Budget 2018: Indian MSME Sector Budget Recommendations from Power2SME CEO
Mr. R. Narayan, Founder and CEO, Power2SME, shares his voice regarding expectations from the Budget 2018. Power2SME is a B2B company and is on its way to empower SMEs. While many initiatives have been taken to address different pain points of SMEs, yet there are still gaps to be addressed. Thus, the company has taken it up as a challenge of helping SMEs work more efficiently and effectively in every possible way.
Be it collaboration with FMC for SME Transformation camps pan India or collaboration with NSIC to help SMEs grow, Power2SME has always been a mentor in B2B space. Power2SME has recently started tender service also, where they offer information on most relevant and live tenders that manufacturing MSMEs can utilize.
As a pioneering B2B ecommerce company with presence in 16 markets in India serviced by 6 offices, Power2SME stands strong as a key industry. In its 4 year journey, Power2SME has carved a niche for itself in the SME industry and received an overwhelming response from its stakeholders – enabling it to be on the cusp of profitability in such a short span.
With an approach that focuses on sustainable profitability; company growth and complete customer satisfaction, Power2SME’s growth trajectory has been remarkable. Driven by a growing recognition for enhancing SME competiveness through reducing cost of production, improving product/ service quality and enhanced financing, Power2SME has registered impressive numbers and reached the 10mn mark
A Summary of the Indian MSME sector
India’s MSMEs are slowly gaining widespread acknowledgement as the backbone of the Indian economy. Approximately a number of 51 million units, the Indian MSME sector attributes to more than one-third of the total GDP of the country. In the near future, the contribution is only expected to increase while swiftly bridging the urban-rural intersection. India is expected to have the youngest demographic strength in the world by 2020 with 64% of its population in the working age group. To have this demographic potential along with a boost in economy will give India an unprecedented edge that economists believe could add a significant 2 per cent to the GDP growth rate making India an extremely fertile environment for entrepreneurship.
In order to tap this trend and make India significantly attractive for entrepreneurship, it is imperative to harness the promising opportunities MSMEs provide us as we embark onto a new phase in the economy with Budget 2018. To materialize these possibilities, the MSME sector needs encouragement in the form of new industrial policy and its speedy implementation.
1. Redressal of Monetary Grievances this Budget 2018:
a. New E-Mechanism To Resolve Delayed Payments: The Knowledge & News Network- a joint venture of FISME and GIZ reports that over Rs. 10.000 crore is indebted to various Indian MSMEs by their clients (buyers). Some of their big buyers have been repeatedly failing to honour their commitments to MSMEs for their supplies, resulting in major setbacks for functioning of these MSMEs. In order to ensure a rapid and smooth functioning of the MSME sector, there must be a mechanism to resolve the financial transactions between large enterprises and MSMEs.
b. An easy solution for the above is the introduction of a centralized e-portal which will maintain record of all supply bills and receivables. Financial institutions like banks and NBFCs alike should offer the services on such a portal to discount bills of MSMEs with lucrative discount rates in order to propagate easy and beneficial adoption of such a program. All record of monetary transactions for MSMEs would be on record on such a portal which would aid and assist the MSMEs to recover their payments as per terms agreed upon mutually by the MSMEs and the customer enterprise.
c. Due Relief To MSME In Case Of Non Payment Of Their Bills: Should there be a delay in payment to an MSME, the financial institution can step in for discounting the unpaid bill of the MSME. The drawee enterprise then is expected to pay the discounting institution itself with an added interest for the delayed period.
d. Delayed Payment Interest to Be borne by Buyer Enterprise: The purpose of this portal is twofold. On the one hand it offers discounting of bills and deliverables to MSMEs and on the other it discourages the unhealthy trend of delayed payments by imposing an additional interest on the buyer enterprise if it defaults in completing monetary transaction as per stipulated time.
e. Fast Track Redressal of Bounced Cheques: The government has laid out legal recourses to protect people from being served blank cheques. If a cheque is dishonoured by the bank, then the writer of the cheque can be tried in a court of law as per Section 138 of The Negotiable Instruments Act 2002. However, legal trials in India are lengthy and drain both time and resources. Other than the loss in payment, the MSME will also suffer in further attributing additional time and money to follow up on legalities and this will be detrimental to their growth and functioning. To avoid this resource crunch often faced by MSMEs, it is strongly recommended that the government enforce strict legislations and regulation to fast-track the process of payment of bounced cheques within 30 days for speedy and effective redressal of such grievances.
2. Improve financial inclusion in the MSME sector this Budget 2018
a. Relaxations in interest rates on business loans to MSME players: The rate of interest for business loans offered to MSME players are higher than other types loans available such as housing, education and others. In order to bridge the credit gap in the sector, relaxation in interest rates are urgently needed to make MSMEs more competitive.
b. Provide Tax Rebate to MSMEs that create high level of employment – MSME sector of India currently employees over 100 million people in the country, which is largest after the agriculture sector. Also, it’s expected that by 2025, India will have the largest population of youth in the world which means we will have largest number of people ready to join the work force. In this light, it will be critical for India to generate significant level of additional employment. Therefore, with special focus on MSMEs that provide high level of employment should be given tax rebate, linked to additional numbers of jobs created.
c. Classify NBFC lending to MSME sector as priority sector lending: The finance granted by banks to NBFCs for on-lending to MSMEs was classified under the priority sector category until 2011. However, the practice was discontinued abruptly in 2011. We recommend to revive this concept to improve the financial inclusion within MSME sector
d. Expand MSME focused fund allocation to NBFCs and Fintech Players – While MUDRA bank and other public sector banks have numerous schemes for MSME players, however it has been observed that in past few years MSMEs’ engagement with NBFCs and FinTech players has deepened substantially. Therefore, Government should also look at NBFCs and FinTech players while allocating funds meant for MSME development and financing.
e. Introduce Performance incentive for MSMEs through rebate on direct tax and deductions in indirect taxes based upon pre decided criterions such as their credit rating, technological up-gradation etc. The government should incentivize investments of MSMEs, involved in indigenization of a product or for creating import substitution.
Featured image Budget 2018 courtesy: PlaceSpeak.
Disclaimer: The views expressed here are solely of Mr. R. Narayan, Founder and CEO, Power2SME. My India My Glory does not assume any responsibility for the validity or information shared in this article by the author.