MSMEs need to look beyond 2019 Budget speech

Every year, with unfailing regularity, there are at least a couple of articles in the media explaining why the annual Budget exercise is a waste of time. Every year with equal regularity, however, editors in newsrooms across the country insist on filling pages with experts talking about how the Budget has had an impact, good or bad, on specific sectors – women, farmers, unemployed, entrepreneurs, SMEs, big corporations and so on.

This year, finance minister Nirmala Sitharaman put an end to much of this pontification. A strong hint about what she intended to do was in her choice of carrying the Budget documents – a bahi-khata instead of a briefcase. The traditional red bahi-khata is known to most Indians as holding a ledger – a statement of profits and losses.

Take, for example, the MSME sector which, despite contributing 45% of the country’s industrial output (and 40%+ of exports) while creating millions of jobs, seemed largely ignored in this year’s Union Budget.

A deep dive into the Budget statement offers proof of the government’s intention to give this space a boost through numerous schemes.

To start with, the government’s budgetary allocation for the MSME ministry, at Rs 7,011.29 crore, is the highest allocation thus far. Equally important, the government’s focus on start-ups (including the provision of a television programme specifically aimed at start- ups) should be seen as one of many innovative steps to boost the SME sector.

Budget announcements are fine as a statement of intent. But real economic movement and progress comes from the far more low-key policy announcements and rules and regulations that the government frames from time to time. Therefore, while key announcements from the Budget tend to hog most of the media limelight, many sectors that seem ostensibly ignored by them benefit from other policy measures through the rest of the year.

The announcement of new incubators is another initiative that will aid new SMEs, as was the earlier announcement of intent to give 59-minute loans for MSMEs, providing them easy access to credit.

Most important of all, the government has announced tax exemptions and tax rationalisation for SME start-ups, making a specific reference to the much-maligned angel tax proposal.

Budgetary allocations do matter. But what matters more is what the government does from this point in time. For instance, what are the steps it plans to take to improve real ease of doing business? Moving up international rankings is important, but making the impact of this improvement felt across the business community is another matter.

Even though the Budget has eased some of the tax issues MSMEs face, the government needs to look at other initiatives to support growth within the sector.

One of the big steps could be to aid MSMEs in their digital transformation journey. This involves helping them use technology effectively to boost productivity, as well as educating them about the versatility of digital finance.

The government can also look at flexible regulations and budgetary allocations for fintech companies operating in the MSME space to achieve its larger goal, i.e., financial inclusion.

Additionally, greater clarity on GST rates and implementation is still needed, and several sectors had spelled this out in their Budget wish lists. This, however, is not a part of the Budget, as the GST Council will have to meet and offer this clarity. This is something that needs to be tackled at the earliest, in particular to help manufacturers and exporters.

Easing other regulations (tax, exports, lending) will also go a long way towards helping the MSME sector.

For all these steps and initiatives, the finance minister can do without the annual Budget exercise. After all, they need not be announced with fanfare; they just need to be implemented well. The results will be a shot in the arm for the economy as a whole and the MSME sector in particular.

The author is co-founder and co-CEO of Drip Capital