Second wave threat, Exempt micro enterprises from GST

Context:

• According to a survey, more than half of start-ups and MSMEs are likely to either scale down operations, sell off, or completely shut down from June-December 2021, after being hit hard by the second wave of the Covid-19 pandemic.
• The Consortium of Indian Associations (CIA) has urged the Centre to increase the turnover threshold limit for micro enterprises to facilitate their exemption from the Goods and Services Tax (GST).

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of Resources)

Dimensions of the Article:

1. MSMEs in India
2. About the threat to start-ups and MSMEs
3. Measures that can give some hope to the MSME sector
4. About the request to exempt micro enterprises from GST

MSMEs in India

• MSME stands for Micro, Small, and Medium Enterprises which are small sized entities, defined in terms of their size of investment in plant and machinery/equipment along with THE NEW CRITERION OF ANNUAL TURNOVER.
  1. As per the revised definition, any firm with investment up to Rs 1 crore and turnover under Rs 5 crore will be classified as “micro”.
  2. A company with investment up to Rs 10 crore and turnover up to Rs 50 crore will be classified as “small”.
  3. A firm with investment up to Rs 50 crore and turnover under Rs 250 crore will be classified as “medium”.
• According to the Annual Report of the Department of MSMEs (2018-19), there are more than 6 crore MSMEs in the country.
• 99.5% of all MSMEs fall in the micro category. Small and medium MSMEs are predominantly present in urban India whereas, micro enterprises are equally distributed over rural and urban India.
• Around 51% of MSMEs are situated in rural India and 49% of them are situated in urban India.
• Both rural and urban MSMEs together employ over 11 crore people but 55% of the employment happens in the urban MSMEs.
• The gender ratio among employees is largely consistent across the board at roughly 80% male and 20% female.

About the threat to start-ups and MSMEs

• Hit hard by the second wave of the pandemic, about 59% of start-ups and MSMEs are likely to either scale down operations, sell off, or completely shut in the six months from June – December 2021.
• More than 35% of the surveyed start-ups and MSMEs said they would scale down their operation.
• About 15% said they might shut down and 8% said they would sell off their business.
• Only 22% of start-ups and MSMEs see growth in their business during this period.
• 33% of small businesses said they had only less than a month of cash remaining, whereas 8% were already out of funds.
• About 37% said they had funds for 1-3 months, 22% have more than 3 months of runway and 11% said they had it for more than 6 months.

Measures that can give some hope to the MSME sector

Why assemble in India, when we can Make-in-India?

Now could be the right time for the Government to roll out sops to MSMEs that manufacture locally. The Government eMarketplace (GeM) could be of great use to suppliers looking for purchasers and vice versa. Investing in online infrastructure while also encouraging small businesses to source locally could help improve manufacturing while also cutting on our import costs.

Delay MSME loan repayments or extend tenures

As the RBI pumps in more cash into the banking sector, deferring or relieving the MSMEs of loan repayments could come as a welcome move. Most businesses are looking for financial support from the government and doing this can help them cope with cash flow problems. Relaxing bad loan norms could also be a saving move for this sector.

Inventory management for exporters

Businesses that are into exports could use some help with inventory management. In the Union Budget 2020, Sitharaman proposed building warehouses at block/taluk level. If the government could allot subsidised warehousing to exporters while figuring out the supply chain side of things, it could potentially help support the economy.

About the request to exempt micro enterprises from GST

• The second wave has wiped out more than 40% of MSMEs involved in various sectors.
• According to the Consortium of Indian Associations (CIA): the need of the hour is to save micro enterprises from the hassle and help them to survive the present crisis by increasing the turnover threshold limit to ₹5 crore for FY22.
• The Consortium of Indian Associations (CIA) has urged that COVID-related materials such as hand sanitisers, masks, medicines, oxygen cylinders, medical treatments and PPE kits must be exempted from all forms of GST, both for input and output.
• The CIA also urged the Centre to increase the turnover threshold limit for micro enterprises to facilitate their exemption from the Goods and Services Tax (GST).

-Source: The Hindu