A slew of recent measures, including tax concessions in the budget, for micro, small and medium enterprises (MSMEs) has been taken with an aim to transform such enterprises worth Rs 63.3 million into a growth engine for 'new India', a senior government official has said.
These initiatives will bring down the tax burden on enterprises with an annual turnover of up to Rs 2.5 billion and also lower the interest burden, leaving more surplus for investment and growth of the MSME sector which is the backbone of the country's economy in terms of output, exports and employment generation.
The RBI on its part too announced various measures for MSMEs hit by the implementation of Goods and Services Tax (GST) by giving them additional up to 180 days to clear their dues to banks.
Multiple initiatives are trying to address various issues inhibiting the growth of the sector, which is the largest job creator, he said.
First and foremost, the recapitalisation of the banks to enable them to enhance their lending capacity by Rs 5 trillion, a substantial chunk of this would go towards the MSME sector.
Besides, Finance Minister Arun Jaitley in his Budget speech lowered the corporate tax rate to 25 per cent from 30 per cent for companies with a turnover of up to Rs 2.5 billion, benefiting the entire MSME sector, he said.
As part of alignment with the new taxation regime, the Union Cabinet last week also approved the change in criteria for classifying MSMEs from 'Investment in Plant & Machinery' to annual turnover.
As per the new classification, enterprises having annual turnover of less than or equal to Rs 50 million fall under the 'micro' category.
Units having turnover between Rs 50 million to Rs 750 million will be classified as small enterprises, whereas those having turnover between Rs 750 million and Rs 2.5 billion will be classified as enterprises.
The move will encourage ease of doing business, make the norms of classification growth- oriented and align classification norms to the new tax regime revolving around GST, an official statement after the Cabinet meet said.
Providing major relief to the MSME sector, the RBI last week also said that the formalisation of business through registration under Goods and Services Tax (GST) adversely impacted cash flows of the smaller entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and non-banking financial companies (NBFCs).
The central bank also removed credit caps on MSME in services sector under priority sector.
"In the light of feedback received from various stakeholders and in line with the increasing importance of services sector in our economy, it has been decided to remove the currently applicable loan limits of Rs 50 million and Rs 100 million per borrower to MSME (Services) respectively, for classification under priority sector," it said.
In order to achieve level-playing field in the priority sector lending guidelines for banks, the RBI said, "It was stipulated in April, 2015 that post 2018 (i.e., after three years from the issuance of guidelines), the sub-targets for lending to small and marginal farmers and micro enterprises shall be made applicable for foreign banks with 20 branches and above.