After an eventful month, the newly elected UPA government will come out with the Union Budget on July 6. And this time the Finance Ministry has a handful of issues to dwell upon - be it recession, fiscal deficit, probable deflation, or delay in monsoons.

Amidst these, the Finance Minister has to focus on a battered industry sector which is crying for support and stands to lose the most if the Budget does not bring any relief – the Micro, Small and Medium Enterprises (MSME) sector.

I believe the government should continue with the technology upgradation and modernization schemes for the MSMEs including the Credit Linked Capital Subsidy Scheme (CLCSS).

The focus now should be on skill development to enhance productivity and there should be a hike in allocation for the National Skill Development Corporation (NSDC).

The Goods and Services Tax (GST) should be implemented from April 1,  2010 as scheduled. Since GST will include Central excise, Service tax, VAT and CST, there is urgent need to issue a CST phase out notification to ensure the smooth introduction of GST.

SMEs should also be exempted from Fringe Benefit Tax (FBT). Since the expenses related to marketing and sales promotion do not benefit the employees directly, the tax levied is actually hindering SMEs from exploring new and untapped markets.

Since the credit growth is far below the expectations of RBI projections, rate cuts can yield better credit off-take and will thus ensure that the targeted GDP growth is achieved. Above that a reduction of PLR will reduce the cost of credit for the MSME sector.

Additionally, the Budget should look at encouraging an alternate means of financing for the sector. The talk of a much-needed SME Exchange has been doing the rounds and now needs to be transformed into reality. Moreover, the government should come out with specific norms for Foreign Direct Investments (FDI) in the SME sector wherein NRIs can invest.

Meanwhile an interesting study - the National Council of Applied Economic Research-Friedrich Naumann Stiftung (NCAER-FNST) study - has revealed that of the 7449 items produced by SSI units, only 842 items were reserved for the sector. Which means a huge part of the units are not protected by having their products reserved for exclusive manufacture by the small-scale sector.

However, the interesting revelation that the study brought out is that the performance of those units producing unreserved products was better than those manufacturing reserved products.

I think instead of products being reserved for the SSI sector, the government should let the market dynamics decide what the smaller enterprises should manufacture.

There is scope for our Finance Minister to help the MSME sector. July 6 will reveal all.