Reviving the MSME Sector

Dr Ranjeet Mehta lists some of the steps to boost the MSME sector which contributes 25% to the GDP.

Micro, small and medium enterprises are impacted more by the current lockdown on account of Covid-19 pandemic as the sector accounts for over 45 per cent of the country's total outbound shipments. The sector also contributes about 25 per cent to the country's GDP (Gross Domestic Product) from service activities and over 33 per cent to the manufacturing output of India.               

The epidemic Covid-19 continues to expand more than 175 countries and is taking toll on global and domestic activities and economy. The number of infected cases is escalating each day with the first few cases being reported in China (in December 2019) now been recorded in almost every nation on the globe. The severe spread of virus has halted domestic and trade activities across various economies which have disrupted routine activities of multiple nations bringing the countries to halt thus distorting their economic growth. Several countries across the world have been announcing travel restrictions, partial or complete lockdown to contain the spread of virus and to avoid the situation of crisis.           

The Indian economy is also getting hit hard by Covid-19. The first case in India was reported on 30 January 2020. Post this, the number of cases have been on a surge with every state in the country facing the threat of virus. Subsequently, various transport facilities including trains and flights were suspended and several state governments started imposing lockdown across their territories third week of March onwards till 31 March 2020. Also, nation-wide lockdown of 21 days was announced 25 March 2020 and  then further extended till 3rd May 2020.              

Sectors like auto & auto ancillary, aviation, drugs & pharma, education, FMCG, hotels & tourism, ediMa & entertainment, metals, NBFCs / HFCs, oil & gas, paper & paper products and  textiles are affected very badly. With the already existing slowdown during FY20, the industry is likely to suffer huge losses going forward. Also, the employment of the industry is at risk as the contractual workers accounts for about 50% of the workforce in the auto industry. It is also to be noted here, that even if the pandemic is curtailed, the consumer sentiments are expected to be unfavourable and demand is expected to remain muted during H1 FY21 led by fluctuating and uncertain economic conditions. 

Additionally, domestic consumption is also getting impacted due to all India closure. New store openings have stopped and even domestic stores are facing an inventory build-up due to apparel sources for the upcoming summer season, Further, domestic prices could be negatively impacted if exporters dump their inventories in the domestic market leading to even reduced margins. This could lead to short term blips such as reduced employment of casual labour (factory closures and people moving back to their home towns) and reduced consumption.    

The following steps will help boost the sector:-

• To encourage growth of industry *Capital Gain Tax* clause applicable to housing sector should be extended to cover industrial sector. If existing factory is sold and a new factory or plant and machinery are purchased from this then it should be exempted from capital gains tax.
• To compensate for lost hours of production, workers working hours should be *10 hours per day* instead of 8 hours for same wages. Also, working hours can be increased for twelve hours. The workers should be paid as per the standard wages for these extra two hours not as per overtime rules. This will help maintain social distancing and compensate for lost working hours.
• *Fixed charges* paid on electricity bill should be allowed as Tax input for all industries, small or big.
• Taxes paid on fuel- gas / diesel used for industrial production should be allowed as tax input credit against GST payment.
• Request to instruct all state transport authorities to approve and clear pending registrations of BS4 vehicles sold and registration fee deposited with department till 31st March 2020.
• Reduction of GST to 18% for automobile industry for one year to help boost sales.
• Family contribution. Families can contribute a lot by way of savings, encashing gold ornaments etc as this money will come handy without any tax burden if allowed may be for a period of one year.
• MSMED Act 2006. This act was formed to help MSMEs recover their debts fast. The situation has changed a lot since 2006 and this act needs to be updated.  Few points for effective implementation  are as under -
• MSMEFC (Micro and Small Enterprise Facilitation Council) should be given more powers. As of now, their role is over as soon as they forward the case to arbitrator.
• The decision of arbitrator if not acceptable, should be given another opportunity to come back to MSMEFC instead of approaching the high court where decisions take lot of time and money defeating the very purpose of MSMEFC.
• MSMEFC should be given legal powers like GST, PF, ESIC etc for instant recovery of debts from defaulters. For referring case to another arbitrator, MSMEFC should charge fee as service to be paid by defaulter thereby generating funds for Government.
• There should be no time limit clause for recovery of debt.
• Arbitrators who give influenced decisions ignoring basic Act should be black listed from Deptt. Actual case studies are available if you so desire.
• MSME Industrial Clinic:  Industrial clinics can be set up to better understand the problems of micro & small industries and provide them timely solutions. Following department could be involved such as MSME DI, MSMEFC, PHDCCI, industrial area association, electricity board, bank representative, motivational speaker and special invitee.

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