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‘Budget 2022 should enable lesser compliances, reduced cost of doing business, tax relief for MSMEs’

Ease of Doing Business for MSMEs: Amid the Covid scenario, issues such as delay in availability of finance & credit, timely payment & adjudication of pending dues, cumbersome procedural requirements and inflexible regulatory compliance have become more sensitive for MSMEs.

Through various government reforms and measures, MSMEs can greatly contribute to employment creation. (Representational Image)

By Pradeep Multani 

Ease of Doing Business for MSMEs: The Union Budget 2022-23 is being presented at a very vital juncture when the recovery momentum of the Indian economy is catching pace after the daunting impact of the pandemic and expectations of a strong, sustainable and higher GDP growth trajectory are strengthening. At this juncture, strengthening the MSMEs – the backbone of the Indian economy is crucial to sustaining the economic recovery given the sector’s top-notch contribution to the economic and social development of the country.  

MSMEs have been playing an unprecedented role in various prominent aspects of the Indian economy, including a contribution of around 30 per cent in GDP, around 37 per cent in all India manufacturing gross value output manufacturing, more than 49 per cent in total exports, employment to around 11.1 crore, research & innovations, among others. 

With a focus on innovation, development of new products and partnership with reliable suppliers and other key stakeholders, MSMEs can grow and prosper with strong integration in the global supply chain. Through various government reforms and measures, MSMEs can greatly contribute to employment creation as well as in the journey of New and vibrant India, going ahead. 

Although the government has undertaken various meaningful and effective reform measures for the MSME sector during the last 21 months for mitigating the daunting impact of Covid-19, MSMEs are still in the recovery phase and looks forward to continuous handholding by the government, especially in the uncurtaining caused by the looming impact of omicron variant. 

Amid the Covid scenario, issues such as delay in availability of finance & credit, timely payment & adjudication of pending dues, cumbersome procedural requirements and inflexible regulatory compliance have become more sensitive for MSMEs. At this juncture, it is suggested to ensure hassle-free credit availability to industry, particularly for MSMEs, as MSMEs face numerous hardships while applying for loans, that acts as a significant contributor to hindrance in their consistent growth. A single window system for MSME facilitation, reduced costs of doing business, a level playing field for the industry, and timely justice for the industry is also needed. Further, an extension should be provided in the timeline of the Emergency Credit Line Guarantee Scheme (ECLGS) for another year till 31st March 2023.

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Reduced costs of doing business (including the costs of compliances, costs of logistics, costs of power, costs of availing credit and costs of logistics) and level playing field in the country will not only increase the competitiveness of our exporters but also reduce imports of the items where India has domestic capabilities. Further, lesser compliances for MSMEs will create visible ease of doing business at the ground level and a lower tax regime will increase the personal disposable income of the people and create an overall virtuous circle of growth and development in the economy. 

Also, a cost-effective logistics network would provide impetus to the MSME sector in the country by making MSMEs competitive internationally. An integrated development of the logistics sector in the country would inform, clarify, strengthen and prioritize the key objectives, focus areas and the governance framework for Logistics in India. It is suggested that the logistics cost in the country should be reduced from the current level of 14 per cent of GDP.  

On the taxation front, we appreciate the reduction in the corporate tax from the peak rate of more than 30 per cent to an effective rate of around 25 per cent. However, to benefit the entire MSME sector, we suggest a reduction in tax on MSME firms working as proprietorship/ partnerships (including LLPs). Hence, taxes should come down on these types of businesses, going forward. For such businesses, it is suggested that the maximum tax slab be brought down to 25 per cent.  

Also, for the new units, the effective rate is around 17 per cent. We suggest enabling the entities to take benefit of Section 115BAB. The time limit allowed to start manufacturing by a new unit may be extended by at least a period of 24 months, that is, the new unit shall be allowed to start manufacturing by 31st March 2025. 

Further, as raw material prices have increased significantly during the last year, we suggest that on the raw materials for manufacturers, the applicable Basic Custom Duty (BCD) needs to be reduced by 50 per cent. As a growing economy, India should promote importing of raw material, based on its demand and domestic availability, instead of exporting raw materials to other developed economies, and stressing on exporting finished ‘Make in India’ products. This is to promote Make in India and costs competitiveness for domestic manufacturers, especially MSMEs. 

Pradeep Multani is the President of PHD Chamber of Commerce and Industry. Views expressed are the author’s own. 

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