance burden on small firms. The Finance Minister proposed to decriminalize certain offenses under the Limited Liability Partnership (LLP) and an increased turnover limit for small companies under the Companies Act 2013. To improve tax administration, the Finance Minister has announced the faceless Dispute Resolution Panel, adopting the faceless process in Income Tax Appellate Tribunal and the increasing turnover limit for audit exemption to Rs 10 crores.  Not reopening of cases of more than 3 years, exemption from TDS, Streamlining Double Taxation and advance Tax system.

The increase in the customs duty on certain products from the sectors like Chemical metal, plastic, solar cells, and others will undoubtedly support the ‘Make In India’ initiative. To be an integral part of the Global Supply Value chain, the MSMEs in India need to adopt international quality standards to accept their products and services in the global market. Therefore, we hope to see the government strengthening local infrastructure for testing and certification of products and services in the coming times. This would support MSMEs by reducing additional costs incurred to get products tested in foreign markets.

As India reinforces a strong position in the global arena, the MSME sector would benefit from the internationally recognized lab and testing facilities for various sectors. Such efforts should be supported by a voluntary certification program for MSMEs to be encouraged to adopt global standards. As India moves further on its path towards a $5 trillion economy, resolving issues such as poor access to collateral-free loans, strengthening State Finance Corporations, etc. would help unlock the segment’s true potential.

Also read: Reliance expands e-commerce arm JioMart to jewellery; offers free shipping

E-commerce is emerging as a convenient platform for MSMEs to reach consumers in distant geography. However, the introduction of TDS on e-commerce sellers with gross merchandise sales of above Rs 5 lakh can block SME sellers’ liquidity on digital platforms and prove counterproductive for the sector. For the startups, to promote more one-person companies (OPC), the finance minister announced the easing of norms by reducing the residency limit for non-resident Indians from the earlier 182 days to 120 days. Earlier only Indian residents were eligible to set up one-person companies. This move is expected to promote more startup companies in India and generate employment opportunities.

These startup companies would also be permitted to convert into a different type of company without much restriction. With an objective to incentivize investment in the startups, the government also proposed an extension of eligibility of claiming tax holidays along with capital gains exemption for investing in startups till 31 March 2021.

Earlier, via the Startup India Scheme launched by the government aimed at the generation of employment and wealth creation. On 16 January 2021, the Prime Minister announced the ‘Startup India Seed Fund’ worth Rs 1,000 Cr to help startups and support budding entrepreneurs’ ideas. This was to ensure that the startups did not encounter any capital deficiency. Recognizing the role of incubators in boosting startups, the Atal Incubation Centre was established under Niti Ayog. It was meant for students, researchers, and newly found organizations. A Self-Reliant India attempts to stand on five pillars – economy, infrastructure, tech-driven system, vibrant demography, and demand. We hope that the timely implementation of all measures will ensure socio-economic growth as envisioned in the Budget.

Deepak Sood is the Secretary General of Assocham. Views expressed are the author’s own.

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