MSMEs Expectations from the Union Budget 2021

The Budget presentation every year raises hopes in the industry and this year is not different. Rather, the MSMEs which have been hit hard, have some important points to suggest to the government

MSMEs form the largest industrial sector and also the largest private sector employer in India. However, the lockdown and other economic conditions of past few years have been pressurising them and they have been losing in the market to large enterprises and the MNCs. It’s time the government takes steps to help the MSME sector.

Smooth out the Indian MSMEs Problems

On the occasion of Budget’21 presentations, we got insights from some Indian MSMEs about what the government needs to do to help them. Akhilesh Chopra, Sales Director, Bluei said that the tax relief is of even greater effect now that businesses are trying to come out of the Covid-19 caused eclipse and work towards economic recovery. Also, as we expect the investment situation to gradually bounce back to the pre-Covid phase, a systematic yet simpler process for raising funds would help attract more foreign investment. This will also have a positive impact on the slow job market and improve the current employment situation.

Akhilesh Chopra further said that among other measures, the government should consider reducing GST rates to boost the purchasing power of consumers. This step will not only ensure that e-commerce continues being a positive quadrant but will also help businesses in other sectors significantly curtail expenses and maintain healthier cash flows, which is vital right now.

“The government must think about introducing more tax benefits for startups and MSME’s… Among other measures, the government should consider reducing GST rates to boost the purchasing power of consumers. There should be more support to local production and supply chains by partnering with local MSME organisations in order to meet demands.”

--Akhilesh Chopra, Sales Director, Bluei

Chopra said that the Indian manufacturing needs to become more competitive. For this, the industry and the government must work together. If manufacturing grows faster, the economy will also grow accordingly. The main driver for employment, even in the services sector, is manufacturing, due to the vast aftermarket. The industry is picking up, but there is not much difference compared to, years 2017.  Also, the pandemic has provided the centre an opportunity to attract global manufacturers and make the country a manufacturing hub emerging as an alternative to China.

Talking about the Make in India programme of the government, Chopra said that while ‘Made in India’ devices are not rare anymore, we should expect these devices to be more Indian than before as companies try to cut the cord with China when it comes to what goes inside these gadgets. India has the potential to put the foundation of a home grown smart gadgets ecosystem this year, looking well away from the software part. The country is already rising as a smart gadgets manufacturing hub because of the large domestic market.

Chopra feels that the upcoming budget should keep the Self Reliant India sentiments in mind while continuing to expand programs and fund allocations in this direction. This comprises further support to local production and supply chains by partnering with local MSMEs organisations in order to meet demands.

"We welcome the Startup India Action plan announced by PM Modi recently. The initiatives such as tax reliefs,  self-certification compliance, rebate on filing a patent and simplifying patent regime are welcome steps."

--Rajat Singhania, Founder, HyLyt by SocioRAC

Highlighting the problems of startups, Rajat Singhania, Founder, HyLyt by SocioRAC said, "in the budget 2021 this year, we would expect the following –

Make GST Uniform for Products Components

“I request the government to declare UPS with battery as composite supply and UPS GST of 18% should apply to all components. Further, to remove confusion, GST on all types of battery being used in capital investments, in offices, homes etc. should not be treated as luxury item. It should have the uniform rate of 18% GST only.”

-- Amitansu Satpathy, Director, BPE

Amitansu Satpahy, Director, BPE said that the products and their components are categorised separately in the GST rule, which creates problems. He said, “There should be uniform GST rate. For example, following GST rates are not uniform which creates problems –

UPS HSN 8504 4090 - 18%

Battery HSN 8507 2000 - 28%

Lithium battery HSN 8507 6000 - 18%

Please note that the battery is a part of UPS, one of its components.

UPS GST is 18%

UPS uses different type of battery technology -

SmF battery GST 28%

Lithium battery GST 18%

Tubular battery GST 28%.”

Satpathy continued, “So, while manufacturing UPS, we use various batteries, as per the customer requirements of 10 min support, 1hour support and use different capacities of battery as components. And UPS and battery form a composite supply; it’s an international practice. But as some battery is rated at 28%, we face problems. The GST department is harassing the UPS manufacturers, saying it’s to be a mixed supply and want to get tax structure separately and want invoicing of 18% for UPS without battery and 28% for only battery. In some AAA, they say UPS with internal battery to be 18%, being naturally bundled and cannot be separate.”

Satpathy went on, “If someone needs back up of 5min, or 10 min, it can be in one cabinet. Due to weight issues, naturally, upto 6k, UPS can be bought with internal battery, of 5 min back up and in that case GST department says it’s naturally bundled and 18% is accepted, but when customer wants higher UPS capacity of 30 min to 1hour, the battery capacity and UPS capacity are big enough due to weight issues and cannot be given in one cabinet; it has to be separated, shipped and installed in separate enclosure for battery and UPS. The argument differs here and department doesn’t consider it as single unit naturally bundled. This is not logical.”

He added, “Moreover, they should understand that, UPS with certain back up time, requires not only addition of battery capacity, but extra transformer as well, extra charger circuit. So, only the battery and UPS can’t be billed separately. In GEM, government tenders also received orders for capacity of 40 KWatt for example, with 30 min battery backup and we can’t give separate invoices, when PO received is at 18%. The voltage capacities differ and manufacturers use different battery combinations, so we can’t give separate battery components while invoicing. The tax structure is complicated and causes difficulties.”

Finally, Satpathy concluded, “So, I request the government to declare UPS with battery as composite supply and UPS GST of 18% should apply to all components. Further, to remove confusion, GST on all types of battery being used in capital investments, in offices, homes etc. should not be treated as luxury item. It should have the uniform rate of 18% GST only.”

The above examples show that there’s need for the government to pay attention to fine details which can cause problems in the MSME growth.