The small and medium-sized enterprises (SME) sector is a vital cog in the Indian economy. It employs approximately 40% of the country’s workforce and contributes to about 45% of the total industrial output. As the date of announcement of the Union Budget nears, there is plenty of talk about how SMEs could fare in the year ahead.
The SME sector can expect the following in Budget 2017.

  1. Corporate tax reduction
  2. A major expectation by India Inc. is a cut in corporate tax. Analysts expect the tax rate to drop to 25% from the current rate of 30%. This move will help garner more investment in the country, says the Associated Chambers of Commerce and Industry of India (Assocham).

  1. Cut in Minimum Alternative Tax (MAT)
  2. The Finance Ministry may also lower the MAT. At present, the MAT rate stands at 18.5%. Analysts are uncertain of the exact reduction in the rate, but it is believed that it could depend on a reduction in the corporate tax rate.

  1. Incentives to go digital
  2. Cashless transactions were among the key pillars of the demonetisation drive. Today, there are about 5.8 crore SMEs and micro-SMEs all across the country, as per a Business Today report. But debit cards are accepted in only 14.4 lakh of the locations that companies are present in. This is a huge disparity. The budget should keep this in focus. It should announce initiatives for SMEs to step onto the digital highway.

  1. Personal tax cuts
  2. Things are looking good from a consumer point of view in the case of SMEs and micro-SMEs. It is likely that the government will reduce personal tax rates. If not, it should at least revise the threshold limits. This will result in more disposable income in the hands of consumers. That may increase consumption of products and services from SMEs across India.

  1. Excise duty cuts until GST
  2. The goods and services tax (GST) is all set to roll out later this year. Among other things, GST may discourage larger organisations from employing tax-evading practices. But this also means that SMEs can no longer gain from excise duty exemptions. This would create a level playing field. So, SMEs may face more pressure. After all, they will face increasing competition from bigger companies. So, analysts expect cuts in the excise duty for SMEs until the introduction of GST.

  1. Regulations to lower interest rates
  2. SMEs and micro-SMEs are important for the Indian economy. But many SME owners face difficulty in getting adequate credit at reasonable rates. This has been a big setback for the SME sector over the years. But the outlook has improved since the credit guarantee increased to Rs.2 crore in last year’s budget. The upcoming budget could bring a further benefit. It could reduce the interest rates to support SME owners.

SMEs form the backbone of the Indian economic landscape. The betterment of these companies can occur through strong incentives. Going forward, the SME sector can expect some big changes. These could lead to a better business environment in the country.