The Prime Minister Narendra Modi’s stirring speech in parliament on 1st March, where he claimed his vision “sabka saath, sabka vikaas”, raised many hopes amongst all. Everyone had expectations that this budget would ensure ‘acche din’ (good days) for all and that too in substantial measure.
Well, when it comes to small and medium enterprise sector, we can observe a good impact, as Finance Minister clearly depicted keen interest in accelerating the growth of this sector. Our FM, Arun Jaitely announced various policies addressing fundamental challenges faced by SMEs across industries, challenges prevalent to taxation, procurement policies and business finance.
Let’s examine what is the positive and negative impact of these policies on SMEs and start-ups.
1. The SMEs sector faces the core challenge of lack of low cost credit facilities. To address this problem the government has announced to set up a Mudra Bank with a corpus of Rs. 20,000 crore. This micro financing will play a vital role for SMEs by enabling them to gain access to basic things like raw materials and other necessary resources which are important to run their business.
2. Arun Jaitely said, “We also have to encourage and grow the spirit of entrepreneurship in India and support new start-ups. Thus can our youth turn from being job-seekers to job creators.” With this focus on empowering youth, skill development and special focus on self-employment will have huge positive impact on our socio-economic scenario. Though the accurate implementation is very crucial for its long term impact.
3. In addition the government is establishing a mechanism to be known as SETU (Self-Employment and Talent Utilization) which will support all aspects of start-up businesses, and other self-employment activities. FM has allocated Rs. 1000 crore under this scheme for technology start-ups and has claimed to create world class incubators. It will be interesting to know how government will be facilitating the formation of such entities by people who know the business, as after all it’s a specialized job.
4. Our FM also announced Atal Innovation Mission and earmarked Rs. 150 crore for the innovation promotion platform involving academics, entrepreneurs, and researchers.
5. In order to facilitate young entrepreneurs, income tax rate on royalty and fees for technical services will be reduced from 25 per cent to 10 per cent. Moreover, the benefit of deduction for employment of new regular workman to all business entities will be extended to generate greater employment opportunities. The eligibility threshold of minimum 100 regular workmen will be reduced to 50.
6. Basic custom duty on certain inputs, raw materials, intermediates and components in 22 items is proposed to be reduced to minimize the impact of duty evasion
7. The clarification of tax pass-through for investors who register as AIF1 / AIF2 category investors is a huge relief as this means the fund managers are not subject to tax terrorism. This clarity will ensure that overseas investors will find greater comfort in investing in private equity funds and venture in India. In addition, a credit guarantee fund of Rs 3,000 crore will help small business units to fight their funding needs to some extent.
8. Another positive measure in his Budget is unveiling a comprehensive bankruptcy code by 2015-16. The new code will hopefully contribute to the business environment improvement.
Various measures like GST, public procurement policy, allocation of capital spending in infrastructure, introduction of internationally competitive direct taxes, sharp slash on few indirect taxes, and simplification of tax regime such as subsuming of education cess and the secondary and higher education cess in central excise duty and permission to issue digitally signed invoices and electronic records will certainly result in ease of doing business. But let’s also not forget what things could have been better.
9. The presence of entities that invest in venture and private equity funds is an important aspect while creating a successful early-stage ecosystem for start-ups. Currently, majority of such entities invest in Indian VC/PE funds are overseas meaning that the Indian fund managers have to deal with sector risk and country risk as well while marketing to overseas entities. The FM could have either converted his 1000 crore for start-ups or announced a different provision which would facilitate flow of domestic capital to Indian VC funds.
10. Also, there are no big bang reforms and not enough tax sops. Increase in service tax, cut in MSME ministry budget for some key schemes, lack of specific guidelines on skill development are some prominent drawbacks as well.
Largely, the budget has some good policies for SME sector but if the government falls short in implementation of these ideas and don’t take strong initiatives in the course of the year then the overall impact will be zero.
If you have different views or would like to add on to it, do leave us a comment.