10 Things That MSMEs Need In This Budget

The Federation of Indian Micro and Small & Medium Enterprises (FISME) had submitted a proposal for consideration for Union Budget 2017-18.

In order to bring about meaningful economic and industrial growth, various industry representatives have given suggestions to FM Jaitley to boost the MSME sector, which is the backbone of the Indian economy.

Let have a look at 10 immediately rectifiable issues and measures highlighted by industry body FISME:

1. Leveraging Import duties to support ‘Make in India’

Suggestion: Rates of Custom Duties on various stages of production - from raw material to finished products may be finely differentiated allowing small breathing space to each of the value adder. A study could be commissioned to identify potential sectors and slabs to encourage such. Value addition activities.

2. Access to Finance for the MSME manufacturing sector

MSME finance is treated by the banks and often by the Government as a homogenous issue. However, within the sector the challenges in finance for the MSME manufacturing sector are way different from other sub sectors like services or trade. In their operational flow MSME manufacturers need different kind of finance; viz., finance of difference duration for procurement of local, seasonal and imported raw materials and inputs, to provide security deposits and bank guarantee to buyers and finally provide forced or unforced suppliers’ credit to the buyers. The risk profile as well as cycle time for each of the above type of finance is quite different, however the Banks treat them within a single bucket of ‘working capital’ creating prohibitive cost of funds to the MSME manufacturers. If Government is really interested in promoting ‘Make in India’ in MSME sector, the access to finance for the MSME manufacturers need to be dealt separately.

Suggestion: For promotion of MSME manufacturing sector Government should encourage Banks and RBI to develop different financial products for the MSME manufacturing sector, viz., insurance products towards Bank Guarantees, discounting platform for secured receivables etc.

3. Operationalizing RBI TReDS platform for sale-purchase of MSME bills

To provide succour to fund starved MSMEs, setting up of an online platform for discounting of their supply bills as suggested by Kamath Committee may be expedited. To make it purposeful, it is necessary that the invoices are uploaded mandatorily and status of deemed acceptance is granted to them to convert them into negotiable financial instruments. This will not only provide much needed liquidity to MSMEs but will also usher in financial discipline in corporate and PSUs which is equally important for the country’s financial system.

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