The forthcoming budget is expected to address the key concerns plaguing the MSME sector growth. These include availability of cheaper credit, policy framework for payment recovery, and use of obsolete technology which have been blocking the rise of Indian MSMEs in the international arena.
With a strength of approximately 30 Million and a growth rate of 8% per annum, The Small & Medium Enterprises (SMEs) make the backbone of the Indian economy, contributing 45% of the industrial output, 40% of country’s total exports, employing over 60 million people, creating 1.3 million jobs every year and producing more than 8,000 quality products for the Indian and international markets.
The government is expected to tap into the capabilities of this sector that holds tremendous potential to provide a power booster to economic growth. To start with, there is an urgent need to re-visit the definition of MSME, as defined under The MSME Act, 2006. The Indian MSME sector has shown exponential growth over the past few years and the currently used definition does not allow benchmarking our system to that of the international market. The definition needs to include more parameters such as turnover and employment for defining an MSME, than only basis investments. It also needs to look at benchmarking our MSME’s to the international MSME’s and indexing them against future economic growth.
Another major area to look into would be the entry and exit regulations governing MSME’s. Entry Barriers such as cost of funds, Regulatory and taxation burdens, Investment allowances, Excise limits and applicable custom duty needs to be offset by way of ensuring access to quick credit at low cost, setting up of special funds to act as soft loans/risk capital for startups, rebate in income tax, increase in thresh hold limit of levy of service tax and set up of trade facilitation centers. The sector also needs to be extended adequate infrastructure support to boost entrepreneurship.
The current regulatory framework does not allow an easy exit to the MSME’s, making it one of the deterrents towards setting up of such units. An entrepreneurship-friendly Bankruptcy Law is a much needed breather for the industry, and will facilitate easy exit for insolvent units.
The forthcoming budget is also expected to address the other key concerns plaguing the MSME sector growth. These include availability of cheaper credit, policy framework for payment recovery, and use of obsolete technology which have been blocking the rise of Indian MSMEs in the international arena.
The launch of forward looking programs like ‘Make in India’, ‘Digital India’ and ‘Skill India’ will support the MSME’s in overcoming the above mentioned obstructions. Under these programs, the budget is expected to extend incentives to the industry for adoption and implementation of IT tools for efficiency enhancement, ensuring sustainability and global competitiveness. One can also expect setting up of a specialized fund to support MSMEs covered under government’s various programs to allow easy access to funds.
Considering the need for balanced and focused regional development, what is also expected is creation of counties with budgetary allocations across cities. The cluster approach will allow amalgamation of resources and technology and channelized dissipation of the same. The setup will also allow symbiotic growth by way of supply chain management and distribution network within the counties. The entire sector has high hopes from the impending budget to provide the required growth impetus to the sector and increase its competitiveness in the international market.
Further, a budget with a realistic and reasonable fiscal deficit target with commitment to fiscal consolidation roadmap will give Reserve Bank of India the flexibility to further cut interest rates. The central bank has clearly stated that fiscal consolidation is key to lowering interest rates. Lower interest rates will only spur credit demand from MSME sector and boost the sector’s growth.
If all these critical factors come together, the SMEs in India will see an exponential growth in the next 3-4 years. With the growth forecast of 6-6.5% in FY 2015-16 vis-a-vis the expected growth rate of 5.5% in FY 2014-15, India Inc., backed by the MSME sector, is all geared up to prove its mettle on the international canvas.
The author is MD & CEO of Religare Finvest