“The Small & Medium Enterprises (SME) and the start-ups fraternity had little to cheer about in the last year’s budget, but a year after the launch of the Prime Minister Shri NarendraModi’s “Startup India” Campaign, the Union Budget 2017-18 is expected to be one of the most keenly awaited economic events from the point of view of the SME community.
With the SME sector contributing significantly to overall economy – both in terms of value and employment; it is great that the Prime Minister Shri Narendra Modi’s initiated the Start-up India campaign to encourage entrepreneurship among Indian youth. While SME sector offers major career opportunity for Indian youth, they also face multiple challenges related to registrations/approvals, funding, compliance etc. Unfortunately, these issues continue to hamper SMEs and we would urge to the FM to look into these matters in his upcoming budget.
A major challenge with the SMEs is the high cost of VAT registration and the deposit requirements. Many SMEs continue to do the business without registering, as the cost of the VAT registration and deposit requirements – which varies between Rs 30,000 and Rs 35,000 – is one of the major concerns among most SMEs. With VAT to be replaced with the Goods & Services Tax (GST), we urge the Finance Minister to ensure their registration without involving any financial consideration or it should be done with minimum charges/fees. Also, the deposits of such registrations should not be insisted upon and be waived off. This will encourage ordinary people – the potential SMEs – to get VAT registration in time.
Of all the problems faced by the Micro and Small Enterprises, non-availability of timely and adequate credit at reasonable interest rate is one of the most critical. One of the major reasons for low availability of bank finance to this sector is the high risk perception of the banks in lending to SMEs and consequent insistence on collateral’s which are not easily available with these enterprises. While the Pradhan Mantri Mudra Yojana has helped to a certain extent, it is very limited in scope, available only for the people who are looking for funds below Rs 10 lakh. The Credit Guarantee Fund Trust for Micro and Small Enterprises scheme has not been able to address the challenges of the MSEs. There are apparent differences between the CGTMSE organisation and the banks, because the banks’ experience of the claim settlement is not good. Thus banks avoid financing the MSEs. In absence of adequate financing, modernisation & expansion of the SME sector is also affected. SMEs requiring investments of more than 10 lakh typically go to sources like the NBFCs who charge much higher rate of interest. While looking at the financing requirements of the SMEs, there also has to be something to fulfil the requirements for modernisation, expansion, up-gradation of this sector on similar lines of Mudra Yojna etc.
Being one entrepreneur-oriented units, SMEs also find difficult to keep books, and consequently difficulties compliance requirements like the filing of tax returns. We feel that if the government proposes a turnover-based I-T rate system, it may enhance tax-paying SME units”.
Author is Mr. Ashok Magdum, Senior Mentor of deAsra Foundation.