Budget Blues of MSME Segment!

It was a sunshine day for green or environment-friendly vehicle makers on Union budget day. For long, they have been yearning for this day to come.

Showing thumbs up to green vehicles, the FM has proposed to reduce excise duty from 10 per cent to 5 per cent on kits for the conversion of fossil fuel vehicles into hybrid vehicles; a concessional excise duty of 5 per cent to incentivize the production of critical parts and a concessional excise duty of 10 per cent for vehicles based on fuel cell or hydrogen cell technology. The government seems to realize the unavailability of oil in future and, therefore, is encouraging small and medium electric vehicle manufacturers to manufacture in huge numbers. It would not be wrong to guess that most manufacturers would have started talking to foreign majors based out of China and Taiwan for importing critical components or forming technical collaboration for such vehicles. Much action could be seen in the form of mergers and acquisitions by these small players, either buying out small firms or selling equity with foreseeing opportunities ahead in domestic market.

However, Budget missed most of the recommendation of the MSME task force submitted recently to Government. India’s large number of 26 million Micro, Small and medium units that contributes nearly 8 per cent of GDP, 45 per cent of the manufactured output and 40 per cent of exports, had to remain partially dissatisfied with the budget.

Undoubtedly, the Agra sector got a boost up from the government. Giving a fillip to cold storage facilities, the government has sanctioned 24 new projects with a capacity of 1.4 lake tones and initiated to create new storage capacity of 150 lake tones through private entrepreneurs guarantee scheme. As much as 15 new mega food parks are initiated to total it up to 45. However not much interest is being generated till date in the food park among the industry players. Addition of more mega food parks success looks very marginal unless more favorable policies are being rolled out.

The micro finance institutions have emerged out as grant successor. Forming an equity fund of Rs 100 core with SIDBI, the government has indicated a further relief formidable sector.

But it wasn’t a good budget for small and medium IT firms. Certainly not! The government hasn’t extended the tax benefits under software Technology Parks of India (STPI) for one more year. And even if such small firms, who operate on 10-12 per cent margins, plan to move out to SEZ then they will have to pay Minimum Alternate Tax of 18.5 per cent ahead.

Inclusion of excise on 130 items mostly related to consumer goods will help the government to widen the base for taxable category and expanded rollout of GST next year.

The other big move in terms of mobilization of investible funds for Indian capital market is the direct investment by the FII and Non-resident investors in Indian Mutual Funds. The expanding of FII limit for Corporate Debt will benefit the large industries that are otherwise able to access the overseas funds.

The budget might not have satisfied all in a significant manner, but it has also brought in a series of leads that could bring in new investments to the country. At the time, when the foreign investors have been eyeing at entering in new or green sectors in India, the FM has proportionately blown out to welcome these gamut’s of investors to stay long in India’s growth story.