The past couple of years have been a roller coaster ride for the Indian SME and MSME segment, as it prospered amidst a supportive policy environment.
Foreseeing the future growth of Indian economy globally, which is expected to touch $5 Trillion by 2025; the Government is giving major impetus to strengthen the SME sector that forms the very backbone of Indian economy. With such growth prospects, the Government has also undertaken numerous initiatives to boost the segment, in view of its contributions in terms of increased job opportunities in the market, promoting innovation and entrepreneurship, along with its contribution to GDP.
SMEs and MSMEs being regarded as the frontrunner of the socio-economic development of the country, is now geared up for the year 2017, with a plethora of advantagesready to play during the year. As the industry preps up for the year ahead, there are some benefits, which are quite apparent, while for the rest, the industry waits in anticipation, indicating the year 2017 to be an interesting one for SMEs and MSMEs.
Historically, lack of easy access to finance has been a major deterrent for the growth of SMEs. This is being addressed through rapid deployment of technology infrastructure that promises to extend credit access. The same is being reinforced through specialist alternate lending and Fin-tech firms. These Fin-Tech firms are offering instant fiscal support to small and medium enterprise hard pressed by lack of financial support from traditional banks due to absence of collaterals and infrastructure, unorganized financials, lack of experience and smaller business models. Thriving on their notable online presence and integration with existing supply chain relationships, these Fin-Tech players are making life easier for small and medium businesses vis-à-vis availing loans. Backed by their best in breed technology, these companies analyze credit worthiness of sellers, using analytics and other scanning metrics like their sales and other fulfillment records to sanction loans for them in less than 48 hours. Simultaneously, there are many traditional banks those have come forward to join hands with these new-age Fin-Tech firms to expand their reach in the SME segment – these partnerships are likely to provide scale to such initiatives.
The New Year favors of GST
The GST bill is going to be in the spot light in the year 2017. The implementation of this bill is anticipated to be in favor of MSMEs with simpler unified tax structure and other aspects such as improved technology adoption to comply by the GST system. The GST system has adopted 'The One Nation One tax' methodology, which is predicted to make India an open market that will aid SMEs and MSMEs to explore newer markets with negligible entry barriers enabling business expansion. Therefore, touted to be a revolutionary reform in the Indian tax system, GST bill will offer the SME sector equal opportunity as compared to their well-established counterparts.
In a significant departure to erstwhile taxation reforms, a large scale technology infrastructure has already been put in place to support GST reforms. Even more significantly, the GSTN is fully API-enabled, which means that the GST data would be easy to share. Availability of a comprehensive repository of data regarding goods and services transactions in the country will improve assessment of SME businesses for purpose of credit, and hence start to fill the gap regarding data availability for SME businesses.
Credit Guarantee Enhancement
Furthermore, adding to the excitement and courtesies of the year 2017, right before the world immersed and reveled in the glory of New Year, Prime Minister Narendra Modi announced New Year measures favorable to farmers, urban poor and small entrepreneurs. Applauding the SMEs and MSMEs, he announced the doubling of credit guarantee from INR 1 crore to INR 2 crore, in a bid to increase the banking sector fund flow to the SME sector.Such credit guarantee programs will now be extended through NBFCs as well. The steps announced are aimed at lowering the borrowing costs of the SMEs.
Similarly, escalating the cash credit limit from 20% to 25% will help them in their working capital requirements and aid in trade movements, thereby fuelling the growth of this segment.
Therefore, it can be safely concluded that the coming year can expect many progressive policy intervention, coupled with pivotal technology and innovation playing its role, creating conducive growth environment for SMEs and MSMEs.