Expectations from Union Budget 2021 of India SME Forum and its members

When it comes to expectations from our budget 2021, industry experts are of the view that in order to enable MSMEs to benefit from professional services for their business growth, the government should reduce the GST rate on most of the professional services (to the extent provided to the MSME sector) from existing 18 per cent to 5 per cent.

In recent times, MSMEs have gone through a lot many adversities due to the Covid-19 pandemic and they are facing problems due to inadequate liquidity, supply mismatches, shortage of labour and non-payment of dues. Cash starved MSMEs are expecting incentives and relief measures from the Government of India to improve their production capabilities, increase exports and generate employment opportunities.

Certain key aspects concerning the MSME sector need immediate attention.

In this year 2021, India’s GDP is expected to contract by 9.6 per cent in the fiscal year and the regional growth is projected to rebound at 4.5 per cent. The Union Government, as it braces itself to deliver the most challenging budget by far is faced with formidable challenges: to manage health and social priorities with stressed resources, roll out positive measures to set in dynamism in the economy, have an inclusive policy framework to address the needs of the most vulnerable groups, strike a balance between short term requirements and the need to initiate long-term growth measures, etc.

Frequent amendments to the GST regime and extensive compliance requirements under the GST laws increase time and expenses for MSMEs and therefore, a simplified form for tax compliances, fine-tuned for MSMEs is expected and very much necessary. Measures should be announced to reduce income tax rates for MSMEs on the lines of the manufacturing sector. In fact, most MSMEs carry on their businesses as proprietorship entities, partnerships and limited liability partnership structures and they are paying income tax at high rates. Whereas, with the new tax regime increasing the tax slabs on the savings and income incurred, we wouldn’t recommend moving on to the new tax regime as savings are now an essential element of any individual’s financial planning strategy. In this scenario, the new tax regime does not seem like a win-win deal for both the government and the citizens especially the savers. It is expected that there will be a massive impact on the savings as the reduced tax slabs have come with the removal of deductions for tax exemptions.

The various slabs for income tax as well as indirect taxes should be moderated. The compliance mechanism also needs simplification. The existing taxation system is extremely complex and cumbersome and is difficult to decipher for new entrants. In particular, this impacts new-age manufacturing companies.

In order to address liquidity issues, the collateral- free loan limit extended under the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme be enhanced by the government to INR 5 crore for micro-units, INR 15 crores for small business and INR 35 crores for medium businesses. Also, the government should take measures to make Trade Receivable Discounting System mechanism (‘TReDS’) popular and to enable more MSMEs to utilise this facility, by easing the financial norms. Banks require the flexibility to help businesses to restructure with financial help suspending Basel norms for few years could be a wise option. The TReDS platforms created to facilitate discounting of MSME receivables should be made mandatory for all big and institutional buyers. Enforcement of the public procurement guidelines mandating 25 per cent procurement from MSMEs is critical at this juncture. The government could also consider enhancing this limit to aid the revival of the sector and incentivize states to adopt the same policy. Along with liquidity issues, there are lot of expectations from rationalizing the cost of doing business, India is consistently improving on the Ease of Doing Business ranking but there is still large scope in matching the pace with peers on the ‘cost of doing business’ in various areas.

There are many other roadblocks that exist that reduce the competitiveness of Indian industries including land, labour, capital, power, and logistics are major factors to increase the cost of doing business. Industries must be unburdened from additional costs in the form of cross-subsidisation at the stake of the industry, as seen in power and freight traffic.

Exports stopped when the world shutdown in 2020 but things have been looking up in this sector. Government should look into Import substitution and export promotion, and this should be supported together. ‘Atmanirbhar Bharat’ and indigenization announcements are initiatives that would guide the industrial policy imperatives for the next decade. The border tensions and an anti-China wave also presents a unique opportunity for the MSMEs to invest in their capacities. Parity with international prices is critical, both from the standpoint of the raw materials and the final products. This would mean relooking at some of the trade barriers, compliances, and regulations to ease imports of raw material. Digital refunds, duties and taxes levied at the Central, State and local levels, such as electricity duties and VAT on fuel used for transportation, which are not getting exempted should be immediately brought under the GST.  For the growth of the export sector India should spend more on research and development. At present it spends between 0.6 to 0.7% of the GDP. An increase in the tax deduction on R&D will help the country focus more on exports.

It is also worth highlighting that several exporters holding valid licenses to import duty-free materials under Advance Authorisation Schemes of the Foreign Trade Policy have been subjected to investigations based on issues such as non-fulfilment of a ‘pre-import condition’ and IGST exemption denial for exporters not exporting under bond. While these issues are pending before courts, an administrative instruction directing the cessation of proceedings shall ease the burden of various bonafide exporters who have met substantive conditions fastened to duty benefits under the licenses

The upcoming Union Budget to propagate export-led growth and continue with export benefits. This will help add to India's foreign exchange reserves. As part of the Union Budget 2021, we hope that the government comes out with possible solutions like bringing down the tariffs and putting our exchange rates and trade facilitation properly.

When it comes to extending PLI (Production Linked Incentives) to MSMEs, it was announced for 10 sectors highlights a shift from input-based incentives to output-based ones. This is a progressive measure. While the detailed guidelines for the operationalization are slowly emerging, it makes eminent sense to extend the scheme to the MSME sector. The upcoming budget needs to announce sectoral allocations for strengthening the overall ecosystem for 24 champion sectors. This could include measures related to productivity enhancement, technology adoption, skill enhancement, greater industry- institution collaboration, strengthening of infrastructure through support to cluster parks, common facility centres, etc.

The Government will ease the legal processes and regulations involved in setting up manufacturing facilities in India under its ‘Make in India’ initiative. As the future of manufacturing is driven with robotics and other automation technologies, necessary steps need to be taken to encourage ingenious technology production as well as consumption in India. Measures such as extension of PLI schemes for the Indian Industrial Robotics Manufacturers from suppliers’ front, and from buyers’ front, mandating automation adoption for PSU enterprises to enhance their performance indices. Overall incentivising adoption of industry 4.0 technologies adoption from across the sectors will enhance the manufacturing quantity as well as quality.

Also, increasing minimum wages is the need of the hour as during the Covid pandemic most of the labour left for their hometowns and to bring them back while providing them with a meaningful life, their wages should rise. According to a recent study, the total number of jobs related to developing and deploying new technologies, i.e. Automation, AI and robotics-related applications, may grow to 20 to 50 million globally by 2030 and more than 375 million workers globally will have to master fresh skills as their current jobs evolve alongside the rise of automation, robotics, AI, and the capable machines thereby enabled. Thus, the Government should come up with more upskilling programs to make the workforce ready to work with robots & other automation through industry partnerships.

Talking about consumer Technologies & Electronics, the year 2020 was a year of challenges for nearly every sector, every sector is expecting the government to focus on overall economic growth and taking measures to continue positioning India as the business epicenter of the world. New policies promoting R&D innovations by pushing relevant initiatives, making innovative and bold policy interventions to propel the process of Make-in-India across sectors is expected.Besides all this, there should be a focus on providing technological solutions that enable MSMEs to develop affordable products and address real issues.

There’s no denying that Digital Innovation is an important building block for India’s future growth. Thus, nurturing new-age tech, improving the quality of talent, and enabling MSME must be on the agenda for the Government.Similarly, the Ministry of Electronics and Information Technology (MEITY) has also set a 5-year goal of increasing the digital economy contribution to the GDP from the current 8% to 20%. The objectives of these two departments are inter-dependent and complementary. All the key stakeholders — MSME, MEITY, Ministry of MSME, and Fintechs — essential to achieve the objectives will benefit from effective public-private and intergovernmental agency partnerships and collaboration.

To achieve the goal of increasing MSME contribution, the government must encourage them to leverage technology while ensuring that it’s a win-win for MSMEs and the government. Any financial or non-financial support the government offers to MSMEs must be subject to demonstration of a clear shift to digital commerce. By doing so, MSMEs can be better equipped to manage business disruptions and stay competitive; the government can benefit from higher tax revenues from integrating MSMEs into the digital economy.The 2021 budget must consider issuing specific directives and policies focused on leveraging technological innovations from Indian Fintechs to integrate MSME into the digital economy with the larger goal of increasing MSME and digital economy contribution to the GDP.

Union budget 2021 should focused more on upskilling & should bring in revolutionary changes to the education sector. The New Education Policy (NEP-2020) brought aggressive changes in the Higher Education System of our country - provided flexibility in the learning curve, emphasized on conceptual understanding, and blended learning. Similarly, the upcoming FY budget must promote the perfect amalgamation of digital and traditional education and strive to encourage the adoption of emerging technologies such as Augmented Reality, Virtual Reality, Internet of Things as well as promoting Research & Development. Along with it, another key aspect that we are looking forward to in the Union Budget 2021 is financial support that can be provided to private sector institutions, including low-cost and zero-cost loans, which is done in many countries. Govt. to consider ‘National Education Bank’ as a concept, just like the ‘National Housing Bank,’ such that education loans too can be provided at the lowest possible interest rate.

Also, this Union Budget should focused on encouraging entrepreneurship. An Investment Clearance Cell for MSME’s should provide “end to end” facilitation and support, including pre-investment advisory, information related to land banks and facilitate clearances at Centre and State level will be setup.This will help the MSME’s in attracting foreign investments and creating more job opportunities. Also, E-Marketplace (GeM) is moving ahead for creating a Unified Procurement System in the country for providing a single platform for procurement of goods, services and works. The Government should ensure that the State’s, the Central government or all the public sector organizations as well any purchases being made should be done through this platform. 3.24 lakh vendors are already on this platform. It’s proposed to take its turnover to Rs.3 lakh crores. Also, a national logistic policy should be formed in such a way which can encourage investments in logistics.

Talking about Infrastructure, a framework for fiscal consolidation for the infrastructure companies could be introduced. India has been improving in making progress in building up the infrastructure across the country. However, infrastructure gap is still huge. The MSME’s still face issues in running smooth and steady business due to lack of and poor infrastructure.There should be a development created for the infrastructures then the demand for steel, cement, power, commercial vehicles, capital goods will all go up.Infrastructure financing is highly constrained currently. One suggestion towards this is to make a small portion of SLR maintenance, mandatorily invested in securities issued by Infrastructure Finance Companies.

In the upcoming 2021 Budget, we hope to see some welcoming changes/additions specifically towards the health and wellness sector, both from the point of view of an individual as well as organizations that are contributing towards it. Today the GST we are paying is as high as 18% but in the upcoming budget, we hope that this is corrected, given the increasing importance of wellness being a lifestyle as opposed to vanity metric.In the last 9-10 months alone, we’ve seen so many new ventures in the space of wellness and to boost these new ventures, a Tax Holiday by the Government could be a good move.With respect to companies specifically in the health and wellness space, the Government of India to introduce more incentives that encourage employers and employees to naturally gravitate towards making wellness mandatory at the workplace. This can be done through tax exemptions when an individual invests in his/her health or some sort of rebates for corporates who make conscious choices for the health & wellness of their employees.

To conclude, the pandemic witnessed many of the MSMEs demonstrating their grit by quickly pivoting to become self-reliant in the manufacturing of PPEs, sanitisers, medical devices/ kits, etc. This spirit of resilience keeps the MSME sector afloat even in the most challenging times. With a focused support package, the MSME sector can not only sustain itself but accelerate the recovery of the entire economy. We expect that the upcoming budget will take stringent actions to empower the MSME sector to revive the economy from the current slowdown. Apart from GST rationalization, we expect extension of credit facilities from the upcoming budget, since the Government should focus on infusing liquidity into the markets and promoting 'Make in India'.

Considering our size, population, and potential that India hold for good growth and building of economy, with this Union Budget 2021, we shall be the engine of global growth, and we will be a significant contributor to global economic revival. As Union Budget 2021 is likely to be one of the most important budgets of our times. Given the state of domestic and world economy, there is perhaps no area which does not need a shot in the arm at the moment, but we still hope that the MSMEs and startups in the manufacturing space find special attention from the Finance Minister