Union Budget 2017 has not been able to address the problems faced by MSMEs, which are struggling to cope with the post-demonetisation drop in demand and unavailability of working capital to resolve their cash flow issues.
SMEs form the backbone of India, contributing to about 8 percent of the GDP, 45 percent of the total manufacturing output, and employing close to 40 percent of the country’s workforce. In spite of this, they have been riddled with a number of critical issues such as inadequate infrastructure, lack of access to financing options, unavailability of skilled resources, and risk perception. India is ranked 130th out of 190 countries in the ease of doing business index released by the World Bank.
Furthermore, things have never been so difficult for SMEs — they are suffering from the double whammy of a cash crunch and demand squeeze in the wake of demonetisation. Financial institutions have become even more reluctant to extend credit to these businesses. The demonetisation drive witnessed a 35 percent layoff with a revenue dip of 50 percent in the month after November 8, 2016.
However, the PM’s speech on December 31, 2016, did mention some positives:
Actually, if you look at the CGTMSE scheme carefully, it has given guarantees many times but its available corpus and claim settlement are plagued by inordinate delays, so increasing the limit would hardly make things better for small businesses. Even enhancement of the maximum cash credit limit is of little use as SMEs are the least preferred lot for financial institutions. Therefore, benefits announced by the government appear to be superficial.
Now, let’s look at what has been done for the SMEs in the current Budget:
The year 2016 will be remembered as the year of boldness and unprecedented moves like demonetisation and passage of the GST Bill by the Central government. These two events alone will transmogrify the SME landscape in India and will displace the cash-heavy economy to a more digital-savvy and compliant one.
To summarise, we laud the efforts of the government for moving from a blanket entitlement towards targeted delivery and rigorously supporting the digital revolution in this mammoth democracy famous for its on-ground heterogeneity.
However, there are some expectations that have not been met:
With such a heavy stake in the country’s GDP, no substantial growth in the economy is possible unless the SME sector is strong.