“The budget is not just a collection of numbers, but an expression of our values and aspirations.”

– Jacob Lew

The Budget 2018 for India was announced recently. Its primary focus was on the upliftment of many key segments of our society such as the poor, farmers, women and senior citizens. Additionally, it emphasised on ‘India of the Future’ focusing on ‘Digital India’, developing STEM (Science, Technology, Engineering & Maths) and other relevant skills.

One of the major contributors to the Indian economy, SMEs (Small And Medium Enterprises) continue to be inhibited by finance and policy constraints.

In fact, over the past few years, banking credit to the small businesses has actually shrunk, while the extent of credit losses continues to expand^(source).

There is a clear need for technology-driven initiatives to transform credit delivery to small businesses. All small businesses need is the right policy support!

Let’s find out what Budget 2018 has in store for small businesses!

How The Budget 2018 Promises To Help Small Businesses

Here’s how the budget for 2018 will support small businesses in their quest for growth!

1. Respite For Agricultural SMEs:

The Agri-Market Infrastructure Fund, with a corpus of Rs. 2000 crore is to be set up for developing and upgrading agricultural marketing infrastructure in the 22,000 Grahmin Agricultural Markets and 585 Agricultural Produce Market Committees (APMCs). This will enable farmers in remote locations who are devoid of any institutional mechanism to connect to markets.

A Rs. 10,000 crore fund to finance the infrastructure requirements of fisheries, agriculture, animal husbandry will generate rural employment and supplement farmer incomes.

These moves will render increased job creation in the agricultural sector and result in more business. Agri related start-ups and Micro, Small & Medium Enterprises will benefit in the long run with a more formalised approach towards the farming sector.

It is being said that with a rural area focused budget, India’s farmers and villagers as well as companies with exposure to agriculture, emerge as the biggest winners.

2. Tax Relief for SMEs:

Companies with a turnover of less than Rs. 250 crores in the Financial year 2017 would be required to pay tax at 25% as compared to the previous rate of 30% in FY 2019.

Out of 4,721 listed Indian companies that reported their numbers for the year ended March 31, 2017, 963 Companies could be major gainers. The median tax rate for these companies was approximately 34%. The difference in tax rate (to the tune of 9%) is expected to improve their profit after tax margins, thus leading to better earnings visibility.

This is a welcome move by the government post the stress faced by the small businesses due to demonetisation and implementation of GST. It will also lead to increased tax compliance and leave more money to small businesses for expansion.

Additionally, the turnover bar has increased to Rs. 250 crores from the previous Rs. 50 crores due to which almost all the small and medium businesses will get the benefit. Such a large coverage will boost the overall economy. MSMEs account for 99% of the corporate tax filers, hence it’s a positive move.

3. Job Creation:

The Government indicated that job creation is at the core of its policy-making and that it will focus on labour-intensive sectors such as textiles, leather and MSMEs to aid job growth. The Budget makes way for contractual hiring for a fixed term by the employers. This reserves the right to employ workers for a fixed duration with the employer and terminate them once the project is completed, thus leading to more hiring, firing and rehiring.

Earlier, this rule was limited to the apparels sector. It has now been made applicable to footwear, leather and other accessories to attract investments on a global scale. This will not only boost job creation but also improve ‘Ease of Doing Business’ in the country.

The Government has ensured under fixed-term employment; workers are entitled to statutory benefits same as any permanent worker in that organisation including work hours, wages and allowances.

One million people are added to the country’s workforce every month while the job creation is not keeping pace with the demand. To tackle this, the government has announced that it will bear the entire 12% of the employer’s contribution to the provident fund for all new employees in all sectors for a period of three years.

This means that employers will not have to pay their share of EPF and a reduction in the payroll costs to the companies. This will lead to better pay overall and boost more jobs.

Also, women employees will benefit with a higher salary in hand with their PF contribution being reduced to 8% from the previous 12% for three years, indirectly giving a push to the consumption cycle.

4. Credit Support:

The Government has allocated Rs.3,794 crores as credit support, capital and interest subsidy to the MSME sector which will lead to a more formalised segment.

This suggests that Government recognises the growth potential of MSMEs as a sector. Increased formalisation will make it more attractive for banks and financial institutions to partner with MSMEs.

In fact with the ‘Digital India’ campaign, more and more financial institutions are allowing disbursement of credit through their online portal. All of it will add up and remove any hesitations and hassles in applying for a loan for small businesses.

5. MUDRA Yojana:

Pradhan Mantri Mudra Yojana (PMMY) is a scheme launched by the Prime Minister to provide loans up to Rs.10 lakhs to the non-corporate, non-farm/small micro-enterprises, among the many other schemes offered by the government. These loans are given by all the banking institutions as well as Non-Banking Financial Institutions (NBFCs).

The Government aims to create more jobs through this scheme by promoting Ease of Doing Business and Entrepreneurship. It is proposed to set a target of Rs.3 trillion for lending under MUDRA for 2018-19. Various startups and small businesses can benefit from this scheme and flourish as a part of the formalised economy.

The Budget 2018 has huge short-term and long-term benefits for the MSMEs. It’s safe to say that MSMEs stands to gain as far as Budget 2018 is concerned.

Get in touch with Gromor today to avail unsecured small business loans and embark upon a journey of growth!