The term MSME reached a peak popularity of 100 on Google search during May 2020, up from an usual score of less than 1, clearly signalling the enormous interest in the sector. India is a country with around 6.33 crore MSMEs, that’s about one enterprise for every 20 citizens as against one for every 10 in US (sba. 2018) and 11 in UK (fsb.org 2019). However, what is also revealing is that the MSMEs on an average employ less than 2 per enterprise and more than 51 per cent of rural households have substantial income from self employment as per NSO- Periodic Labour Force Survey 2018-19. What is also revealing is that globally, more than 40 per cent MSMEs (IFC 2017), are starved of access to formal credit and Indian MSMEs are by no means an exception to it. Post the onset of COVID lockdowns, the sector was one of the most severely affected and the government proactively brought out the following taxation relief measures:
Taxation Relief Measures:
- TCS/TDS rates reduced by 25 per cent for resident non salaried payments
- Tax filing due dates have been extended by 30/90 days
- Interest on delayed payment of taxes reduced to 9 per cent till June 20
- Service tax amnesty scheme settlement can be paid without additional penalty till December 20.
On the GST front, the
- Due date for filing GSTR 3B for March, April, May is extended to June 30
- Concessions (max of Rs 500) on late filing fee of GSTR 3B if filed before Sep 2020.
- In case of small tax payers (< 5 crore of turnover), reduced Interest rate of 9 per cent on late payment, for the months of Feb – April 2020, till Sep 2020.
- Revocation of Cancelled GST registration can be done on or before September 30, 2020.
However, the ground reality and expectations are far different and the measures need to be re-engineered for addressing the same. In one of my conversations, Raju Agarwal (name changed), who runs a mid-sized manufacturing unit in South India producing antennas for DTH connections, states that he has huge orders from his A list customers (subsidiaries of listed companies). However, his suppliers are unwilling to extend credit, while his bankers are sitting endlessly over his request to extend credit lines. Agarwal did avail the 20 per cent additional limit with central government’s guarantee. However the fact that his unit was not operational for 60 days and he still had bills to settle, ensured this benevolence didn’t extend beyond the lockdown costs. His need for working capital has significantly increased and his options for financing have drastically reduced, even though he has adequate collateral. Agarwal is not alone in this battle, millions of MSMEs are presently stuck with a dead end and undergoing the pain of:
- Reduced supplier credit
- Increased buyer credit
- Indifferent bankers
- Stagnant costs
Even as the sovereign guaranteed working capital limits to MSMEs is laudable, the scheme has so far disbursed only Rs 21,028 crore (as of June 18, through ECLGS) out of its targeted Rs 3,00,000 crore. The real relief for MSMEs at this juncture will be from extended access to credit, which can be a genuine lifeline instead of compliance concessions which, in an era of lower sales, mounting losses and pressing liquidity is not in the horizon of the entrepreneur. Further, if the government intends to ease the credit/cash flow burden for MSMEs, It may consider:
- Interest free GST deferral wherein MSMEs can collect GST and remit the same after 12/24 months in monthly instalments over a period of 5 years.
- Set up a clear deadline based sanction of the 20 per cent guaranteed loan with accountable redressal means.
- Expand the credit guarantee scheme coverage to bill discounting of outstanding MSMEs receivables and prospective orders, for the next 12 months.
- Push the advance tax due dates by 6 months to avoid interest
- Exclude the financial year 2020-21 from the period (of 4/8 years) for carry forward of losses.
- Bring down tax rates to 15 per cent for all MSMEs for a period of 3 years, irrespective of their constitution (i.e. Companies, LLPs firms).
Once fund flow starts and sentiments improve, entrepreneurs like Agarwal and millions of others who give jobs to over 11 crore Indians, would start the cycle of revival. Without the much needed support both from fiscal and regulatory front, we genuinely risk the demise of millions of livelihoods and legacies built with blood, toil and sweat, as even the empowered needs to be enabled.
The author is Founder and Managing Partner of DVS Advisors LLP