Budget 2011-12 â nothing much for SMEs

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Bikky Khosla | 01 Mar, 2011
Much was expected by small and medium enterprises (SMEs) from this year from the Union Budget 2011-12, but it was a let down, to say the least. Except for a couple of proposals, the Budget by and large didn't mention anything substantial for the sector. And despite the fact that the Finance minister Pranab Mukherjee allocated Rs 5,000 cr to Small Industries Development Bank of India (SIDBI), it was received with little cheer from the sector.

When we look at this budget for SMEs, one scary fact is the moving of the service tax from cash to accrual basis. Now what will happen is that liquidity will become an issue. SMEs have to pay service tax for the money that hasn't come to them. And then the second issue that will come up is that of bad debts; there can be bad debts in any business. How will SMEs take care of that? So this change of system which the FM is planning will be detrimental for SMEs.

Another thing which SMEs were expecting from this budget was interest rates on loans. The FM did look at the farming sector where he proposes loans for farmers at a cheaper rate. While the SME sector is the foremost employment-generating sector and helping in the growth of economy, the Finance Minister had nothing to offer to it in regard to availability of cheaper loans. We are all aware that SMEs are not getting funds and even when they are getting them, they are available at an interest rate of 16 percent or even higher.

Meanwhile, on the positive side, the Finance Minister has announced incentives for micro, small and medium enterprises (MSMEs) as an allotment to SIDBI for refinancing incremental lending by banks to these enterprises has been raised from Rs. 4000 crore to Rs. 5000 crore. It has also been proposed to provide Rs. 3000 crores to NABARD, which will benefit about 3 lakh handloom weavers.

While on the issue of rising input cost, the Finance Minster did touch upon the issue by trying to control inflation, but that was not going to happen immediately. With prices of every raw material and labor cost going up with inflation, the SMEs will not be able to pass on this extra cost to the customer. And with customers not ready to pay more, the SMEs will have to bear this cost.

Besides SMEs, if we look at export-import, there are few things which have been done, like, reducing some duties, which are probably going to help exporters. Another aspect which I found good for exports was getting refunds for service tax. It has been a big hassle for exporters, especially for the smaller ones and planning to simplify the process will be a big advantage for them.

The FM has proposed to ease the process of refund of accumulated credit to exporters of services by making necessary changes in the definition of export of services and procedures, which is also a good move.

Having said that, I was hoping that the Finance Ministry would grant interest subvention for the exports sector, particularly for the SME sector as the cost of credit has already gone up substantially with the adoption of base rate and interest rates are further looking northward.

All in all I would say there was scope for more for the SME sector which was not looked into in the Budget. Now tell us what you feel about the Budget. Did it meet your expectations? Where did the Finance Minister miss out?