Empowering MSMEs: The Path to Growth and Sustainability Through Integrated Infrastructure and Simplified Taxation

Empowering India’s MSMEs: A Call for Comprehensive Support and Reform

Micro, small, and medium enterprises (MSMEs) are the backbone of the Indian economy, contributing significantly to employment generation, innovation, and overall economic growth. However, these enterprises continue to face a range of challenges, from limited access to credit to complex regulatory hurdles. In order to truly empower MSMEs and drive their growth, Assocham, the apex trade chamber in India, has called for a series of reforms aimed at simplifying compliance and creating a more supportive ecosystem.

In a pre-budget meeting with Finance Minister Nirmala Sitharaman, Assocham's leadership outlined several key measures that could help stimulate investment, encourage entrepreneurship, and foster a thriving MSME sector. These recommendations are designed to address both the systemic challenges that MSMEs face and the untapped potential within the sector.

Integrated Infrastructure Townships: A Vision for MSME Growth

One of the standout proposals put forward by Assocham was the creation of integrated infrastructure townships specifically designed for MSMEs. These townships would serve as a one-stop solution for businesses, providing access to essential services, financial support, and development resources all in one place.

The concept is based on the idea of revitalizing and modernizing the old Industrial Estate Development Programme, with a focus on building comprehensive facilities for MSMEs across the country. These infrastructure townships would include:

• Common Testing and R&D Centres:
  Access to research and development (R&D) facilities would foster innovation, enabling MSMEs to develop new products and services that can compete on a global scale.

• Financial Institutions:
  Bringing financial services closer to MSMEs will streamline credit access, reducing the complexity involved in securing funding and providing businesses with better financial planning options.

• Training Centres for Labour and Export Assistance Centres:
  These facilities would offer skill development programs to upskill the workforce, while export assistance centres would help MSMEs navigate international markets.

• Housing, Schools, and Hospitals for Labour:
  Integrated living facilities for workers would help enhance the overall quality of life for employees, ensuring that MSMEs can attract and retain skilled labour.

Such a comprehensive ecosystem would address the multifaceted needs of MSMEs, driving both operational efficiency and long-term growth.

Simplifying Taxation: A Proposal for Presumptive Taxation for MSMEs

A major concern for many MSMEs is the complexity of the taxation system, which can often result in disputes, lengthy litigation, and unnecessary administrative burdens. To ease this, Assocham has proposed extending the scope of presumptive taxation to include not only MSMEs but also new-age businesses like data centres, cloud computing, and data hosting services.

• What is Presumptive Taxation?
  Presumptive taxation is a simplified taxation scheme that allows businesses to calculate their income and tax liability on a predetermined basis, without the need for complex audits or bookkeeping. By introducing this system, MSMEs would benefit from knowing their tax liabilities upfront, allowing them to plan their finances with more certainty and avoid the risk of tax-related disputes.

• Reducing Compliance Burdens:
  By extending presumptive taxation to newer industries, such as those in the tech sector, the government can encourage more businesses to formalize their operations. This also reduces the administrative burden on both MSMEs and tax authorities, ultimately contributing to a more efficient system.

• The Benefits for MSMEs:
  Simplifying the tax process would help reduce the apprehension surrounding tax disputes and litigation, making it easier for businesses to focus on growth rather than navigating complex regulatory challenges.

Sanjay Nayar, President of Assocham, emphasized that such a move would significantly improve financial planning for MSMEs, providing clarity on tax liabilities and simplifying the overall compliance process.

Addressing Credit Access: The Need for Transparency and Action

While collateral-free loans have been introduced as a policy to support MSMEs, many still struggle to access credit. Despite the intention behind these loans, banks often require personal property collateral or charge exorbitant interest rates, making credit inaccessible to many small businesses. To address this, Assocham is calling for greater transparency and accountability in the lending process.

• Mandatory Disclosure of Collateral-Free Loans:
  Assocham has urged that it be made mandatory for banks to disclose the number and value of collateral-free loans granted periodically. This measure would help track the effectiveness of the policy and ensure that it reaches its intended beneficiaries.

• Enhancing Credit Flow through Budget Allocations:
  In the upcoming budget, Assocham has proposed an increase in the allocation for credit flow to MSMEs. This could be modeled on the success of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which was launched during the Covid-19 pandemic and provided much-needed relief to businesses struggling to access financing.

• Credit Guarantee Schemes for MSMEs:
  The success of CGTMSE shows that when the government guarantees credit, it can significantly reduce the risk for lenders and boost lending activity to MSMEs. A similar initiative could further strengthen the credit flow and alleviate the financial challenges faced by small enterprises.

A Vision for a Thriving MSME Sector

The proposals outlined by Assocham highlight the need for a multifaceted approach to empowering MSMEs in India. By focusing on integrated infrastructure, simplified taxation, and improved access to credit, these measures could significantly improve the ease of doing business and foster long-term growth in the sector.

For MSMEs to truly thrive, it is crucial that these recommendations are taken seriously and implemented effectively. With the right infrastructure, supportive policies, and financial systems in place, India's MSME sector can unlock its full potential and continue to drive the country's economic development.

As we await the upcoming budget, all eyes are on the government's response to these proposals, which could play a pivotal role in shaping the future of India’s MSMEs and ensuring their continued success in the years ahead.