Budget 2021 Expectations: ‘Tax exemption, interest reduction, power subsidy needed for rural MSMEs’

• By Rajesh Radhakrishnan

Union Budget 2021-22 Expectations for MSMEs: In the upcoming budget, the government should offer a tax holiday of one-two years to the Micro, Small, and Medium Enterprises (MSMEs) affected by the ongoing Covid-19 pandemic crisis. Many MSMEs have been deeply impacted and they are on the verge of winding up, especially those who come under the sectors such as retail, travel, hospitality, textile, jewelry, auto, etc. They should get the tax benefits. On a case-to-case basis, the government should think on the lines of reduction of interest rates or giving tax benefits to the affected MSMEs. Retail, being the backbone of the country, has to be protected at any cost, no matter how much e-commerce has grown.

This is the ideal time for the government to kick start the rural economy by supporting the MSMEs. Today there are a lot of approval processes and barriers for starting a new business, even for setting a small manufacturing or a cottage unit. This has to change. In a country like China, every household produces something. China was once an agrarian economy like India. However, decades ago, favorable government policies helped in easy diversification to activities such as rural manufacturing, growing its economy, and converting China into an export powerhouse.

India should encourage its villages to diversify into self-employment, cottage manufacturing and services, and reduce dependence on agriculture. This will aid the government’s ‘Make in India’ initiative and make the country truly ‘AtmaNirbhar’. The villages can be the right place for producing semiconductors, textiles, pharmaceuticals, and running BPOs. If textile manufacturing could be expanded to villages, India can regain its status as the textile capital of the world. We can produce a lot of products of export significance in our villages, which will catapult the country into the global supply chain as a low-cost producer when China is facing issues today.

The model should make it easy for MSMEs to enter and exit easily, diversify into alternative businesses when the current ones are not working, etc. Making the market competitive will bring the costs down. The government needs to offer tax exemption, interest reduction, and power subsidy for rural entrepreneurs. Land and labour costs will be low in villages and small towns. Solar power needs to be harnessed in villages that will bring down the power costs.

Today on account of the telecom revolution, the difference between a city and a village is dwindling. Especially after the Covid crisis, one can operate from anywhere be it urban or rural. By creating a flexible model, a lot of production could be shifted to villages and semi-urban towns, giving significant employment potential to local people. There are many successful MSME owners who wish to shift their production or start new ones at their native villages as a gesture of giving back to their birthplace. However, they can be inspired only by creating the right model.

Only MSMEs are well placed with competency, flexibility, local market understanding, and experience to bring about this rural revolution. For startups, it will be difficult due to their nascent nature. Large companies will have their own business model and will be lacking flexibility.

MSMEs adopting CRM, ERP solutions or plant automation should be incentivized. Banks should be encouraged in funding the digitization efforts of the MSMEs.  If there is a demand for a product, it can be met by a startup. Startups need to be given tax holidays for one-two years which enables them to grow and get into the league of MSMEs.

Covid-19, although has affected the whole world, has also taught one to be resilient. With the telecom infrastructure at its firm place in the country, the situation has helped urban India grow in terms of remote working, online education, online health consultation, and telemedicine. This is going to be the new norm even if the pandemic ceases in the future. With the right funding, well-trained resources, and relevant technology infrastructure in place, the villages can be gradually transformed into a production hub. This change can be undoubtedly brought by MSMEs.

Rajesh Radhakrishnan is the Chief Marketing Officer of Vritti Solutions. Views expressed are the author’s own.