Time for MSMEs to crank up as government does its part of the deal

After trials and tribulations, the government decided to support the old saw, MSMEs, to spur jobs and growth. 

Published: 11th January 2019 06:42 AM  |   Last Updated: 11th January 2019 06:42 AM   |  A+A-

By Express News Service

After trials and tribulations, the government decided to support the old saw, MSMEs, to spur jobs and growth. 

On Thursday, the GST Council doubled the tax exemption threshold to Rs 40 lakh from Rs 20 lakh and extended the composition scheme to traders with turnover of Rs 1.5 crore from Rs 1 crore earlier. The Council also allowed service providers with turnover of up to Rs 50 lakh to avail the scheme at 6 per cent. 
From tax exemptions to easing restructuring norms for MSME loans, federal authorities are breathing sighs of relief into small businesses strangled by totally unrelated events such as weak credit flow, demonetisation and GST. 

The focus on MSMEs ahead of elections may seem freshly urgent, but it isn’t. MSMEs have been in despair for a while, with banks favouring large borrowers following the high-growth periods starting 2011. As such, credit growth to MSMEs slackened, falling from 13.18 per cent in November 2013 to 5.84 per cent in September 2018. They account for just 14 per cent of the total bank credit now. Though access to credit picked up in 2015, note ban and GST rollout hit where it hurts the most. The recent liquidity crisis, the IL&FS fiasco that triggered an NBFC-default scare, further worsened the situation. 

Thursday’s move, just before policy-making gets into a do-nothing phase (read elections), gives a helping hand to both businesses and government. For one, MSMEs account for roughly 30 per cent of the GDP, but will continue to do so only if they thrive. Also, with roughly 633.88 lakh unincorporated non-agriculture units, the sector is one of the largest employers, employing over 11 crore. A slowdown will see a spike in the unemployment rate.

Historically, over 90 per cent of the corporate (direct) taxes are from large firms and Thursday’s tweaks in GST tax threshold, which is an indirect tax, will likely help small businesses retain more profits. Higher profits reckon higher direct tax revenue, if not this fiscal, but in the long-run. 
“The government is striving hard to ease the compliance burden of (small) businesses increasing threshold limits, extending due dates and simplifying the processes,” said Suresh Nandlal Rohira, partner, Grant Thornton India.

kerala can levy 1% calamity cess
The GST Council on Thursday allowed Kerala government to levy a one per cent calamity cess on intra-state sale of goods and services for a period of up to two years. Proceeds from the levy would be used to fund the cost of rehabilitation work in the state that was ravaged by floods last year

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