How budget 2013 affects the SME!

By | March 1, 2013

SMEs in India had a lot of expectations from Budget 2013 mainly because it is the last budget before the general elections in the country. Union Budget 2012 was considered as the most ‘anti-reform’ budget in the history of India. Given to the background of huge fiscal deficit, depreciating currency and sluggish growth, a non-trivial change for the better is called for. So a revival of growth in the SME sector and bringing about SME friendly policies were highly expected.

As the budget presented today explicitly there is nothing negative for SMEs, but it is to be noted that there are no definite proposals which is expected to spur growth in this sector. The major policies in connection with SMEs are as below:

MSME benefits to be continued: It has been announced that the benefits and preferences enjoyed by the Micro, Small and Medium Enterprises will be continued for at least three years post their grow stage. Non-tax benefits which proposed, is expected to be continued for three years post it graduates to a higher level.

SIDBI: A lot of SMEs rely on SIDBI for funding requirements. A proposal has been made to raise the refinancing capability of SIDBI from the current Rs.5000 crores to Rs. 10,000 crores yearly. Further, MSMEs have also been encouraged to increase allocation to SIDBI for this purpose. It is welcoming to note that a corpus of Rs. 500 crore has been allocated to SIDBI for this.

Technology and mentoring supports: It has been proposed in the Budget to allocate Rs. 2000 crores in the 12th Plan to provide additional technology development centres for supporting small businesses.  Improved mentoring, funds for technology incubators etc can be expected as part of CSR expenditure.

Textile Sector: The union budget 2013 seems good for the textile segment. The Finance Minister has announced a number of schemes and increased fund allocation for this sector. Other benefits announced are loans at a concessional rate of 6% for Handloom weavers.

Agri based Industries: Agriculture has given importance in this Budget with an increased fund outlay. With the extension of interest subvention scheme, farmers can expect access to loans at 4% from private banks as well. Several agricultural schemes and policies has been which is expected to have a positive impact to SMEs in the agriculture and food processing units.

Manufacturing Sector: It is a fact that several projects in this segment were are stalled and implementations were delayed due to regulatory hurdles. A Cabinet Committee on Investment (CCI) has been set up to monitor investment proposals, which is expected to fasten project implementations. SMEs associated with industries like coal, power and oil & gas may have to face shrinking of working capital cycles. Further, companies investing Rs.100 crore or more in plant and machinery during the next financial year will be entitled for an investment allowance of 15%, in addition to the current depreciation. This will hopefully have a positive effect on SMEs in this sector.

Electronics sector: FM has promised necessary incentives to semiconductor wafer fab manufacturing facilities, including zero customs duty for plant and machinery. This is expected to encourage more electronic manufacturing in the country, which will indirectly help the SMEs associated with supply of raw materials to the sector.

Capital markets initiatives: As the prime challenge facing by SMEs is scarcity of funds, this year, in addition to the Initial Public Offerings (IPOs) on the SME exchange, the Budget has made a provision for SMEs, including start-ups to list on the SME exchange. It has to be noted that it is not required to make an IPO, as the issue being restricted to informed investors. This reform is expected to boost several small companies.

Tax policies: An increase in surcharge from 5% to 10% has been announced for companies whose taxable income exceeds Rs.10 Cr in the current financial. The customs duty of 10% for non-agricultural goods, normal excise duty of 12% and normal service tax of 12% stands unchanged. Sectors like leather and precious stones can expect a benefit from the fall in customs duties. Zero excise duty has been granted for cotton and man made sector, and handmade carpets. It has been mentioned that the Government is seriously planning about introducing GST.

The FM has stressed through out the need for growth and setting up of investor-friendly policies which is expected to send out positive signals to both domestic and foreign investors, which will have a direct benefit to the SMEs.

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