Small and Medium Enterprises (SMEs) in India are persistently trying to find an answer to the fundamental question: How to grow and differentiate the business in an increasingly competitive environment? The Union Budget 2015, presented by Finance Minister Arun Jaitley, partially answers the question. It has plenty of positives for SMEs with a long-term vision of growth.
With approximately 46 million SMEs in India, 12 million people are expected to join the workforce in next three years, with the sector growing at a rate of 8% per year. Over the years, the SME segment in India has progressed from the production of simple consumer goods to the manufacture of a variety of sophisticated and precision products like electronic control systems, microwave components, electro medical equipment, etc. Budget 2015 proposes some strong measures to make SMEs bankable and set the ball rolling for an entrepreneurial India.
Access to funds is critical in developing a vibrant SME sector. In many emerging economies, including India, access to credit remains a major challenge for SMEs, which in turn obstructs their growth. The Government’s decision to establish MUDRA (Micro Units Development and Refinance Agency) Bank with a capital outlay of Rs 20,000 crore and a credit guarantee corpus of Rs 3,000 crore is a welcome step in this direction. The bank will not lend funds directly to SMEs, but will play the role of a refinance institution. MUDRA will also be responsible for establishing new financing practices to weed out challenges related to SME financing and ensure suitable client protection and methods of recovery. It will also promote appropriate technology solutions to boost the growth of SMEs. In providing bank loans, MUDRA will give preference to SC/ST entrepreneurs.
Budget 2015 has some major initiatives for the startup segment as well. The Rs 1000-crore Self Employment and Talent Utilization (SETU) fund will help technology startups and entrepreneurs translate their ideas into successful business models. In addition, SETU will be positioned as a techno-financial, incubation and facilitation initiative that will take care of all aspects of startup development. However, it would be interesting to see how startups use the allotted funds to achieve their goals.
In addition, a Trade Receivables discounting System (TReDS), an electronic platform, will be created, to enable financing of trade receivables of SMEs. TReDS will enable discounting of both invoices as well as bills of exchange. With this initiative, SMEs will be able to resolve challenges related to financing, and focus on expanding their business.
The Budget also proposes to make India business-friendly. An expert panel is to be set up to make a draft legislation which will enable a pre-existing regulatory mechanism to replace the need for numerous permissions. This will help SMEs operate in a conducive environment and gradually make India an investors delight. In addition, the Government plans to come up with an inclusive Bankruptcy Code by 2016. The new code will be at par with international standards and contribute to the improvement of the business environment.
The Budget also augurs well for SMEs operating in the electronics manufacturing segment in the country. All electronic goods, except Printed Circuit Boards (PCB) used in the electronics sector, have been exempted from Special Additional Duty (SAD). This move will help local electronics manufacturers compete will players in the global marketplace.
A slew of measures has been announced by the Government that will drive the ‘Make in India’ initiative. These include reduction of customs duty on inputs, optional excise duty benefit to manufacturers with no CENVAT facility at comparatively lower rates, focus on infrastructure including ports and mega power projects, predictability in tax environment and measures aimed at ease of doing business, all of which are expected to boost manufacturing.
To conclude, the proposed measures if effectively implemented, can make SMEs bankable and help them become a part of India’s growth story.
Authored by Mr. R. Narayan, CEO and Founder, Power2SME
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