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Budget 2017: What’s in it for SMEs

By on April 18, 2017 in Announcement with 0 Comments

Budget 2017 & SMEs

On the 1st of February, finance minister Mr. Arun Jaitley delivered his penultimate budget in Lok Sabha. As it happens with every other budget, a lot was expected from him, with the recent upheavals in the financial sector( demonetization being a notable one) ensuring the expectations from the finance minister were sky high this year when he delivers the budget. Rumors such as no tax for income up to 5 lakhs per year, proportionally dividing the gains accrued from demonetization to each jan dhan account holder in India were doing the rounds in both online and offline mediums ( both of which remained just rumors).

So how did the finance minister fare, did the annual union budget meet up to the expectations of various sectors or did it disappoint. A country as big and diverse as India has massive complexities, so it would be foolhardy to believe that a single budget can meet expectations of all stakeholders. It requires a comprehensive effort to gauge the effect of the budget on various sectors. Leaving aside other sectors, let us analyze what the union budget 2017 has for small and medium enterprises across India. As is common knowledge, SMEs play a very important part in a country’s economic development and naturally any union budget will focus a lot on developing the SME sector. So has the union government given due focus to this sector?

What were the demands of SMEs from the union budget 2017

  • A reduction in corporate tax rate from 35 percent to 20 percent, with a probability of increase in the no tax bracket for start ups( i.e – start ups can claim profit linked tax exemptions for a period of 7 years, previously it was 5 years)
  • The withdrawal of minimum alternate tax ( it stipulates that all companies registered under the companies act and having shown a net profit have to pay a minimum tax of 18.5 percent)
  • The SMEs wanted a specially allocated fund from the government that would have aided them in building their infrastructure, helping them in R & D and many other potential growth initiatives
  • As previously mentioned, the annual budget came just months after the demonetization initiative of the government. SMEs across India were probably one of the most affected by it. They demanded a specially allocated fund that would aid them in recovering their losses
  • Moreover, SMEs also wanted the union budget to undertake initiatives that would in future usher in a cashless economy
  • An increased focus towards the development of rural India and also increased connectivity between urban and rural India
  • Stimulus for the growth of big corporates, since it’s common knowledge that there are innumerable SMEs who are suppliers or vendors to big corporates and thus their growth depends a lot on the growth of well established firms.
  • Recapitalization of public sector banks and steps towards minimizing the effect of NPAs ( non performing assets or bad loans). Bad loans simply mean the loans that have not been paid back to the banks due to various issues such as unexpected losses, intent to deceive etc.
  • Fiscal prudence from the government ( fiscal prudence simply means the government ensuring that the difference between it’s gross expenditure and revenues stay as low as possible). This would have ensured that the interest rates remain low, enabling SMEs to borrow at a lower rate and at the same time also ensuring sufficient flow of capital in the market

What the union budget 2017 had for SMEs:

  • The corporate tax rate for firms with a turnover of up to INR 50 crores was brought down to 25 percent. This was a step in the right direction and brought relief to SME owners across the country, even if their demand for 20 percent tax rate was not fully met
  • There was no change in the minimum alternate tax laws, with a specific provision of start ups being allowed to carry forward their minimum alternate taxes to 15 years. An increase from a period of 10 years that’s allowed today
  • Although no special funds were allocated for the SME sector this year, the government did announce sops for electronic goods manufacturer and also allocated a total of INR 745 crores towards MSIPS ( modified special incentive package scheme). MSIPS is a fund whose primary focus is to incentivize investment in the electronic sector and make India a net zero importer of electronic goods
  • As for incentivizing cashless transactions, the government did announce a slew of measures. Some of those were a minimal tax rate of 6 percent for every business up to INR 2 crores that transacts only through digital mediums, cash transactions being capped at INR 3 lakhs etc.
  • As for increased and easy credit flow, the government did increase the stipulated lending target to INR 2.44 trillion, which is expected to provide some relief to SMEs.
  • As for the SME sector suffering due to a high credit rating ( credit rating is a measure of how risky a particular sector is for lenders), there was no provision from the government aimed at lowering the credit rating
  • This budget has laid an emphasis towards equitable growth, developing rural India. This should be considered as a bonus for the SMEs
  • As regards the other demands of the SME sector, the government hasn’t provided any stimulus for big corporates but appreciably has maintained fiscal prudence. This emphasis on maintaining fiscal prudence is expected to benefit SMEs through lower interest rates

Conclusion

All in all it can be said that the government has given due focus to the development and growth of SMEs in India. Finance minister Mr. Arun Jaitley might not have acceded to all the demands made by the SME sector but has brought in a slew of measures that is sure to enhance their growth. A majority of the SME owners also seem to be happy with the budget and have rated it positively. Brought to power in 2014 partially as a result of joblessness in India, this government seems to realize that for providing jobs to millions of able Indians, the SME sector needs to be focused on. Moreover, it also realizes that the phenomenon of jobless GDP growth that India witnessed from 1990′s to 2010 can be corrected through proper focus on small and medium enterprises across the vast expanse of India.

 

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