New Delhi: New Delhi: The budget on Friday extended some sops to micro, small and medium enterprises (MSMEs), as part of the government’s efforts to bring businesses into the formal economy.
Finance minister Piyush Goyal proposed a 2 percentage point concession in interest rates on incremental loans of ₹1 crore availed by MSMEs registered for the goods and services tax (GST).
This comes in the backdrop of the government pushing the RBI to provide relief to the stressed MSME sector that has been hurt by the disruption caused by demonetisation in late 2016 and the implementation of the GST in July the following year. In March 2016, the RBI had notified a mechanism for resolving stressed MSME loans of up to ₹25 crore. There are around 30 million establishments in India’s informal economy, with MSMEs having a 32% share.
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Goyal said the government has been working on empowering MSMEs and referred to the dedicated digital platform to enable MSMEs to secure approval in principle of loans up to ₹1 crore in just 59 minutes. The initiative is aimed at promoting automation, reducing the lengthy loan approval process and frequent visits to bank branches.
Goyal added that the sourcing criteria from such firms has been increased to 25% from government-owned enterprises. Of this at least 3% will be sourced from women-led SMEs.
Also, the Department of Industrial Policy and Procedures (DIPP) has been renamed the Department of Promotion of Industrialization and Internal Trade. By not extending the 1 February deadline for e-commerce players for implementing the new FDI guidelines, the government has signalled that it is on the side of small retail traders.
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This comes at a time when the amount of gross bad loans in the micro and small enterprises sector has been growing over the last few years and stood at ₹82,756 crore in 2016-17, up from ₹70,842 crore in the previous year and ₹51,952 crore in 2014-15.
In the last year’s budget the corporate tax rate was reduced to 25% for companies with annual revenue of up to ₹250 crore. In addition, the then finance minister Arun Jaitley had also allocated ₹3,794 crore for credit support, capital and interest subsidy to MSMEs to ease their cash flow challenges.
In the 2017-18 budget, the government had provided tax sops to MSMEs to make them more viable, recognizing their importance in economic activity and generating employment. It had reduced the tax to 25% for companies with annual revenue of up to ₹50 crore.