Budget 2013: MSME sector to benefit

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Bikky Khosla | 05 Mar, 2013
Last week, the 82nd national budget was presented in the Lok Sabha, and to the surprise of none, the postmortem is still going on. I think overall this Budget, in its attempt to balance politics and compulsions of growth, turns out to make some economic sense. Unlike a typical election year Budget, there are no big, eye-catching freebies - this itself is a refreshingly bold step; but neither the Budget, despite its talks about fiscal consolidation and national deficit control, can be termed as purely an economic reformer's budget due to its lack of direction here and there. However, overall, I see some positive developments in this Budget.

And as far as the interest of the micro, small and medium enterprise (MSME) sector is concerned, the Budget 2013 certainly brings some hope.

First of all, I think the proposal to make non-tax benefits available to the MSME units for three years after they graduate to a higher category is in line with the findings of the Economic Survey, which points out to strong concentration of micro (94.9%) and small enterprises (4.9%) and near non-existence of medium enterprises (0.2%) within the MSME sector. Majority of MSMEs find it unattractive to grow large in the fear of losing the concessions allotted only to the sector they belong to. Considering this, the Budget proposal seems quite practical.

In addition, the decision to ease SME exchange listing norms by permitting start-up companies to list on the exchange without going through the elaborate process of making an initial IPO would help facilitate investments for innovative and young start-ups. Similarly, the proposal to allow tax exemption to angel investments is a step in the right direction as angel investing is critical to the MSME sector, but here, however, I think the Budget is not clear enough on the norms.

In another decision and which again seems a well-thought out one, the Finance Minister announced that funds provided by corporates to academic incubators will come under CSR. This move will encourage investment in innovation.

Among other proposals, allotting SIDBI a corpus of Rs.500 crore to set up a credit guarantee fund for factoring and raising the refinancing capacity of the bank to Rs.10,000 crore sound good, but here I think releasing funds alone is not enough. The Economic Survey mentions that the country's large banks have bureaucratic procedures for loan approvals and SMEs suffer due to this. This issue is not something new, and recently FIEO has also raised the demand to bring the export loan disbursal by banks under scanner of independent audits. I agree with them - we urgently need a mechanism to deal with this challenge.

However, in terms of exports, I think the Budget 2013 puts a dampener on our expectations. Considering recent fall in overseas shipments and dull prospects ahead due to demand slump in global markets, I was expecting some strong support measures, but unfortunately there are not many apart from the benefits given to the textile sector. Exporters' hopes now hinge on the Finance Minister's promise that the FTP to be announced next month would address their concerns.

I invite your feedback on Budget 2013 and how you think it could affect your small business.