Pre-Budget Blues for the Union Budget 20-21

Suggestions for the Union Budget 2020-21

Focus on Manufacturing MSMEs;

Industries should bloom like flowers 

We have the potential to overtake China if we trust our MSME sector more than now and provide long-lasting solutions.

Manufacturing Micro enterprises with specific focus on agro based industries and rural enterprises, which are unique and provide maximum employment need to be separated from Small and Medium enterprises and the existing MSME Act needs to be amended accordingly. All micro enterprises in future may be encouraged to be set up in clusters only with suitable infrastructure and marketing facilities. They should be enabled for scaling up and the required support system should come from the Entrepreneur Development Centres (EDCs), proposed to be co-located at the DICs. The DIC officials’ performance should be evaluated basing on the number of micro enterprises scaling up to small enterprises. Although this comes under the State domain, the Amended MSMED Act should provide for this appropriately.

The SMEs may be defined based on sales turnover and employment to incentivise them to join the formal sector and achieve GST compliance.

2. All the incentives from the government and other agencies to the MSMEs need to be linked to the employment they provide to people directly. 

3. All the subsidies and other payments by the governments and their bodies to MSMEs must be paid within 45 days from the due date. Any delay beyond this and up to 90 days should attract penal interest rate at twice the RBI repo rate. Delay beyond 90 days should be treated as criminal violation. Since the purchase and sale is a contract between the buyer and seller, Indian Contract Act should be amended appropriately, simultaneously.

4. An Independent Evaluation Office on the lines of IMF may  be set up as independent agency under Ministry of MSME/Finance/NITI Aayog to evaluate the policies, programmes, implementation and payments to MSMEs and submit a report to the Government for action and placing before the Parliament at the beginning of the Year.

5. SIDBI has had limited impact. The role and responsibilities of SIDBI may be re-examined by a High Level Committee.

Fiscal Incentives:

¡  2% to 5% of Income Tax / GST for up to every 10 in Micro & to every 25 persons employed in small evidenced by self-certified muster roll and corresponding increase in the expenditure on wages and salaries in the annual P&L statement.

¡  Micro: 1. No Cess on GST; 2. First 5 Years waive income tax for manufacturing enterprises

¡  Small: First 3 years for firms graduating from Micro exempt income tax; No corporate tax

¡  Small to Medium Enterprises: First 3 years 2% less than the usual Corporate tax for large enterprises;  

¡  Medium to Large Enterprises: First 2 years < 2% of the usual corporate tax applicable to the Corporates

¡  Technology: Micro to Small: transition with new or imported technologies – Duty to be exempted.

¡  Small to Medium: Duty to be 2% less than for large.

There should be no levy of Cess on export duties to enable the SMEs to be major contributors to export markets.

Banks and NBFCs helping revival of MSMEs:

Income Tax reduction of 1% if the institution revives 100 enterprises in a year – demonstrated by the increase in capacity utilization by 40% in six months from the date of revival for 80 percent of units revived.

Manufacturing Micro and Small Enterprises post revival earnings of up to Rs.5cr should be exempt from income tax.

With inputs from Dr. Subbaiah Singala, General Manager, CAB, Pune whose views are also personal.