Here are the Union Budget 2018 goodies for the MSMEs

According to the National Sample Survey’s (NSS) 73rd round, there were around 634 trillion unincorporated non-agriculture MSMEs (micro, small and medium enterprises) in India in 2015-16 providing employment to 111 million workers. Taking into account the significance of MSMEs sector to the country’s economic development, a list of measures to help MSMEs and job creation were announced by Finance Minister Arun Jaitley while presenting the last full budget of the current government.
Here are the Union Budget 2018 goodies for the MSMEs
According to the National Sample Survey’s (NSS) 73rd round, there were around 634 trillion unincorporated non-agriculture MSMEs (micro, small and medium enterprises) in India in 2015-16 providing employment to 111 million workers. Taking into account the significance of MSMEs sector to the country’s economic development, a list of measures to help MSMEs and job creation were announced by Finance Minister Arun Jaitley while presenting the last full budget of the current government.
 
Lowering of the corporate tax rate
In a big boost to SMEs, the Finance Minister announced a reduction in corporate tax rate from existing 30% to 25%, for companies who have reported turnover up to Rs 250 crore in the financial year 2016-17. The decision will benefit the entire class of MSMEs (which account for almost 99% of companies that file tax returns), leaving only about 7,000 companies (with a turnover of over Rs 250 crores) in the higher tax slab of 30%. The lowering corporate tax rate for SMEs will leave them with a higher investible surplus which in turn will create more jobs.
 
However, some experts feel that the MSME sops will benefit only a few as the majority of MSMEs are proprietorships and partnerships whereas the budgetary move applies only to companies. However, this may fall short of completely alleviating the problems of the sector as experts said that most of the small and micro enterprises are based on the business structure of proprietorships and partnerships, whereas the budgetary move applies only to companies.
 
Out of 4,721 Indian listed companies that reported their numbers for 2016-17, 963 companies (20.3 percent of the total) could be major gainers. The median tax rate for these companies is approximately 34% for FY17. Consequently, the difference in tax rate (to the tune of 9%) is expected to improve their profit after tax margins, thus leading to better earnings visibility.
 
Higher credit support for MSMEs
Calling MSMEs the major engine of growth and employment generation, Finance Minister Arun Jaitley allocated Rs 3,794 crore to MSME sector for credit support, capital and interest subsidy on innovation.
 
Mass formalisation of the business of MSMEs is happening after demonetisation and introduction of GST. This is generating an enormous amount of financial information database of MSMEs which will be used for improving the finances of MSMEs and other requirements including working capital, he added.
 
Online-system for credit availability
In addition to allocating Rs 3,794 crore to MSMEs sector for credit support, the budget also hinted at simplifying procedures for credit availability through online-system for SMEs. In his budget speech, FM proposed to bring banks on TREDS (Trade Electronic Receivable Discounting System) platform and link it with GSTN (Goods and Service Tax Network) so that the online loan sanctioning can enable prompt decision making by the banks. 
 
Special measures to solve NPAs for MSMEs
According to the Economic Survey 2017-18, MSMEs had 11.8% (Rs 65,800 crores) share in total NPAs (non-performing assets) by PSBs in the priority sector, and 13.1% (Rs 75,700 crores) in 2016. Despite the lower level of NPA, the extension of credit has been low for the SME sector in the country.
 
The Economic Survey 2017-18 data shows that out of a total outstanding credit of Rs 2,604,100 crores as in November 2017, only 17.4% was lent to MSMEs (while large enterprises got the rest). Against this background, Arun Jaitley, in his Budget speech, promised that the government will soon announce measures to effectively address NPAs and stressed accounts for MSMEs. This will enable a larger financing of MSMEs and considerably ease cash flow challenges faced by MSMEs, he added. 
 
MUDRA Scheme & Ease of doing business
In April 2015, the government launched Micro Units Development and Refinance Agency (MUDRA) Yojana to provide funding to the non-corporate, non-farm sector income generating activities of MSMEs whose credit needs are below Rs 10 lakh. The scheme has led to sanction of Rs 4.6 lakh crore in credit; out of which 76% accounts belong to women and more than 50% to SC, ST, and OBCs. For further relief, the target for lending under the MUDRA Yojana for 2018-19 has been set at Rs 3 lakh crore. The FM also promised to review refinancing policy and eligibility criteria set up by under Mudra to enable better financing for MSMEs.
 
The Finance Minister also stated that the government will contribute 12% of the wages of the new employees in the Employee Provident Fund (EPF) for select sectors over the next three years. Own contribution by women employees reduced to 8 % for first 3 years to incentivise employment of women.
 
The budget has proposed setting up of ‘model aspirational skill centres’ in every district under Pradhan Mantri Kaushal Kendra Programme.
 
Aiding Startup India Program
The government is all set to strengthen the investment and VC sector in the country to help startups grow. Presenting the budget, the Finance Minister said the government will be building a very robust alternative investment regime in the country and rolling out a taxation regime designed for the special nature of the VCFs and the angel investors.
 
Protecting domestic industry
The budget has proposed changes in customs duty to promote the creation of more jobs in the country and to incentivise domestic value addition and Make in India in sectors such as food processing, electronics, auto components, footwear, and furniture. There is an increase in customs duty for mobile phones and televisions to support ‘Make in India’ program. A surcharge of 10% has been levied on imported goods as social welfare.
 
Increase in customs duties in sectors such as imitation jewellery (from 15% to 20%), toys (10% to 20%), etc will also help SMEs since they dominate these sectors. In addition, rise in customs duty on LCD/LED/OLED panels, parts of TVs, smart watches, wearable devices, etc is expected to increase domestic sourcing of these products.
 
In addition, following sector-specific measures will help SMEs sector: 
  • Auto components: Over 80% of the companies engaged in the auto component manufacturing are SMEs. Customs duty on select items such as engine & transmission parts, brakes and parts thereof, suspension and parts thereof, gearboxes and parts thereof, airbags etc have been enhanced from 7.5/10% to 15%. These items account for more than 50% of $ 43.5 billion domestic component industry's turnover and over 30% of it's $ 11 billion exports. Hike in customs duty will not only encourage investments but also encourage technology development in these areas.
  • Forging industry: Development of the defence corridor between Chennai and Bengaluru will result in new opportunities for the Indian forging industry.
  • Footwear and leather industry: Deduction of 30% on emoluments paid to new employees Under Section 80-JJAA to be relaxed to 150 days for footwear and leather industry, to create more employment. 
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