12 December 2019

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Measures to Aid SMEs and Exporters in India

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SMEs are the backbone of  Indian manufacturing sector and  have become the cockpit of Indian economic growth. It is assumed that the Indian SMEs account for about 90% of industrial units in India and 40% of value additions in the manufacturing sector.Government has recognised their importance in Indian economy and strategies have been  taken to aid the SME growth in the country.

The Union Budget 2009

The Union Budget was close to the government’s mantra of ‘inclusive growth’, emphasising the social infrastructure (education and health), rural and agricultural growth, and measures to aid sectors like SME and exports –which have been affected by the global financial crisis.

The Union Budget presented by Pranab Mukherjee attempts to reduce the regulatory tax burden on smaller businesses. More than 10 million SMEs gain from the landmark announcement that enterprises having annual turn over less than 40k will have an option to declare their income @ 8% and need not maintain books of accounts. This will help large number of businesses from Income Tax related issues.. The scheme will be effective from the next financial year onwards ( 2010-11 ).

Another booster dose is the abolition of Fringe Benefit Tax (FBT) ;  a step which will be welcomed by both small and large enterprises. With announcement of provisioning of funds for unorganised worker’s social security, the scheme is expected to become operational soon.

Some important announcements in the Budget to the SMEs are:

  • Weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing businesses
  • New Direct Tax code in 45 days
  • GST to be dual - Central and State and GST road map to be adhered for 1st April 2010
  • Linking exemption to investment starting with setting up of cold chains, warehousing etc.

The Budget has several proposals for the exporters which have been hit by the global crisis :

  • MDA allocation enhanced by 148%  ( to Rs 124 crore )
  • 2% Interest subvention extended up to 31st March 2010 on seven sectors viz. textiles, handicrafts, carpets, leather, gems, jewellery, marine products and small and medium exporters.
  • Exporters spared of first paying and then claiming refunds of Service Tax to transporters and agents

Some important steps taken in the budget for the textile industry are:

  • A major reform has been effected by announcing that 8% excise duty on man made fiber and yarn, on mandatory basis and optional beyond fiber and yarn will help streamline the valued addition chain. The move, demanded by the textile industry, will make the textile supply chain more efficient.
  • Two more mega handloom clusters for West Bengal and Tamilnadu and two mega cluster schemes for carpets in Srinagar and Mirzapur.
  • Reduction in duty on woolen and cotton waste from 15 to 10 % will help the Panipat, Ludhiana and Amritsar MSMEs manufacturing blankets and suitings

To help provide an easement to the Jewelery manufacturers/ exporters, they have been fully exempted from excise duty so that they could access the domestic market.

Financial Assistance

The government is planning to extend the scope of an existing credit guarantee fund to cover all bank loans given to micro, small and medium enterprises (MSMEs), which account for 40% of India’s exports and 17% of gross domestic product. The ministry is already working on a  proposal from the the Reserve Bank of India (RBI ) on this.

The SMEs in India  face  challenges in  obtaining financial assistance from institutions, especially in availing long term loans. This problem is further aggravated by the current economic crisis, which generated liquidity crisis and the dawdling credit growth in the Indian financial sector. SMEs, were severely affected by the credit decline which had  impacted their overall growth and development.

Targeted particularly at SMEs, the World Bank has agreed to release US$400 million as new financing loan to the Small Industries Development Bank of India (SIDBI),

The credit facility available through the project will help finance long-term capital loans for SMEs. This will help promotion of  overall economic growth, especially in new areas and  less developed states in the country.

SME Rating

The SME Rating Agency of India  ( SMERA ), a joint initiative of Small Industries Development Bank of India, Dun & Bradstreet and leading public and private sector banks, is presently offering enterprise ratings to Micro, Small & Medium Enterprises has now launched rating services for Microfinance Institutions - (MFI).

Microfinance sector in India has been exhibiting a very healthy growth over past few years and according to rough estimates, there are over 1000 MFI’s currently operating in India. Micro Financial Institutions have the potential to bring about inclusive growth in the country by accessing and disbursing loans to the poor, thereby reducing their dependence on informal credit sectors.

Considering the relevance of MFIs to the local economy and their potential  of international funds, SMERA has decided to launch MFI rating services from this year onwards..

SMERA’s MFI Rating is an independent, third party comprehensive assessment of various risks involved in financial as well as social performance of a MFI.

SMERA Rated MFIs would be allotted a D&B D-U-N-S Number and will also be featured on Dun & Bradstreet’s Global Database. Such profiling of SMERA’s MFI Ratings is expected to enhance credibility of a MFI within the banking sector, social investing and other similar institutions not only in the domestic market, but also internationally.

Emerging India Awards

Emerging India Awards is an award for the Indian SME sector rather than the government’s enterprises. ICICI Bank & CNBC TV 18 started this initiatives three years back with the aim of  honouring the top value creating SMEs in India . These awards have been instrumental in creating a revolution among the Indian SMEs. It has helped the SMEs to gain better access to capital, technology, global markets and quality manpower, and also to  bring the SME community to a single platform.

The winners are chosen after a 3 phase methodology, powered by CRISIL. The Awards held in 2006 have already found a place in the Limca Book of Records for its record 35,000 entries. The 2008 Awards received a record  3,00,000 entires and were held in London. Apart from the regular industry categories, a 'Green Business' award was also announced for the most environment friendly SME.

SME Tool Kit

The SME Toolkit is a project of the Small and Medium Enterprise Department of the World Bank Group and is available in multiple languages through their local partners around the world. The SME Department combines the market perspective of the International Finance Corporation with the policy expertise of the World Bank to promote local small business growth in developing nations. These merged actions create a powerful synergy and a strategic commitment in improving opportunities in small business.

The mission of IFC is to promote sustainable private sector investment in developing countries to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.


Last Updated ( Monday, 05 July 2010 18:42 )  

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