What Pranab has in store for Small and Medium Enterprises – The Young ones of Indian Industry
SMEs (Small and Medium Enterprises) and the Entrepreneurs had many reasons to smile after Mr. FM finished his budget speech. According to experts, these sectors are highly vulnerable to the unexpected changes in the market conditions and need a lot of support exactly like youngsters.
A few points from Mr. FM, which will help the SME sector to grow up into the big league or at least become stronger in their own league:
Venture Capitalists welcome: A major shortfall for the funding options for SMEs was the restriction that was imposed on venture Capital to invest only in nine Specified sectors. This has been removed with effect from FY 2012-13 meaning, SMEs can now look at VCs as a source of raising funds, especially FVCI – Foreign Venture Capital Investments
Boost to Capital Investments: The Investment linked deduction of capital expenditure that is incurred by businesses such as Cold chain facility, Warehouses for storage of food grains, Hospitals, Fertilizers, Affordable housing which was 100 per cent has now gone up to 150 percent. The change is mainly to increase the investments in the particular industries.
The finance minister has now proposed the following sectors namely bee keeping and production of honey and beeswax, container freight station and inland container depots, warehousing for storage of sugar also to be added for the purposes of investment-linked deduction.
Support to In-house research: Companies performing in-house Research and Development can now cheer as the Finance Minister has proposed to extend the weighted deduction of 200 per cent from March 31, 2012 for a further period of five years. This will help those SMEs who are spending a lot of energy and cash on creating indigenized products to fight Chinese competition.
Self Audit of your accounts: The Finance Minister has proposed that the turnover limit for compulsory tax audit of accounts as well as for presumptive taxation for SMEs will be from Rs.60 lakhs to Rs. 1 crore. This has reduced the burden of most of the SMEs in filing their taxes as they can do self-filing instead of fully depending on external support.
Another way to fund your expansion – your house has truly become an asset: The Finance Minister has proposed to exempt the capital gains tax on sale of a residential property and investment of those funds as equity for a manufacturing SME company in order to purchase new plants and machinery.
More funding on the way: The Finance Minister has proposed to set up a Rs. 5,000 crore India Opportunities Venture Fund with SIDBI in order to increase the flow of equity to the MSME sector. He also said that two SME exchanges have been launched in Mumbai, mainly to help the SMEs get more access to finance as they are looking at loans from banks and informal sources to raise capital.
Government can become your biggest/best client soon: The finance minister has said that the Government has approved a policy, which requires Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs. This will help in promoting the market access of Micro and Small Enterprises. In addition, 4% of this purchase is to be allocated for procurement from MSEs owned by SC/ST entrepreneurs.
Benares, Kancheepuram, Erode rejoice: The textile industry is not left deprived, the Finance Minister has also announced a financial package of Rs. 3884 crore for waiving the loans of handloom weavers and their co-operative societies.
A helping hand to handloom: The FM has announced to set up two mega handloom clusters covering Prakasam and Guntur districts in Andhra Pradesh, and Godda and neighboring districts in Jharkhand. He has also said that a power loom mega cluster would be set up to facilitate the needs of the local artisans and weavers at Ichalkaranji in Maharashtra with a Budget allocation of Rs. 70 crore.
Overall a decent budget for the SME segment. Apart from the above mentioned benefits, a lot of SMEs who are functioning in Agriculture and Allied sectors have also been given some positive news. More on that separately…