Create better business climate for MSMEs

It cannot be overemphasized that micro, small and medium enterprises (MSMEs) are the plinth of the Indian economy, propelling growth, creating employment, diversifying industrial activity and promoting equitable regional development. Around 50 million MSMEs spread throughout the country contribute 38 per cent of the national GDP, 45 per cent of the overall exports and 40 per cent of the total industrial output. Flexibility in operations, lower capital requirement, access to low cost workforce, etc. are some of the factors that provide a global competitive edge to Indian MSMEs. These enterprises are more likely to flourish in a climate where they are not overburdened by taxes and regulations.

Recent efforts to improve the ease of doing business in India have contributed to the impressive performance of its economy. The most noteworthy initiatives include the withdrawal of the requirement of minimum-paid up capital, simplified incorporation of companies through Form INC 29, integration of 20 key government services into an online e-Biz portal, and enabling online registration and e-payment for the Employees’ Provident Fund Organisation and Employees’ State Insurance Corporation.

Cross-border trade has been simplified by reduction of the number of forms for exports and imports to three from seven and nine, respectively and the implementation of a Single Window Interface for Facilitating Trade by the Central Board of Excise and Customs. The recent passage of the Insolvency and Bankruptcy Code, 2016, brings down the corporate insolvency resolution process to 180 days and fortifies the legal framework for asset resolution.

The government had devised a 98-point action plan to evaluate and assess states on their performance on a variety of ease of doing business indicators last year and a 340-point action plan has been prepared for this year.

As a result, Indian states are taking the lead in introducing initiatives to improve the ease of doing business at the grassroots. Some of the most significant initiatives include the launch of a comprehensive indirect tax management system in Karnataka, Single Window Clearances for industries in Rajasthan, Maharashtra and Punjab, the launch of Mahashramm, an online comprehensive Labour Management System by Maharashtra etc.

Cognisant of the significance of the MSME sector, the government has been initiating a slew of reforms to improve the ease of doing business for these enterprises. The Udyog Aadhaar Memorandum, an online one page form has been launched for the simplification and universalisation of MSME registrations. The initiative has met with resounding success. The MSMED (Amendment) Bill, 2014, has been introduced in Parliament to amend the definition of MSMEs by enhancing the existing limit for investment in plant and machinery. The government has also extended the tax exemptions under the presumptive tax scheme to businesses with turnover up to '2 crore, twice the previous limit, to encourage MSMEs to expand.

The ministry of MSME has recently launched the MSME data bank to capture MSME data online. The government has also launched the Micro Unit Development and Refinance Agency to reach out to the last mile underfinanced small scale units. Loans worth '3 crore have been sanctioned with disbursement of '1.1 crore. The government has also notified a framework for revival and rehabilitation of MSMEs for the identification of incipient stress in the MSME sector. Additionally, the RBI has directed all banks to constitute a committee for preparing a corrective action plan for the rehabilitation of distressed MSMEs.

There is no doubt that these initiatives will go a long way in pushing the MSME sector to forge ahead. The need of the hour is to continue the reformative drive by implementing reforms such as the new MSME Policy and the Goods and Services Tax. Regulatory impact analysis must be conducted for existing and new regulations in order to analyse the impact of regulations on SMEs. There is also a need to digitise, rationalise and streamline inspections to reduce the regulatory burden for SMEs.

Additionally, the RBI must devise debt restructuring guidelines with a focus on improving the credit flow and ensure the restructuring of viable and potentially viable debts of SMEs.

Further, encouragement of self-attestation and self-certification, rationalisation of licences, clearances and approvals, single window clearance systems, and reasonable time allocation will help MSMEs in complying with various regulatory requirements. Reduction in the number of taxes, labour laws and other compliances, a time-bound dispute resolution mechanism, enhanced coordination and data and information sharing between various regulatory authorities, etc. are some of the measures that can significantly improve the business climate for MSMEs.

With continued policy interventions targeted at MSMEs, the sector can emerge as a key growth driver for India.

The writer is director-general, Confederation of Indian Industry