MSMEs sector Blatantly Neglected: Industry Professionals React

SME World,

Indranil Deb, Principal, Mobius Strip Capital Advisors, Mumbai, said the budget is ordinary and lacklustre. The lack of time available to conceptualise imaginative and innovative solutions to the myriad problems of a growing economy is evident.

“The budget is particularly negligent towards the MSME sector. There are no announcements for supportive infrastructure or systems that help small and medium entrepreneurs. Neither is there any announcement regarding expansion of credit(unlike agriculture). The budget could have specifically offered tax and other fiscal incentives for MSMEs that are innovate, that create large employment opportunities, help, educate and upgrade the skills of their employees and help the country improve its share of global trade. Unfortunately, the budget is silent on all these issues.

“However, the Government needs to be commended for controlling the fiscal deficit for 2010-11 to 5.1%(below the expected level of 5.5%).

“Playing to the political gallery, the Government has announced a significant increase in budgetary outlays to the education sector and the strengthening of the National Skill Development Council(NSDC). Another such populist step is the announcement of increasing the flow of credit to the agriculture sector from Rs. 3.5 lac cr. to Rs. 4.5 lac cr. Although the move towards supporting ventures related to green technologies is the need of the hour, both from the standpoint of India’s role of being a responsible nation in the global community, as well as towards riding such initiatives to promote innovation and entrepreneurship in the country, the government has only played lip service.

“There are several disappointing features. There is no concrete plan to reduce government expenditure. As the problems of leakage and inefficiencies continue unabated, an angry nation will soon begin to question the need for larger than necessary state machinery. There are too many tax items(old and new) in the budget, which harkens back to the eighties. Nothing concrete is mentioned in the budget to tackle inflation and the challenge to efficient food distribution(except for sops for cold storage chains).”

Expressing disappointment for lack of any special provision for the garment sector in budget proposals for 2011-12, Rakesh Vaid, President, Garments Exporters Association, regretted that the Budget has proposed to convert the optional levy into a mandatory levy at a unified rate of 10 per cent for readymade garments and made-ups of textiles which were earlier under an optional excise duty regime, which would adversely affect the garment sector of the textile industry. Although, CENVAT credit of inputs and services would be available the garment factories will now have to register themselves with central excise, increasing the net transaction and administrative costs. It would also lead to unnecessary harassment and delays in handling time bound export shipments, said Vaid.

Although, the Finance Minister has dexterously handled the tedious task of striking a balance between the needs of development and social and political compulsions of the present economic situation, and has taken steps to achieve the objective of boosting economic growth and employment generation, the exporting community feels being left in the lurch without an adequate fiscal relief in the Budget proposals. While giving emphasis on agriculture, social sector, education, skill development, health and infrastructure, the industry and trade, unfortunately, have been neglected.

However, Vaid has welcomed the proposals to reduce the basic customs duty on certain textile intermediates and inputs and specified inputs for manufacture of certain technical fibre and yarn. He has also welcomed the proposal to introduce scheme for refund of taxes paid on services used for export of goods and new initiatives to reduce the transaction costs as recommended by the Task Force on Transaction cost in Exports.

Commenting on the Union Budget 2011-12, Dinesh Agarwal, Founder and CEO, IndiaMART.com, said, “We are delighted that the FM has taken into consideration the need to simplify the tax procedures for small businesses. This was one of the key expectations we had from this budget. The progress on GST is also commendable and we look forward to its speedy implementation this year. This will synchronise the sale of goods across the country and simplify taxation for MSMEs.

“While we appreciate the allocation of Rs 5,000 cr to SIDBI for refinancing incremental lending by banks to micro, small and medium enterprises, we expected better increase in the outlay to cover as many of these firms possible.

“Presently, credit is the main challenge facing the Indian MSMEs. With the increase in priority sector lending targets for the PSBs, it can serve some of the funding requirements of MSMEs and help them scale up. Lowering of the surcharge tax limit on corporate tax to 5 per cent will also help the small and medium businesses who will be able to use the capital for further expansions.

“Besides, the government’s decision to take the rural broadband connectivity to all the 2.5 lakh Panchayats in the country in next three years is a right step towards nation-building which will provide much-needed empowerment to the rural India. Also, the emphasis on the use of technology/ Internet for e-governance will bring effectiveness and efficiency in the system.

Vinay Kshirsagar, CFO, Shreyas Shipping & Logistics Ltd. has made his observations on the Budget effect on shipping & Logistic sector. According to him the proposed increase of MAT will have a negative impact while reduction in Corporate Surcharge will have a positive impact.

“The bottlenecks in transportation of food etc. have been identified and FM has introduced various measures to curb the same. Tax free bonds of Rs.30000 cr to boost infrastructure will go a long way in augmenting the road and rail infrastructure.

“Investments for Warehousing of upto Rs. 2000 cr will help the company to expand its warehouse activity. Cold storage projects being classified as infrastructure sector which is a welcome move.”

Ameera Shah, Executive Director and CEO, Metropolis Health Care LTD. Says: “As an Indian, I think it is a stagnant budget, there aren’t too many benefits

“From a woman’s perspective, there is not any increase in tax breaks in the income level and from healthcare point of view, as the CEO of Metropolis, it is very disappointing.” She points out as:

  • No benefits provided for healthcare in the budget.
  • Lack of focus on healthcare
  • Rather, the people have been penalized
  • Nursing homes with more than 25 beds and diagnostics centers will now pay the service tax. This will affect the diagnostic industry.
  • People will now be required to pay 5 % extra from their pockets.
  • Healthcare costs are a major part of the common Indian’s expenditure, and are now rising quickly.
  • Government needs to bring policies that will reduce the costs rather than looking at it as a source of revenue
  • In short, it is very disappointing. Hopefully, in the next few years, the government will make healthcare more accessible and affordable for all Indians
  • The government will have to work closer with the private industry to achieve it”

Budget Proposals for 2011-12

  • In current year, overall economic growth is expected at 8.6%, agriculture growth at 5.4%, industrial growth at 8.1%, and services growth at 9.3%.
  • Government’s principle concern is high food prices; food prices were high for cereals, while there was a spurt in prices of onions and milk.
  • Direct Tax Code Bill likely to be passed by Parliament in the next financial year after getting standing committee’s report.
  • Goods and Services Tax Bill will be introduced in Parliament this year.
  • Discussions on to further liberalise foreign direct investment policy.
  • Portfolio investment from foreign subscriptions will be permitted in mutual funds registered with the Securities and Exchange Board of India.
  • Indian micro finance equity with SIDBI will be formed at Rs100 crore.
  • Government plans to create a Women’s Self Help Group Development Fund with a corpus of Rs500 crore.
  • Tax-free bonds of Rs30,000 crore will be issued for infrastructure development. This will cover the Warehousing Corporation of India, National Highways Authority of India, IRFC, and Housing and Urban Development Corporation.
  • Proposal to introduce self-assessment of customs duty under which importers and exporters will themselves assess the duty they have to pay.
  • Budgetary allocation of Rs100 crore for Ladakh and Rs150 crore for Jammu for implementation of projects identified by task force.
  • Revenue deficit has been fixed at 2.3% in revised estimates for 2010-11 and 1.8 per cent in projections for 2011-12.
  • Minimum alternate tax (MAT) is being raised from 18% to 18.5% of book profits.
  • The central government’s debt in proportion to the GDP will be 44.2% in 2011-12.
  • Standard rate of central excise duty has been maintained at 10%.
  • CENVAT (central value-added tax) rates will remain unchanged.
  • Nominal 1% central excise duty will be levied on 130 items entering the tax net. Basic food, fuel and precious stones as well as gold and silver jewellery will be exempted.
  • Peak rate of customs duty is being maintained at 10% in view of the global economic situation.
  • Basic customs duty on raw silk reduced from 30% to 5%.
  • Export duty rates on iron ore are being unified and kept at 20% ad valorem.
  • Excise and customs duty proposals are expected to result in a net gain of Rs7,300 crore.
  • Some legal services will be brought under the service-tax net. Service by an individual to another individual is exempted.

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