The government is examining steps to boost India’s small enterprises — the domestic industry’ lifeblood — with a slew of measures including tax breaks, easier loans, financing support through venture capital funds and simpler labour laws.
Some of these schemes could be announced as part of the Union Budget for 2014-15, likely to be presented in the first week of July.
A source familiar to the matter said that the measures will likely draw upon the suggestions made by an inter-ministerial panel in its report in September last year to accelerate manufacturing in micro, small and medium enterprises (MSMEs) .
The government may raise excise tax exemption limit for small and medium enterprises from the current Rs 1.15 crore to Rs 5 crore.
The existing policy framework does not encourage on success. When a unit expands, it immediately loses the tax benefits associated with “a small industry”. For example, with expansion the unit would no longer be eligible for excise exemption.
In last year’s budget (2013-14), the government allowed enabling the units to continue availing of the non-tax benefits for additional three years upon expansion.
“Similar benefits should be extended for tax benefits as well,” the source said.
There are about 30 million small, micro and medium enterprises in India. Put together, these factories contribute to half of factory output, 45% of exports and employ more than 60 million people (India’s organised service sector employs about 33 million).
There is also a possibility that the government may extend the concept of “investment allowance” for small units by creating a separate threshold of about Rs 10 crore.
In 2013-14, the government re-introduced the concept of an investment allowance, where companies investing Rs 100 crore or more in machinery got to deduct an investment allowance of 15% of the investment” in addition to depreciation.”
“The government may also consider extending the benefit of investment allowance to MSMEs to encourage them to expand,” the source said.