Incentive for MSME from Current Budget

When the budget for the year 2013-14 was presented by our Union Finance Minister P Chidambaram, many firms/industries (includes large and small enterprise) were trying to relate the whole budget analysis with their respective business by anticipating some benefits out of it. In one hand as we see, heavy industries are getting many more incentives to boost the sector, on the other, Micro, Small, and Medium Enterprises (MSME), which have a large share of jobs, production and exports, seek to get more incentive to sustain and grow further from each budget. To encourage MSME to grow in future, the current budget has proposed the following incentives:

First, non-tax benefits may be made available to a MSME unit for three years after it graduates to a higher category. Such step would not be an obstacle for those who find it unattractive to grow large in the fear of losing the concessions allotted only to the sector they belong to. Considering this, the Budget proposal seems quite practical.

Second, to provide greater support to MSMEs, it proposed to enhance the refinancing capability of SIDBI from the current level of `5,000 crore to `10,000 crore per year.

Third, to avoid the bureaucratic procedures for loan approvals from bank, Federation of Indian Export Organisation (FIEO) has raised the demand to bring the export loan disbursal by banks under scanner of independent audits. FM agreed with the problems that suffered by SMEs and assured that we need a mechanism to deal with this challenge.

Fourth, FM proposes to provide a sum of Rs. 2,2000 core to tool Rooms and Technology Development Centres set up by MSMEs for setting up 15 additional Centres  during the 12^th plan period. This move will further help in extending technology and design support to small businesses.

Fifth, to encourage investment in innovation, companies will have to spend 2 per cent of average net profits under Corporate Social Responsibility. The Ministry of Corporate Affairs will notify that funds provided to technology incubators located within academic institutions and approved by the Ministry of Science and Technology or Ministry of MSME will qualify as CSR expenditure. Funds provided by corporates to academic incubators will come under CSR.

Sixth, to enhance availability of equity to MSME sector, FM proposes to set up   Rs.5,000 crore India Opportunities Venture Fund with SIDBI. 

Seventh, SMEs, including start-up companies, will be permitted to list on the SME exchange without being required to make an initial public offer (IPO), but the issue will be restricted to informed investors. This will be in addition to the existing SME platform in which listing can be done through an IPO and with wider investor participation. The decision to ease SME exchange listing norms by permitting start-up companies to list on the exchange without going through the elaborate process of making an initial IPO would help facilitate investments for innovative and young start-ups.          

Those above incentives will surely boost the existing enterprises to grow further and also welcome the new enterprises to start a business. With this support, recently RBI has slashed the repo rate (the rate at which it gives short term loans to banks) by a 25 basis point which means these commercial banks should charge lower interest rates on your new loan application. These steps are expected to boost investment that will encourage the new firm to start business. 

Compiled by:

Dr. Deepak Kumar Behera

Assistant Faculty

Entrepreneurship Development Institute (EDI) of India

(Source: Union Budget 2013-14)