Missing in Interim Budget 2019: A Plan to Help India’s Small Businesses

While the Centre rolled out a 12-point action plan to help MSMEs last November, it's unclear if it will ease distress before the elections.

India’s medium, small and micro enterprises (MSMEs) don’t even receive a mention in the recently unveiled interim budget, although they create most of the non-agricultural jobs in the country.

We know that the leaked NSS periodic labour force survey for 2017-18 has already revealed that open unemployment is at its highest rate ever in 45 years of such surveys.

And yet, all that the budget announces is a repeat of what had already been announced in November 2018.

In the last few years, MSMEs have had a raw deal. First they had to suffer through demonetisation, which destroyed markets, their suppliers, their workers and hence their profits. Then, when they were just recovering, a hurriedly implemented Goods and Services tax (GST) forced them to jump through hoops of fire.

A survey conducted by the All India Manufacturers Association, over October-December 2018, found that MSMEs had lost jobs massively over the last four years. Basically, it means  in 2014-15 if we assume that traders had 100 employees then by 2018–19 they were down to 57 workers in four-and-a-half years; from 100 to 68 among micro enterprises; from 100 to 65 in small enterprises and from 100 to 76 in the medium segment.

Also Read: The Borrowings Behind Narendra Modi’s Interim and Election Budget

That is how severely they were impacted by demonetisation and the GST. Not surprising the Laghu Udyog Bharati was crying out for measures to relieve the pain of MSME.

With elections just about seven months away, Prime Minister Narendra Modi on November 2 launched the ‘MSME Support and Outreach Program’ and announced 12 big decisions to support small businesses in the country. These include:

  1. The GST-registered MSMEs will be sanctioned a loan of Rs 1 crore in just 59 minutes through a new portal.
  2. The GST-registered MSMEs will get 2% subvention or rebate on incremental new loans of up to Rs 1 crore. Interest subvention on pre- and post-shipment credit for exports by MSMEs has also been increased from 3% to 5%.
  3. It is now mandatory for companies with a turnover of more than Rs 500 crore to join Trade Receivables e-Discounting System (TReDS) so that MSMEs do not face trouble in cash flow, PM Modi said.
  4. Public sector companies, which were mandated to source 20% of their annual procurement from MSMEs, will now source at least a quarter of their requirement (25%) from the sector.
  5. Out of the 25% procurement mandated from MSMEs, 3% must now be reserved for women entrepreneurs.
  6. All central public sector enterprises will have to take membership of the Government e-Marketplace (GeM) to facilitate online procurement of common use goods and services by various government departments and organisations.
  7. The government announced a Rs 6,000 crore package to facilitate better technological support and tools to small industries. The money will be used for 20 hubs and 100 tool rooms for upgrading technology.
  8. The government will form MSME pharma clusters. 70% cost of establishing these clusters will be borne by the government.
  9. MSMEs will have to file just one annual return on eight labour laws and ten central rules.
  10. Inspections of factories in the MSME sector will be sanctioned only through a computerised random allotment and inspectors will have to upload reports on the portal within 48 hours.
  11.  MSMEs will now need single air and water clearance and just one consent to establish a factory.
  12. An ordinance has been promulgated to simplify the levy of penalties for minor offences under the Companies Act.

However, in the budget, there is really nothing specific to the MSMEs. It is also much too early to aver if any of the 12 actions in November 2018 have had any effect.

One can say that the 2% interest-rate subvention to the MSMEs that are GST-registered is a good move, since it encourages formalisation of erstwhile informal enterprises and must be lauded. On the other hand, anecdotal evidence is indicating that the 59-minute loan upto Rs 1 crore is being used by banks to simply ask existing borrowers to repay a loan they may have taken, then issue another new loan and call it a ’59 minute’ loan.

Given the state of non-performing assets of assets, and the pressure on them to offer non-collateralised MUDRA loans, it is not surprising that the banks will take some defensive action.

Santosh Mehrotra is professor of economics, Centre for Labour, Jawaharlal Nehru University.