Job creation and MSME seem to be the key focus of Budget 2018

Micro, Small and Medium Enterprises (MSMEs), play an important role in the economic fabric of our country yet decades after Independence they continue to face constraints in obtaining adequate finance or necessary focus from our policy makers. This isn’t a pretty sight for the biggest job creators in our country. However this government has given a special focus to MSME’s and has taken some bold and important steps to spur their business activity.

Whats is TReDS?

Liquidity, particularly ability to convert trade receivables into liquid funds has been a major issue for MSME’s meanwhile this being easily available for large corporate. In order to address this issue, RBI had allowed setting up of an institutional mechanism for financing trade receivables. TReDS stands for “Trade Receivables Discounting System (TReDS) — a digital platform where small businesses (MSMEs) can get access to capital by auctioning their trade receivables.”

Budget 2018 and TReDS

We have already seen how GST data is helping the government track tax evaders and expand base. On the flip, side this same data can be used by honest persons to access cheaper, faster and reliable financing. In this Budget the Finance Minister has laid out a plan to introduce online loan sanctioning facility for MSMEs via TReDS. Current system would be revamped for prompt decision-making by banks. He has also proposed to on-board public sector banks and corporates on Trade Electronic Receivable Discounting System (TReDS) platform and link it to Goods and Services Tax Network (GSTN).

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With abundance of data available on GSTN, Financial Institution will be in a better position to gauge viability and reliability of a business entity. Further availability of all records in electronic format shall mean easy and quick transmissibility. This simple tweak might seem innocuous but shall be a game changer for capital starved MSME sector.

Other Important proposals for MSME’s

The Centre has allocated INR 3,794 crore for MSME’s as a credit support, capital and interest subsidy as well as to spur innovation in this budget. Mudra Yojana launched in April, 2015 has led to sanction of Rs.4.6 lakh crore in credit from 10.38 crore MUDRA loans. 76% of loan accounts are of women and more than 50% belong to SCs, STs and OBCs. It is proposed to set a target of Rs.3 lakh crore for lending under MUDRA for 2018-19 after having successfully exceeded the targets in all previous years the Finance Minister stated in his Budget speech.

For reducing tax burden on MSMEs and to help generate more employment, Finance Bill has proposed to extend the benefit of reduced corporate tax rate of 25% to companies which had reported turnover up to INR 250 crore during the financial year 2016-17. “This will benefit the entire class of MSMEs, which accounts for almost 99% of companies filing their tax returns. The estimate of revenue forgone due to this measure is INR 7,000 crore during 2018-19,” Finance Minister stated.

Surely these little tweaks shall go a long way in boosting the MSME sector.


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