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SME and Budget 2011

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Let us begin by understanding what has been done for Small and Medium Enterprises in the central budget 2011-12.The honourable FM devoted two paragraphs of the entire budget to the developmental schemes for SME's

•    For SIDBI, the finance minister allocated 5000cr for refinancing incremental lending by banks to MSME enterprises This has been raised from R4,000 crore in 2010-11.

•    R3,000 crore has been allocated for Nabard  to benefit 15,000 weaver cooperative societies and 3 lakh handloom weavers.

•    The khadi and village industries segment, which receives around half the funds allocated for the ministry, saw an increase in their  outlay

•    The MSME segment, which gets less than a third of the ministry's allocations, saw its budget allocation grow by a respectable 12.9%

•    Marginal increase in the allocation for coir industries has also been provided in this budget

•    The allocation for the northeastern region increased by 12.3%.

•    The National Small Industries Corporation saw its allocation surge by 110.4% to a substantial R705 crore.

A single glance would suggest that a lot of sectors have been addresses but going deeper into the layers would expose the truth.

Allocations has been focused on sector-focussed institutions like SIDBI and NABARD
For the Khadi and Village industries the allocation has increased by a paltry amount of 3.3% only. Similarly the allocation increase for the coir industry is 1.7% which has been also been loaded with export cess. This would more than nullify the miniscule increase in allocation.

Few of the gainers were The north-eastern sector which saw close to a tenth of the total budget allocation. This would be a great boost to provide impetus to a region which needs that extra push to come at par into the mainstream.

The NSIC which got a substantial increase of more than 100% in its budget allocation would surely help micro and small enterprises. The marketing assistance schemes on NSIC would further ensure support to market the products in the domestic and international markets. Not only this, the corporations performance and credit rating scheme ensures that the micro and small enterprises are subsidised by the government to the extent of 75% (up to a maximum of R40,000) for getting themselves rated for performance and creditworthiness by empanelled accredited credit rating agencies.

However there is a lot that needs to be done and mere scratching of the surface reveals that. The often heard slogans like "Power to SMEs", providing "real help when businesses need it most" seem to be mere slogans. Being on the side of "go-getters" may be a rousing rhetoric from our current government but there are no concrete and sizable actions supporting it.

Whether it is the moving of the service tax from cash to accrual basis or providing a solution for bad debts in SME enterprises, none has not been addressed by the FM. This would directly impact the liquidity crunch in organisations which do not have much liquid assets anyway. 

And to top it all the FM had nothing to offer in terms of cheaper loans either. The highest employment generator does not get any rebate on interest rates. If the agricultural sector can get impetus by getting loans at 4%, the SME sector should have at least seen some decline in the interest rates. Access to finance is, in some instances, harder than ever to obtain — especially if you are starting up. In addition, the cost of employing staff is due to increase in April this year and the full effects of the spending cuts are still on the way

Setting up of a special fund for the micro enterprises for exclusive lending to this sub-sector; introduction of a public procurement policy that mandates government and public sector units to reach, in a stipulated time period, a target of at least 20% of their annual volume of purchases from micro and small enterprises and the need for earmarking additional public spending of around Rs 5,500 crore over a five-year period, to specifically target deficiencies in the existing infrastructure and institutional setup do not seem to have got the attention they deserve

The budget, it appears to be just a weak attempt to somehow balance instead of boldly taking the lead to address the imbalances. There is a crucial need to develop a think tank, composing a good balance representation from various sectors within the MSME's to suggest a road map to the FM. The government has to act quickly, decisively and significantly by introducing hard and fast measures that will assist the globally referred ‘fuel to an economy' organisations. The scope is more…much more..

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