Budget 2018 paves the way for MSME sector to be a catalyst in economic growth

Manish ShethJM Financial Group

It is beyond doubt that the most vibrant and resilient Micro, Small and Medium Enterprises (MSME) sector shall act as a catalyst to the growth of the Indian economy. The Budget further strengthened the sector by making key structural changes, enabling ease of doing business, and providing tax benefits.

Key structural changes

One of the welcome structural changes announced was to bring on board state-owned banks and corporates on the MSME bill discounting platform and, more importantly, to link it with the GST Network. This will significantly ease cash flow challenges as the cost of working capital shall stand to reduce and MSMEs can easily access capital by discounting their trade receivables. Linking to GST will make credit assessment easier and faster.

The government has also proposed to evolve a scheme to provide a unique identity to every enterprise in India on the lines of Aadhaar, which will eventually give respite to the lender as it will be easier to access the KYC.

Both these structural changes in accessing KYC and assessing the credit shall provide greater benefits to the sector.

Enabling the ease of doing business

The budget also earmarked Rs 3 lakh crore for 2018-19 under the Pradhan Mantri Mudra Yojana. The government has assured to address the issues of non-performing assets (NPAs) and stressed accounts of MSMEs. He also referred to a group in the finance ministry that is examining the policy and institutional development measures needed for creating right environment for fintech companies to grow.

The finance minister also stated that the government shall contribute 12 percent of the wages of the new employees in the Employee Provident Fund (EPF) for select sectors over the next three years.  He also referred to the extension of the facility of fixed term employment to these sectors. This in turn will attract good talent at a lower cost.

All these measures shall spur inclusive growth and development.

Providing tax benefits

The proposal to reduce tax for smaller companies with a turnover of up to Rs 250 crore to 25 percent (from the existing turnover of up to Rs 50 crore) emphasises the importance of MSME sector in economic activity. This will unleash entrepreneurial zeal, leading to job creation. This tax respite will provide relief to the sector by increasing their cash flow.

These measures to strengthen the sector shall go a long way in building a robust economy thereby not only creating opportunities in the job sector but also fulfilling the Prime Ministers dream of 'Housing for all' by 2022 under the affordable segment.