Budget Potpourri for SMEs

The year 2012 has witnessed a lot of political upheavals and financial uprisings are also expected in the year ahead. The Indian finance minister Pranab Mukherjee in his recent budget speech has offered a variety of moves to boost the small businesses sector.

The FM has mentioned that the government would source about 20 per cent of their purchases from the micro and small enterprises sector. This is expected to encourage the growth of this sector. The government has hiked the service tax rates from 10 to 12 per cent which may contribute to an overall hike in prices of various commodities. Encouraging the field of agriculture, it has provided duty relief to it. Similar attempt has been extended to other troubled sectors including infrastructure, railways, roads, civil aviation, health, nutrition and environment. Also, the agricultural credit has been promoted to Rs 5,75,000 crores.

Service tax would be based on a negative list with all services being taxed except for a list of 17 items. Some sectors have also been exempted from the taxation. A common tax code is planned which will combine the Central Excise and Service Tax.

Providing more sops for SMEs, the turnover limit for mandatory tax audit has been raised to Rs 1 crore from the previous Rs 6o lac. This would encourage growth among the SMEs which can utilise the necessary relief.

With regards to special SME industries, tax rebates are extended to sectors such as steel, textiles, branded readymade garments, labour-intensive sectors producing items of mass usage, low-cost medical devices and semi-mechanised units producing matches. Similarly, energy saving devices have been encouraged along with plant and equipment needed for solar thermal projects. The budget announcement also brought a special smile to MSMEs working in the handloom, power loom and leather enterprises who received a special waiver. The FM has also proposed weighted deduction for expenses related to skill development which will assist the MSMEs in investing more on skill development supporting quality production.

Government is planning a series of measures keeping in mind the need for infrastructural development and achieving a high rate of growth. Thus, resource raising would be facilitated in the coming financial year for SMEs. The government would be investing about Rs 5, 000 crores in setting up on an India Opportunities Venture Fund along with SIDBI to offer easy equity to MSMEs. This is in addition to setting up of Bombay Stock Exchange (BSE) & National Stock Exchange (NSE) SME exchanges. There would be an exemption on capital gains tax for property sales which are focused towards investments in SMEs. This can greatly solve the issue of funding for SMEs which are starting out or the ones which are planning to expand their business.

Also, the government is planning to come out with the Goods & Sales Tax (GST) in August 2012 which is expected to address the issue of multiple taxes faced by the Indian MSMEs. The MSME industry is eager to know about this implementation which will accelerate the growth of SMEs in a big way. 

Delayed GST - major cause of worry for MSMEs, says IndiaMART CEO Dinesh Agarwal

With the ongoing pre-budget phase of Union Budget 2012-13, the most fertile minds of Indian Micro, Small and Medium Enterprises (MSMEs) are already discussing desired outcomes for next fiscal and bringing forth their recommendations.

Underlining his recommendations for the Budget, Mr. Dinesh Agarwal, Founder and CEO, IndiaMART.com, shares, "The MSME sector, having contributed tremendously to the Indian economy, has always lacked requisite support from all quarters. The time is ripe to support and equip them to establish their strong foothold in domestic and international markets.

Many believe that credit crunch is the biggest worry for MSMEs. However, they overlook the fact that higher and multiple taxes, and compliance with multiple departments are the key challenges for them due to their small set ups and thin management. We request the hon'ble Finance Minister to simplify and unify taxation for MSMEs in this year’s Union Budget. Also, consolidation of multiple departments will help address issue of compliance. It will help MSMEs rise above pertinent issues of conforming to several norms and lengthy, time-consuming paper-work.

Also, the delay in GST implementation has marred hopes of many MSMEs. They fear that now it may get rolled out in a much complicated form, not in its original shape. To tackle this, a pragmatic approach towards faster implementation of GST is required.”

Mr. Makrand Appalwar, CMD, Emmbi Polyarns Limited, Mumbai, also finds faster GST implementation as the most important requirement today and urges government to kick start it at the earliest.

Mr. Agarwal adds, “Essential infrastructural necessities such as land, power, connectivity, et al may seem to be very basic, but in reality they are extremely crucial for MSMEs’ growth. For this, more industrial zones with reasonable land prices must be announced while continuous power supply must be made available to factories, manufacturing set ups of MSMEs.” Mr. Dinesh Kotian, Partner, Ace Heat Tech, says, "Every enterprise aims to grow bigger and so do SMEs. Expensive industrial land comes as a major hindrance along with high interest rates in company's expansion plans. Steps should be taken to offer subsidized land and interest rates to SMEs. Also, a substantial number of SMEs have their setups in outskirts of cities. Unfortunately, basic infrastructural requirements like road connectivity, power supply, etc. are not in good condition in such areas. Government should pay attention here as well." Adding to this, Mr. Appalwar says, "Development of port infrastructure is very vital as the efficiency of exports depends majorly on it. We have a single port operational here in Mumbai and if any fault happens at the back end, entire operations suffer."

On the other hand, Mr. Agarwal praises government’s efforts for bringing effective policies that have helped build ‘communication infrastructure’ in country in the last 15years. He states, “What is now required is better and low-cost broadband services across the country, especially in tier-II and tier-III cities. This would allow MSMEs to utilize enormous business opportunities present online.

Strong steps are required from our government to free MSMEs from the credit crunch worry too. Execution of priority sector lending policies for MSMEs demands rigorous approach. Also, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) needs to widen its ambit and cover more MSMEs which can avail collateral free financing. This will help entrepreneurs to overcome financial hurdles while setting up their projects or scaling up.

We also look forward to extension of facilities (such as Zero Duty Export Promotion Capital Goods (EPCG), Status Holder Incentives, etc.) for exporters under Foreign Trade Policy till March, 2014 instead of the current time line i.e. March 31, 2012. This will encourage MSMEs to achieve higher export figures.

We hope to see a budget that addresses key requirements of MSMEs in terms of basic infrastructure, simplification of taxation, easy access to funds, among others.”

MSMEs want Centre to offer access to sufficient credit: FISME

Indian Micro, Small and Medium Enterprises (MSMEs) have requested Centre to offer access to sufficient credit, which is important for survival and growth of SME production. 

 

The Federation of Micro, Small and Medium Enterprises (FISME) in the budget proposal to the Union Finance Ministry has stated that the venture capital and private equity funds are required by the SME sector to commence new ventures and surge the current ones.

The securitisation of trade receivables is likely be introduced to allow the bond market to develop and also lure funds in large volumes and at concessional rates in the interest of MSMEs.

Moreover, FISME has said that Non-Banking Financial Companies (NBFCs) can help to offer finance to the micro and small enterprises, but they are required to be actively boosted via supportive policies.

Read more: http://news.indiamart.com/story/msmes-want-centre-offer-access-sufficient-credit-fisme-156338.html

Challenges Faced by SMEs in Developing Countries

Small and Medium Enterprises (SMEs) are an integral part of any economy and play a vital role in supporting a stable economic environment. They are crucial in upholding the growth and existence of economy especially that of developing countries. SMEs are driven by combined efforts of private entrepreneurs, government and financial institutions.

Developing financial sensibilities
One of the key elements for an SME’s success is access to finance. In developing countries, SMEs face a number of hurdles while achieving the financial resources for building up of their businesses. Finance is crucial for any SME to acquire or absorb innovative technologies. Their expansion to global markets or association with other firms is also related to the availability of finance. Traditionally, SMEs find it difficult to avail credit or equity. Even maturities of commercial bank loans offered to them are limited to a very short period. Similarly, lower interest rates are extended to a very few companies.

SMEs are often considered to be high-risk borrowers because of insufficient assets and their vulnerability to market fluctuations. They are also very much susceptible to mortality. The existence of an information asymmetry caused due to lack of records in accounting and inadequate business plans often make them a difficult choice for creditors and investors. Also, the high cost of transaction or related administrative costs of lending small amounts make lending to SMEs a risky proposition. Even then, banks turn out to be the biggest supporters of SMEs. It has also been proven that banks would benefit commercially from lending to SMEs. 

Plan your finance and take the right ladder to growth

Find the right investors
Besides assistance from banks, SMEs can also rely on private equity firms which are experienced and expert in their businesses. They would prefer to invest in businesses which have a potential to grow. Many SMEs do not prefer such investments because of the interference by the equity firm members. However, there are certain investor firms who prove to be a viable option for funding as they use their own money for funding various initiatives.

Society has seen a new spurt of CEOs and successful entrepreneurs who are investing in new ventures and ready to support upcoming SMEs. These investors also provide their expertise to the firm and support them with their management skills. Bombay Stock Exchange (BSE) has already kick started its SME platform with the Rs 8.5 crore initial public offer (IPO) of a non-banking finance company (NBFC), BCB Finance. This has set high hopes for Indian SMEs who can now raise domestic capital for their own requirements through this way.

Alternatively, since SMEs have a bigger scope of getting their funds from banks, they can improve their credibility. Another solution offered is maintenance of better business plans, improved credit ratings and maintaining reliable financial information which would help banks and financial institutions in having more confidence in lending to SMEs.

SMEs can also go in for mergers with other firms to complete their fund requirements. Mergers also provide them opportunity to enter into international markets and form strategic alliances to expand their business and enter new productions. SME sector of any country is expected to drive the growth of any country’s economy and offer a significant opportunity for various investors to contribute in the future of a country.

Absence of loans, high interest rates affecting Indian textile SMEs: Rita Menon

The lack of loans and high interest rates are heavily impacting the small and medium enterprises (SMEs) in the textile sector, said Ms Rita Menon, Textiles Secretary. 

 

Ms Rita Menon, said, “SMEs in sectors like silk sector, power-loom and spinning are hit because of lack of working capital and high interest rates.” This statement has come on the sidelines of Apparel Export Promotion Council (AEPC) function here. 

The Union Finance Ministry is reviewing a loan restructuring proposal for the textile sector and a decision may come soon. 

The Textiles Ministry is not eyeing for 'cash outgo but a moratorium on loans for two years so that the working capital could be secured for that time period. The step of suspension of loan repayment for two years would be helpful in protecting the units from becoming non-performing assets.

Read more at: http://news.indiamart.com/story/absence-loans-high-interest-rates-affecting-indian-textile-smes-rita-menon-152189.html

Israeli Startup Changes the Way Customers Order Food in Restaurants

Innovation is the name of the game and who better than start-ups to lead the charge. Small and Emerging businesses are the one's which innovate across to create new offerings to solve many customer oriented challenges. The one advantage that SMEs have over many of their larger counterparts is that they have the open-ness and ability to think across many different directions to reach to a solution of a problem. Such innovations have in the recent times changed the way people engage and are slowly introducing an evolved form of interactivity in human emotion.

E-Menu the future of restaurant technology
One such Israeli startup has developed a technology which not only helps restaurants save cost on human resources, but also helps them keep the customers engaged with engaging games and participative ways of ordering food. The video below explains how:

How is this technology changing the game?

The very first thing by eliminating the whole concept of having waiters to serve at the restaurant. The touch screen technology also creates a whole new engagement level which the customer can interact with, while ordering food. You can present the customer with more elaborate information about the food they are ordering, hence empowering them to take an informed decision about what they are consuming. Also these screen can be used as engaged advertising mediums.

What is the simplest way you can experience this?

While many customers are using touch screen interactive devices like the iPhone and the iPAD, they are obviously touching information and consuming it in a manner which was not possible before. You can simply create such information and do a proof of concept with your target customers. Mobility is giving a new edge to businesses to help them reach out to their customers in a more personalized and engaging manner.

Team IndiaMART Knowledge Services is committed to create new opportunities or SMEs to grow. To know more about how you can leverage the internet and new media technologies, drop in a comment to this post and our team of experts will be happy to help!

Expert Speak: Mr. Priyesh Maheshwari

Facilitating the Process of Availing Finance for SMEs
The relevance of Small and Medium Enterprises (SMEs) in any economy is very vital as they form a major chunk of the the economic activity. They play a key role in industrialization of a developing country like India. They have unique advantages due to their size, their comparatively high labor-capital ratio, focus on relatively smaller markets and need for lower investments. They ensure a more equitable distribution of national income, facilitate an effective mobilization of resources of capital and skills and stimulate the growth of industrial entrepreneurship.

Innumerous but significant initiatives are required in India for ensuring prompt supply of financial resources to SMEs, such as adequate credit delivery to SMEs, better risk management, technological up gradation of Banks (especially in rural and semi-urban areas), change in attitude of financiers and so on.

This would certainly involve education and upliftment of the SMEs. 

Two most important things for SMEs is to be aware of financing facilities for their business. It includes:

-Highlight your own financing requirements for business; and
-Be aware of financier’s requirements

Whenever any business has financing requirements, it should be well communicated to the existing financial institution/advisor. In case of absence of proximity to any financial institution, one can ask for references from their business associates. It is important to note that requirements should be clearly communicated in terms of amount, tenor, mode of repayment, end use and means to repay the same. This would also help the financial institution to provide the best suited option for the business.

Typically, any financial institution would look at strengths and composition of the management of the company, legality of the business, positive outlook of industry in which the business operates, acceptable financial conditions (including present position of revenues and capital structure as well as projection), collateral value (if applicable), quality and strengths of business plans, clean track records of repayments for any earlier borrowings by the company or promoter group.

A financier should not only provide finance for the business but should also timely educate the small business owners and help them grow. A financier-borrower relationship can start with a small financial assistance and gradually when mutual trust is established, finance facility can also grow with business. Fruits of patience would surely be awarded in future.

Likewise Religare group also believes in maximizing customer returns. As businesses grow, so do their needs. We at Religare Lending Business understand the SME needs and have tailor-made offerings and processes to facilitate customer growth. Whether it is for new plant & machinery, equipment or inventory purchase, working capital or business expansion, SME Loans from Religare lending business provides the finance to businesses and help them gain uninterrupted growth.

We understand this in a very simple equation. We exist for and because of our trusting customers and that in their growth is our growth. Hence our entire focus is to help guide our customers to the next level through our sector expertise, specialized products, simplified processes and documentation, doorstep service delivery and keep our customers at the centre of our universe.

The author of the article is Associate Vice President, Product & Strategy - SMEs, Religare Finvest Limited.

To gather more information on various business application for SMEs, get in touch with the experts at IndiaMART Knowledge Services. Do drop in a comment to this post to let us know what else would you want us to share about!

The New Companies Bill for SMEs

With the Indian SME becoming the backbone of the emerging Indian economy and the growing Indian stature globally, there are structures to be created which facilitate growth for the SMEs towards their emergence as large sectoral players.

Source: http://www.thehindubusinessline.com/2010/07/14/images/2010071453431901.jpg

While we at IndiaMart have been constantly sharing with our SME partners on their views on the subject, many of them have responded back with the thought of a new set of directives to be proposed by the Governments which allows softer norms for SMEs to comply with, which create a holistic environment of growth and spur innovation and collaboration.

We realize that many a times SMEs in India face issues due to lack of information and hence this Knowledge Forum for the Indian SMEs (IndiaMartb2b.blogspot.com) aims at empowering the Indian SME with knowledge and helping them grow! This post dwells upon the companies bill passed for the SMEs in India which at least a step is motivating for the SMEs and we welcome the same.

What is the New Companies Bill and what does it mean for the SMEs?
A small company shall be defined as a company which satisfies three conditions:

• It should not have a paid-up share capital and a turn-over beyond a specified limit
• The company should not be regulated by any sectoral regulator
• It should not hold any subsidiary company

There has been talk all around as to how to create a holistic growth oriented environment for SMEs in India and how to increase their say in the growing corporate business environment?! Many suggestions have since come up and thought leaders have proposed plans.

We all realize the power of the ever growing SME segment in India. Its slowly becoming the backbone of true innovation and growth of the emerging Indian economy globally. For this growth momentum to gain speed and to sustain while creating and delivering value over the longer horizon, the government has to be involved actively and participate in creating and coming up with rules and regulations, which help the SMEs grow.

What is the proposed Bill like: in simple words!

At IndiaMart, our core focus has always been to make things easier and simpler for our partner SMEs and hence we explain the New Companies Bill in its entirety while maintaining simplicity:

• A company should not have a paid-up share capital and a turnover beyond a specified limit. According to MSME Development Act, 2006, a small enterprise is one having an investment of more than 25 Lakh Indian Rupees but less than 5 crore Indian Rupees, if it is dealing in the production of goods whereas if the enterprise is dealing in the rendering of services then the investment in equipment should be more than 10 Lakh Indian rupees but should not exceed the limit of two crore.
• The new bill also clearly states that a company is not to be regulated by any sectoral regulator, for it to gain a recognized status of an SME, this clearly implies that the companies which are governed by a sectoral regulator cannot be classified as SMEs. 

Example: Telecom companies, governed by (TRAI) do not classify under the provision for the small companies in the new Companies Bill

MSME Doing its bit towards Growth of the SME in India

MSME in India has been working to lower many burdening mechanisms which have been existing which make it difficult for a small and emerging company to grow faster. Apart from infrastructure being created and managed, there are new laws being set which relax the requirements for Small and Medium enterprises and help them flourish, towards becoming large working corporate.

• The new bill also mandates that the enterprise that is having other subsidiaries to it, cannot be classified as a small company and hence will not be able to enjoy the privilege of certain exemptions which are validated for SME's.

Its time that SMEs be recognized

Many of our partner SMEs have since time raised the concern that Small and Medium companies need to be recognized and there have to be a different set of levels of compliance for SME's. There have to be new set of expectations to be created for the SMEs which have to be regulated under a formal bill which allow the SMEs to practically explore new and emerging opportunities towards growth.

The new bill proposes to exempt small companies from certain provisions of the company’s act. Those exemptions will be notified by the central government separately.

We are sure, as emerging SMEs you will sure have pointers to raise and concerns to share which can help many fellow SMEs towards mutual growth. Drop in your comments to the post and we shall take steps that your voice be heard!

Finance for the SME: Government Funding and Schemes

Every SME requires a continuous flow of funds not only in the initial start-up phases, but also for ensuring successful operational efficiency.

Raising funds for the SME: various ways:
There are multiple ways for SMEs today to raise funds. Also there are multiple factors which the SMEs need to consider while raising funds. At various stages of business the requirement of funds are different. They could range from setting up a new business vertical, to scaling up in terms of human resources to expanding geographically.

Some of the popular existant ways to raise funds for the SME are:

1. Angel Funding
2. Venture Capital
3. Private Equity
4. Government Schemes
5. Banks

Focus: Government supported schemes!
There are many ways to meet financial requirement for the SMEs, the Government (both at the Central and State level) has taken several steps like formulating various policies and schemes, setting up of banks and financial institutions; etc.

This clearly shows the focus of the government towards emerging realization of the power of the growing and emerging SME segment in India. All such measures are focused towards helping the SMEs scale to the next level and play an empowered role towards nation building.

Banks:
The public sector banks are the major source of financial assistance to the SMEs. They extend credit support to the firms in the form of loans, advances, discounting bills, project financing, term loans, export finance, etc. Some of the active banks extending schemes for the SME are:

• State Bank of India (SBI)
• Bank of Baroda
• Andhra Bank
• IDBI Bank

Policies and Schemes for the SMEs by the Government:

Finance for the SME is a continuous need, basis the business. Recognising the need for a focused financial assistance to such industries, the Government of India, along with State Governments, has formulated several policy packages including schemes and funds to fuel the growth and development for the SME. Most of these programs of the Central Government are implemented through two principal organisations:-

National Small Industries Corporation Ltd (NSIC): has been established with the objective of promoting, aiding and fostering the growth of small scale industries in the country. NSIC has been assisting emerging enterprises through a set of specially tailored schemes which facilitate marketing, credit, technology and other supporting services.


Small Industries Development Organisation (SIDO) : is an apex body for promotion and development of small scale industries in the country. The major activities it undertakes are:-

• Conducting periodical census/survey of the small scale industry and generating data/reports on various important parameters/indicators of growth of the SME sector.
• Maintaining close liaison with other Central Ministries, Planning Commission, State Governments, Financial Institutions concerned with the development of small-scale industries.
• Advising the Government on formulation of policies and programmes for the small-scale industries.
• Facilitating the development of human resources by creating the necessary infrastructure for enabling skill upgradation through training.

At the State level, various State Financial Corporations (SFCs): have been set up by the respective State Governments for providing financial assistance to the industrial units. These local financial corporations emerge out as a close window of opportunity for emerging companies across India.