Demonetization have had a great impact on the overall country especially to the SMEs which has been reeling under the pressure of the cash-free move as a result of which around 86 per cent of the currency has been weeded out from the market in the country. The Finance Minister of India, Mr. Arun Jaitley, presented the Union Budget 2017-18 which was aimed at the startups and the SMEs of India.
The Union Budget 2017-18 has presented several SOPs for the SME sector and for the startups in the country to help them grow and become viable. While presenting the Union Budget 2017-18 on Wednesday, the Finance Minister of India said that the corporate tax on the SMEs and the startups have been reduced from 30 per cent to 25 per cent. This provision would be applicable on those SMEs and startups that have an annual turnover of fewer than 50 crores INR. For the SMEs and startups which have a turnover greater than 2crores INR, Jaitley has announced that the presumptive tax will be lowered from 8 per cent to 6 per cent. This would lower the financial burden and would also boost the small merchants in developing the small-scale industries.
For the startups that have been shouting out loud for getting the tax incentives, the Union Budget 2017-18 has something in stock for them as well. The Finance Minister, Arun Jaitley has announced that the startups will have to pay the tax 3 out of 7 years which was previously 3 out of 5 years. This provision would be applicable only if the startups would make the desirable profits from their business.
The presentation of the Finance Minister is in the extension to what the Prime Minister, Mr. Narendra Modi presented on 31st December 2016. The Prime Minister had announced that there would be an increase in the credit guarantees for the SME sector from 1crore INR to 2crore INR. The informal SME sector that is based on cash constitutes over 91 percent of the total enterprises and therefore, serves as the largest provider of employment in the country. In addition to this, the SME sector is yet not ready to adapt the service tax on the goods and services (GST).
The 12th 5-year plan of the government has stated the investment of around 24,000 crores INR to promote the healthy growth of the SME sector and the startups. In addition to this, it is mandatory for the public sector banks to lend a particular portion of the accumulation of the total loan to the SMEs (Small and Medium Enterprises) for the growth and development of these sectors. As a result, the Reserve Bank of India has been urged to offer relaxation to the parameters of credit ratings to these industries and sectors. The flow of credit towards the MSME sector has been declining due to the increase of NPA (Non Performing Assets) in banks.
Many banks tend to shy away from providing the finances to the MSMEs due to the strict norms of reforms and the default rate which has been on a rise among the MSMEs. The Union Budget 2017-18 has, however, made no provisions to provide easy funding to the SMEs and the startups. Moreover, there are no measures for the banks as well about their concerns of loan defaults.