MSME body welcomes Budget proposals, selectively

Union Budget 2013-14 has evoked mixed reactions from the micro, small and medium enterprises (MSME) sector. The Federation of Indian Small, Micro and Medium Enterprises (FISME) said it was disappointed that the proposed investment allowance at the rate of 15 per cent for manufacturing companies that invest in plant and machinery during the period April 1, 2013 to March 31, 2015 is restricted to large companies.

For a company to avail of the benefit, the investment has to be more than Rs 100 crore. Why are MSMEs excluded when the finance minister was so eloquent about their contribution to job creation and industrial production, it asked.

It said allowing continuance of non-tax benefits to MSMEs for three more years after they cross the MSME threshold addresses the concerns of multi-brand retailers. They had expressed concern that fulfiling the 30 per cent sourcing target from MSMEs was untenable, as most MSME suppliers would cease to be MSMEs once they are equipped with the needed plant and machinery. In that case, sourcing from them would not be counted under the 30 per cent sourcing clause.

Commenting on this proposal, M Rafeeque Ahmed, president, Federation of Indian Export Organisations (FIEO), said it was a “very thoughtful” move, since some enterprises were not investing and expanding, fearing that they would lose the benefits associated with staying small or medium. This decision will now encourage them to invest, he said.

FISME welcomed the proposal for establishing a Rs 500 crore fund to set up a credit guarantee facility for factoring. In spite of the Factoring Bill having been passed, factoring has not been picking up in India, it said. The fund can act as insurance for factoring companies against defaults on the factored amount. It will encourage factoring services among MSMEs, it added.

Permitting SMEs and start-ups to list on the SME exchange without an initial public offering is meant to be a step to remove a hurdle that has prevented SME exchanges from taking off. However, FISME said this hardly addressed the root cause of the failure of the SME exchanges so far, which is lack of investor interest in issues of MSMEs and the shying away of merchant bankers from underwriting issues.

During the past year the number of listings on SME exchanges has not reached the double-digit mark. The way ahead for the concept to succeed, it said, is creation of a large fund to support merchant bankers for market making and asking financial institutions – including banks – to invest in SME issues.

While welcoming the finance minister’s announcement, V Nagappan, a leading stock broker from Chennai, said it would help SMEs to raise money at a reasonable cost, will offer immediate entry and exit to shareholders, and will draw in more investors.

Welcoming the idea of allowing payment by corporates to technology incubators towards their corporate social responsibility obligation, FISME said this needed to be extended to cover similar payments to genuine non-governmental organisations working in the field of entrepreneurship and development of MSMEs. It has also welcomed support for the setting up of tool rooms.