The 2% interest subvention for fresh and incremental loans for all GST registered medium, small and micro enterprises (MSMEs) is likely to provide a boost the government’s Make in India initiative by increasing the scope of credit availability. As per industry estimates, the current gap between the demand and credit supply within the Indian MSME sector is about $230 billion.
Providing a further fillip, a payment platform for MSMEs would also be created for filing of bills and payments. The platform would be separate from the recently introduced online portal where MSMEs can get an in-principle approval for loans up to `1 crore in 59 minutes from public sector banks.
Welcoming the move, Sampad Swain, CEO, Instamojo, said ‘the decision will translate into the stability and growth of the sector, with the sustenance of existing business and birth of new ones’.
The MSME ministry, led by Nitin Gadkari, plans to spend `7,011.3 crore in FY20, about 7% higher than the expenditure in FY19. Out of this, `6,957.8 will be spent on various central sector schemes. One of the major schemes under the MSME ministry is the prime minister’s employment generation programme, which envisages to set-up 73,241 projects, potentially benefiting 5.80 lakh people.
However, the outlays for the credit-linked capital subsidy scheme and the credit support programme under the ministry have been slashed by 30.4% and 16.5% (annually) to `706 crore and `597 crore, respectively.
The decisions, nevertheless, runs the risk of falling into the trap of ‘fostering dwarfs’, about which the Economic Survey had cautioned just a day before the Budget announcements. The survey had pointed out that current policies foster dwarfs — firms that hire fewer than 100 people — that are many in number but generate relatively much less employment and create little value addition. Small firms find it hard to sustain jobs they create whereas the bigger ones create permanent employment in good numbers.
Consequently, incentives that help small firms are altogether misdirected. The way forward, the survey suggested, is to phase out all size-based sops. In the previous Budget, coporate tax for MSMEs with a turnover of up to `250 crore was reduced to 25%.
Welcoming the move on MSMEs, Dr Rahul Walawalkar, President, India Energy Storage Alliance, said, “Focus should also be in removing bureaucratic hurdles that can help entrepreneurs to focus on bringing innovative solutions to market.” MSMEs, start-ups and other manufacturing avenues are part of the NDA’s ten-point vision which, they hope, would help make India a $5 trillion economy in the next few years.
Source- Financial Express