By R Srinivasan

Ease of doing business for MSMEs: Finance Minister Nirmala Sitharaman will present the budget on February 1, 2022. It would be essential to see if the budget addresses the concerns of the MSME sector. On July 27, 2021, the Parliamentary Standing Committee on Industry observed that “the recovery plan announced by the government for economic recovery after the pandemic-stricken economy proved to be insufficient as the measures adopted were more offers loans and long-term loans”. measures instead of improving cash flow to generate demand as immediate relief. In the process of economic recovery after the first wave of the pandemic, the second wave tore the economy even more vigorously apart, especially the MSME sector. The committee therefore recommends that the government immediately present a broader economic package aimed at boosting demand, investment, exports and job creation to help the economy, including MSMEs, recover from the fallout from the pandemic.

We are in the middle of the third wave and a lot has changed since the presentation of the report. The industry has learned to work with the pandemic as governments have firmly steered clear of blanket shutdowns, although there are restrictions on service industries like restaurants, malls, theatres. The MSME sector has borne the brunt of the pandemic and is in shock due to multiple issues. Some key concerns that require the attention of decision makers are:

• Commodity prices increased significantly, affecting the cost of manufactured goods. MSMEs rarely have the bargaining power to effect a corresponding price increase. This affected gross margins. As large corporations record windfall profits, the MSME sector is under pressure.
• Diesel is key to keeping manufacturing industries running all week, as many MSME clusters have weekly power outages. With the runaway price of diesel, the cost of power consumption has increased by more than 15%, affecting the manufacturing cost. It is worth looking at the state and central taxes levied on fuel to alleviate stress.
• Diesel is also a key element in transport and logistics. MSMEs usually support logistics cost increasing the overall cost of operations and affecting margins.
• MSMEs contribute significantly to the country’s overall exports. the shipping and logistics costs increased, in some cases almost three times, due to the shortage of ships. This is accentuated by the shortage of containers since traffic is affected due to confinements in various ports. MSMEs who entered into CIF contracts are stuck and losing money. While most logistics operators believe this is a temporary phenomenon and that market forces will correct prices, no one knows when this will happen.
• The labor shortage has led to an increase in the cost of labor. Despite the willingness to pay, labor shortages continue to plague MSMEs. This again increased the cost of operations affecting profitability.

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In this scenario, what do MSMEs expect from the budget? A significant reduction in corporate tax so that they can hold on over this period. In fact, the Minister of Finance would do well to reduce corporate taxes to zero for MSMEs with a turnover of less than Rs 50 crore, that would be a huge relief. The government should work in tandem with states to reduce fuel taxes. There are also numerous reports of closures and resulting job losses. MSMEs are the biggest employers, especially in rural areas and are the most resilient sector of the Indian economy, but the pandemic has put it to the test. This is the time when they need real support.

R Srinivasan is director and co-founder of AIRA Consulting. The opinions expressed are those of the author.