Modi 3.0 Govt: Indian MSMEs Hope For Sector-friendly Reforms

Surprised by the results of general elections where Prime Minister Narendra Modi-led National Democratic Alliance secured a narrow majority, India's micro, small and medium enterprises (MEMEs) are eyeing major reforms for the industry as it continues to struggle with several issues such as delayed payments, debt among others. 

As the cash-strapped industry faces challenges, MSME sector players told BW Businessworld that they need major support from the new government in the new tenure. There is a need for the availability of capital without collateral at cost-effective rates and easing pressure on paying all regulatory commitments on time, experts noted.

"The primary expectation from the incoming government is to simplify the GST mechanism and portal. This will enable every enterprise, regardless of its size or sector (manufacturing, trading, or services), to utilise input tax credits and formalize their operations. Additionally, a comprehensive pruning of compliance requirements at both central and state levels is essential for MSMEs," said Vinod Kumar, President, India SME Forum and Trustee and President, First India

Currently, the MSME sector needs implementation of skill development programs and strong infrastructure amid the rise of technology which would lead to growth and competitiveness. Experts pitched for policies that encourage innovation and international market access would also be highly beneficial.

"Enhanced collaboration between public and private sectors, tailored financial products, and targeted subsidies for MSMEs could also significantly contribute to the sector’s resilience and growth. Prioritizing the creation of a favourable business environment and fostering a culture of entrepreneurship would ensure sustainable development for MSMEs," said Nilesh Choudhary, Founder, Aikyam Capital Advisors.

Arun Poojari, Chief Executive Officer (CEO) and Co-founder, Cashinvoice expects the government to start initiatives to help them bridge this gap with modern financing models. These initiatives should include streamlined access to credit, leveraging fintech solutions, and fostering partnerships between banks and alternative lenders.

"Additionally, we urge the government to provide robust support through technological innovation, facilitating digital transformation, and improving financial literacy among MSME owners. Furthermore, we look forward to policies that simplify regulatory compliance, reduce bureaucratic hurdles, and offer tax incentives to encourage entrepreneurship and investment in the MSME sector," Poojari added.

Small Businesses, Big Challenges

Recently, while speaking in a virtual session hosted by Digital India Foundation, a policy think-tank, experts stated that the draft Digital Competition Bill (DCB), with its focus on curtailing the data and bundling practices of Systemically Significant Digital Enterprises (SSDEs), threatens to disrupt this symbiotic relationship between MSMEs and large digital platforms. The experts have said that the bill to counter the Google Play store can backfire for startups.

On the centre's controversial 45-day payment rule, industry stakeholders have said that even non-MSME buyers may struggle to comply with the regulation as they would need to secure additional capital to meet the payment deadlines.  

The latest provision in the Income-Tax Act in Budget 2023-24 by the Centre to secure payments to MSMEs within 45 days of the supply of goods or services has led to big corporations cancelling orders to registered MSMEs and placing these with unregistered MSMEs. However, according to the media report, the centre may modify the rules to ease concerns raised by the small businesses.  

"On capital availability, post demonetisation and then GST implementation, funds availability has become a major challenge, this was not so in the past decades. People in the informal lending space who used to easily give hand loans are now not very forthcoming. Mushrooming of so many NBFCs and other schemes from various banks seems to provide an alternative source, but if you see the rates being charged, they are leading companies into a debt trap and will lead to the shutdown of many small players who are unable to cope up with the repayment," said Amit Prasad, Founder and Chief Executive Officer (CEO), SatNav Technologies.

Notably, there are government-guaranteed schemes which claim that without collateral loans upto 1 crore are possible. However, Prasad added, "When we try to avail it, we are given the same old constraints of turnover, profitability etc. If we had the turnover and profitability, why would we need that loan? 

Hence, the government must come up with more schemes that allow small businesses to borrow and fund working capital. "At the same time also build a forum where we can register our grievances when a particular scheme of the government is not being given to us," Prasad mentioned.

Timely payments are a major challenge for MSMEs. The government should enforce timely payment measures and penalties for delays. Additionally, amendments to CGST Rules are needed to accept digital copies of invoices and e-way bills for compliance, including recognizing digital copies on handheld devices.

"Timely access to credit is crucial. The government should increase credit targets and ensure the timely availability of working capital for MSMEs, artisans, and craftsmen. Moreover, a focused effort on tripling MSME exports is vital. To promote innovation within MSMEs, the government should issue clear instructions to ground-level tax officers regarding new-age business models. This includes recognizing co-working and shared spaces, electronic records, and authorised representatives in PPOBs," added Kumar.

Notably, MSMEs operating through ecommerce platforms are often denied input tax credits due to non-traditional business setups, lack of demarcated stock at warehouses, and no actual movement of goods. The government should accept any valid business premise, including small spaces with minimal manpower, as long as GST regulations are met. Co-working spaces should also be recognized as valid business premises.

Kumar mentioned, "Sellers face suspension or cancellation of GSTIN due to their presence in co-working or virtual office spaces. The government should ensure there is no minimum manpower requirement at PPoB and allow time to furnish records if representatives are unavailable during visits. Overall business operations, including APOB/warehouse locations, should be considered to verify a company's existence."