CRISIL SME TRACKER: Budget 2018's focus on MSMEs to spur job creation

The government has in Budget 2018-19 rightly focused on micro, small and medium enterprises (MSMEs) as the preferred route for rapid job creation and self-employment. The MSME sector employs over 111 million people and contributes nearly 31 per cent of India’s GDP.

Sharpening the focus on the promotion of self-employment, the government has increased funding for the Prime Minister’s Employment Generation Programme to Rs 18.01 billion in the financial year 2018-19, from Rs 11.95 billion (revised) in fiscal 2017-18.

Similarly, the target for the flagship Pradhan Mantri Mudra Yojana — which extends loans of up to Rs 1 million to micro-entrepreneurs — has been increased to Rs 3 trillion from Rs 2.44 trillion.

In the formal sector, the government proposes to contribute 12 per cent of the wages of new employees in the Employee Provident Fund across sectors for three years. Further, to increase the investible surplus in the hands of MSMEs in the formal sector, the reduced corporate tax slab of 25 per cent has been extended to companies with a turnover of up to Rs 2.5 billion, from Rs 500 million announced in last year’s Budget.

T Raj Sekhar, Director-SME Ratings, CRISIL Limited says, “The government has announced a lot of tax-friendly measures and hiked customs duties on various products where MSMEs have a strong presence. These will directly benefit labour-intensive industries such as food processing, footwear and leather goods and textiles.”

There are signs of economic revival, given strong global growth, and an easing in the domestic headwinds from demonetisation and implementation of GST.

CRISIL, therefore, expects the MSME-specific Budget proposals to help in immediate improvement in job creation and self-employment in the near term. The increased budgetary outlays for the National Manufacturing Competitiveness Programme, entrepreneurship and skill development, and infrastructure development, if sustained over a period of time, will help address the structural constraints to employment creation in the long term, too.