Budget 2013 is less than a fortnight away and a nation awaits with bated breath wondering what is to come. Although political pundits will have us believe that this budget could see a positive windfall keeping in mind that the general elections are not far away, it is beyond anyone’s guess as to what is in store.
The Small Medium and Micro industries are fidgeting in anxiety after having seen some tough times in the past few years. Amidst the anxiety is the hope that some of their long pending and some new wishes may come true in the FMs speech and could bring a cheer on their faces and balance sheets as well. It’s called Small, but it’s bigger than the biggies. The SME segment contributes more to nation building in pure GDP terms to the tune of close to 45% of India’s Industrial production. It is a segment that the FM cannot afford to ignore.
It’s time that the Finance ministry starts relooking at the way SMEs are taxed. Unlike their bigger counterparts, these industries are heavily dependent on small cash flows. A differential tax system based on turnover can help channelize tax and improve cash flows. Treating them in the same league as corporate is unjust especially in tough times where every penny matters.
Industry bodies like the CII have voiced their wish to see more impetus towards SME Exchanges to help the segment generate capital. As of now the general opinion is that the process of listing and the associated policies are highly complex and unclear and hence form a hurdle for more SMEs to enter the market. More involvement will improve overall liquidity and cash flow and can push revival of the industry as a whole.
The fox is coming – Let GST rollout not become a myth…
For more than 3-4 years there has been constant talk about a uniform tax system being rolled out in the form of the Goods and Services Tax (GST). Yet, it still seems to be like a mirage on the horizon. The SME segment is unable to move to the next league majorly due to the complex differences in taxation by various state governments and hence try to stay in the comfort of their parent state than go to new territories. It is in the best interest of the nation to rollout the GST immediately and create a level playing field. Many in the SME segment are worried that it may lead to more intense competition. But, there is no doubting that such a leveling of the playing field will improve overall cash flow and business which will be beneficial to every industry in the long run irrespective of their size.
The biggest worry for SMEs is raising capital for their businesses. This is double whammy problem – on the one side, in spite of having many institutions which have been created to fund and lend money to SMEs, it is still a cumbersome process for many especially those in the nascent stage of business. On the other side, even if a company is able to get a loan, the current interest rate regime makes it really tough to operate with the high level of cash outflow on account of high interests. The expectation from the budget is to boost the availability of capital for the segment and also a significant reduction in interest rates to enable the segment to improve profitability. This could start a domino effect as better profitability for the segment will boost production which in turn can help pull back the rate of inflation and thus boost the economy as a whole.
Many businesses in the SME segment which started during the early 2000s are now in the cross over phase where the Micro are poised to move to Small and the small moving to Medium and so on. The harsh business environment has proved to be a block from this transition which could bring about momentum in the economy. At this juncture the expectation is for the FM to announce incentives in the form of better depreciation benefits which could motivate the segment to indulge in the much needed capital expenditure for expansion.
Budgets throughout the past decade have spoken of supporting the SME segment, but the ground reality is that this segment is still looked at as “small”. With a growing population faced with inflation, unemployment and tough global business competition, the need of the hour is to strengthen the foundation of the economy – The SME. The rules of the sea dictate that the small fish act as feed for the big fish. If the big fish (large Corporates) have to grow at 10%, the small fish (SMEs) have to grow at thrice that speed. Mr. FM, over to you…