Budget 2014: Rs 10,000 crore bonanza for MSMEs

[caption id=“attachment_89934” align=“alignleft” width=“640”]  Representational image. Reuters[/caption]

While presenting his first Union Budget, Finance minister Arun Jaitley made all the right noises, saying there was an urgent need to strengthen the micro, small and medium enterprises (MSME) sector of the country. “MSMEs are the backbone of our economy. They account for a large portion of our industrial output and employment. The bulk of service sector enterprises are also SMEs. Most of our SMEs own account enterprises. Most importantly a majority of these enterprises are run by SC, STs, and OBCs,” were some of the motherhood statements he made on SMEs.

But then he went on to details and the biggest one was he stated that promotion of entrepreneurship and start-up companies remains a challenge. “While there have been some efforts to encourage, one of the principle limitations has been of start-up capital by way of equity to be brought in by promoters.“In order to create a conducive ecosystem for venture capital in the MSME sector, Jaitley proposed to establish a Rs 10,000 crore fund to act as a catalyst to attract private investors by way of providing equity and soft loans. But the details on this are not clear. Will the government allocate money directly? Will the Modi sarkar become a venture capitalist? SMEs and start-ups would be very interested and would be eager to know the framework through which they can access this fund.

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“Definition of MSME need to be revised for high capital ceiling,” Jaitely further added, as he sought to re-examine the financial architecture of this sector. For this, the government has decided to set up a committee, including representatives from the Finance Ministry, Ministry of MSMEs, and RBI to give concrete suggestions in three months. Hopefully, this will not end up being just another committee.

In a bid to promote entrepreneurship in India, the Modi sarkar has also decided to roll out a ‘District level Incubation and Accelerator Programme’ across the country that will incubate new ideas and provide necessary support for to accelerate entrepreneurship.

In addition, the minister also promised to develop an entrepreneur-friendly legal bankruptcy framework for SMEs that will enable easy exit.

To incentivise small entrepreneurs in the manufacturing sector, the government has also proposed to provide investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs 25 crore in any year in new plant and machinery. This benefit will be available for three years i.e. for investments up to March 31, 2017.

So, some concrete money, some committees and some promises. Not everything that SMEs and entrepreneurs wanted but if execution is done well, will be a significant boost for entrepreneurs and SMEs.