Arun Jaitley last week presented his fourth Union Budget. Expectations were high and so were the challenges, and it was indeed a tough task for the Finance Minister to play a balancing act between growth stimulus and fiscal consolidation. The Budget places a lot of emphasis on agriculture, rural economy, social sector investments and infrastructure, but it is not at the cost of fiscal prudence. There is no attempt to resort to blatant populism, but needs of the poor and the underprivileged are taken care of. Key reform measures, including revamping of political funding and phasing out of?? FIPB, are also proposed. Overall, Jaitley has managed to hit a fine balance to a fair degree.
As far as the MSME sector is concerned, it is a big relief to see the Budget coming up with several sops for the sector. One of the major announcements is reduction of corporate tax from 30 percent to 25 percent for those units whose annual turnover is less than Rs 50 crore. According to available data, out of 6.94 lakh companies filing returns, 6.67 lakh companies fall under this category and it means 96 percent of the companies will get the benefit. This is a welcome decision that will help MSMEs become competitive compared to large companies, which, according to an estimate, pay an effective tax rate of 24 percent due to various subsidies and rebates, including preferential land allotment they enjoy.
Another important benefit doled out to the sector is the cutting down of the presumptive tax from 8 percent to 6 percent for units with turnover up to Rs 2 crore. This step is expected, besides easing the burden of taxation, to add transparency in the sector, encouraging SMEs to adopt digital means of doing business. In addition, start-ups will also benefit as the Budget proposes that they will have to pay taxes for three out of seven years (up from five last year), only if they make profits. In addition, it is encouraging that lending target under MUDRA is proposed to be doubled from the 2015-16 target to Rs 2.44 lakh crore.
Not everything sits well with many, however. Despite welcoming the reduction in corporate tax rate, some SMEs feel that the number of beneficiaries will be limited as many small firms run either as proprietorship or partnership firms. Some others lament the lack of specific support schemes and allocations for the sector to fight the demonetisation shocks. It is also quite rightly pointed out that the Budget has nothing to push employment generation in the sector. Similarly, with no incentives offered to MSMEs to invest in plant and machinery, the Budget hardly encourages capital investments. No attention is paid either for revival of the sick MSME units.