Budget 2014: What’s in store for the start-up ecosystem?

The Budget 2014 has been accommodative towards entrepreneurship, a crucial catalyst that has the potential to revitalize the Micro, Small and Medium Enterprise (MSME) sector. This is vital as small business constitute around 40 per cent of the Indian workforce yet contributing only 17 per cent to the GDP. Thus, while the budget has shown the new Government’s pro-active stance towards this ecosystem, the implementation of various schemes needs to be seen to monitor the efficacy of the programme.

Budget2014

Here are a few thoughts on the recent announcements:

The definition of MSME will be reviewed to provide for a higher capital ceiling.
As per the MSME Development Act of 2006, the scale of investment is the sole parameter to determine whether an enterprise is an MSME or not.

Where there is an investment of Rs 25 lakh or less in plant & machinery or Rs 10 lakh in equipment in the services sector, it is a micro enterprise. For small enterprises, the investment has to be upwards of Rs 25 lakh to Rs 5 crore in plant and machinery or in the range of Rs 10 lakh to Rs 2 crore in equipment. For medium enterprises, the investment needs to be in the Rs 5-10 crore range in plant & machinery or Rs 2-5 crore in equipment.

However, the Government still hasn’t spoken about a revision in the Act to allow for multi-parametric considerations in the classification.

Establishment of a Rs 10k crore catalyst fund, technology centre network from a fund corpus of Rs 200 crore, and a nationwide district level incubation and accelerator programme

India has a number of incubation centres that foster entrepreneurship already housed in academic institutions. In fact, the Government is a mandatory stakeholder in startup companies incubated under any of the existing Government programmes. However, most of these start-up companies and funds that exist, are heavily skewed towards technology. While the importance of building technology cannot be overlooked, it is equally important to develop other areas of entrepreneurship. Hopefully this humongous corpus will address the needs of non-technology start-up companies as well.

 Committee with representatives from the Finance Ministry, Ministry of MSME, and RBI to provide suggestions to reexamine the financial architecture for SMEs

The RBI has already been instrumental in setting up committees at the state level to analyze the MSME industry. For example, a state Level Inter-Institutional Committee was set up to identify issues in MSMEs before the financial centers could deem the SMEs unfeasible. A state-level banker’s committee was set up less than a decade ago. Would it not be good to first review the impact of the committees formed earlier?

Apprenticeship Act to be amended and shall encourage MSMEs to avail of benefits of this scheme

The existing Apprenticeship Act is a five-decade act that addresses the necessity to train manpower in a developing country such as India.  The Act per se appears narrow considering the eligibility is restricted to people from an engineering or a technical background or some specified vocational course.

What one can assume from the budget announcement is that the Apprentice Act could be amended to allocate certain human resources specifically to the MSME sector. Training however has been defined to include training in any industry or establishment. It would therefore be interesting to see what the Government has in mind with respect to this amendment.


Harini Subramani

Harini Subramani

Harini Subramani works with the corporate commercial team at J.Sagar Associates and has assisted in strategic and private equity acquisitions. She also helps startup companies and emerging entrepreneurs address legal concerns. Harini also co-authors a blog www.indialawforindiastartups.wordpress.com along with Aarthi Sivanandh, a partner at J. Sagar Associates. She tweets @harini188. Prior to joining the legal profession, she was a journalist and wrote for the Mint, and the Wall Street Journal, among others, on mergers and acquisitions.