The budget this year has clearly focused on improving the ease and quality of life for all, with the underlying objective of achieving a consumption-led growth. The 16-point action plan and the ₹ ₹2.83 trillion outlay focused on agriculture and allied activities would bolster rural infrastructure, increase farmers’ produce realisation and drive rural consumption. In this growth agenda, there is no doubt that micro, small, and medium enterprises (MSMEs), too, will have a significant role to play in generating job opportunities. The government has acknowledged the role of entrepreneurs, startups, and MSMEs as the aspirational backbone and vital wheels of the Indian economy.
Simple compliance procedures and ease of working capital: Factoring in their importance, budget 2020-21 has proposed reforms to boost entrepreneurial confidence. The government has continued to simplify procedures, reduce the tax burden to ease working capital requirements for MSMEs and establish a single-window investment clearance cell for entrepreneurs. Moreover, the turnover threshold required for the audit of MSMEs has been raised to ₹5 crore from ₹1 crore to reduce the compliance burden.
Opportunity in e-logistics space: A National Logistics Policy is in the works, which would create a single-window e-logistics market and focus on generating employment, enhancing skills and making MSMEs competitive.
Additionally, the Government e-Marketplace (GeM), an online platform for public procurement, will now move towards creating a unified procurement system, thereby creating an opportunity for MSMEs to bid for contracts across the country.
Financing schemes: Amendments have been proposed to enable non-banking financial companies (NBFCs) to extend invoice financing to MSMEs. A portal will be set up to offer funding assistance to entrepreneurs. Furthermore, MSMEs will be provided subordinate debt from banks, treated as a quasi-equity, and fully guaranteed.
Taxation benefits and funding: The startup community will benefit from increasing the turnover limit for tax exemptions from ₹25 crore to ₹100 crore, and eligibility period from seven years to 10 years.
The deferment of tax on employee stock ownership plans (ESOPs) for five years, or until startup employees leave the company, would help the startup ecosystem retain and add talent, generating significant employment.
Also, early-life funding, including a seed fund, is proposed to encourage startups and build this culture in India. This could help reduce the current high rate of startup closures on a per-year basis.
Skill and knowledge: The government has also proposed cluster-based development in knowledge translation and emerging technology areas, along with an IP (intellectual property) protection digital platform. A new education policy is to be proposed, which will focus on job and life skills in education, apart from literacy.
Leveraging exports: MSMEs also contribute significantly to India’s export. The budget also aims to boost export through the newly-launched Niryat Rin Vikas Yojana, or NIRVIK scheme, for small exporters, which provides for higher insurance coverage, reduction in premium, and simplified procedure for claims settlements.
Another scheme to digitally refund to exporters, duties and taxes levied at the central, state and local levels, has also been proposed.
The budget announcements facilitate a supportive ecosystem for entrepreneurs, MSMEs and startups through a conducive policy climate, improved ease of doing business, better infrastructure and proliferation of digital technologies. The continued momentum on startups and MSMEs will help augment entrepreneurship and will thus also directly impact job creation.
The announcements and initiatives for increasing rural income, skill enhancement across sectors, MSMEs/startups growth, job creation and infrastructure development, should increase disposable income, thereby boosting consumption, as well as the economy.
(A version of this article appeared in Live Mint on 02 Feb 2020 )