GST e-invoicing, quality control norms impacting MSMEs and other top picks of the week
MSMEs comprise a significant sector of the Indian economy as it contributes to 30% of the GDP. This week, the government made crucial announcements for the sector and here’s how MSMEs have responded.
The micro, small and medium enterprises (MSME) sector holds significant importance in the Indian economy, contributing 30% to the country's GDP.
This week, the central government made various announcements including mandating e-invoicing for businesses with a turnover of Rs 5 crore and above, and also enforcing quality standards for the footwear manufacturing industry which have raised concerns among MSMEs.
Mandating GST e-invoicing for biz of Rs 5 Cr turnover
Starting from August 1, 2023, businesses in India with an aggregate turnover of Rs 5 crore or above are obligated, under Goods and Services Tax (GST) rules, to adopt e-invoicing. This directive, declared by the Central Board of Indirect Taxes and Customs, mandates the generation of e-invoices for B2B supply, including exports, in the previous fiscal year.
The motive behind this decision is to amplify GST collections, enhance compliance, and address tax authorities' concerns. The process involves businesses uploading B2B and export invoices onto the Invoice Registration Portal (IRP), which then assigns a unique Invoice Reference Number for matching on the GST portal.
The threshold, previously set at Rs 10 crore, has been lowered to include more businesses.
This step significantly combats fraudulent input tax credit claims, particularly by exporters. However, despite advantages like real-time validation, MSMEs feel that e-invoicing will pose challenges such as initial setup expenses, cyber threats, and API implementation costs, balanced by efficiency gains.
Quality control norms for footwear industry
The Department for Promotion of Industry and Internal Trade (DPIIT) recently introduced mandatory quality standards for footwear manufacturers and importers. The new Quality Control Orders, while intended to establish uniformity in product quality within each category, have been criticised by industry insiders. They argue that these standards overlook the differing price ranges at which manufacturers operate.
This move to enforce quality norms in the footwear sector primarily seeks to bring structure to an industry that has been largely disorganized. Furthermore, it aims to reduce dependence on imports and prevent the entry of sub-par products from China.
The Quality Control Orders will encompass 24 categories of footwear, ranging from rubber gum boots and sports shoes to moulded plastic footwear and Hawaii chappals. These products will now require Bureau of Indian Standards (BIS) certification, along with the mandatory ISI mark, for both selling and importing.
However, concerns have arisen, particularly from MSMEs, who worry about the potential negative impact on manufacturers operating in lower price brackets. They advocate for a more comprehensive and balanced approach that takes into account consumer preferences, pricing dynamics, and affordability considerations.
Other picks of the week
MSMEs complicated relationships with fintechs
Fintech startups have revolutionised lending with innovative cash flow and GST-based approaches, enabling easier access to loans with minimal paperwork. But this convenience is countered by steep interest rates and aggressive collection methods, sometimes tragically linked to suicides.
India's 63 million MSMEs contribute 30% to GDP, yet only 14% access credit. Avendus Capital's study estimates a $530 billion MSME credit gap post-COVID-19. With 7,400+ startups, India's fintech sector is predicted to reach $150 billion by 2025, per Invest India.
Unlike banks, fintechs prioritise cash flow over balance sheets for loans, aiding MSMEs. Yet, interest rates can surpass 36%, challenging businesses. Fintechs justify this due to risk-based pricing to manage loan risks. So, the question arises: Are these easy loans or debt traps for MSMEs?
Edited by Kanishk Singh