SMEs in the Budget

The ailing small and medium enterprises of the country are in dire need of a lifeboat amidst lack of financing, energy crisis as well as weak institutional support. So how does the budget fare in increasing competitiveness and productivity for these ailing enterprises that should be catalysts for overall economic growth?
The budget has tried to address export competitiveness of small and medium enterprises (SMEs) through some positive measures like a lower rate for the Export Finance Facility from 4.5 percent to 3 percent. In addition, the highly sought after "no tax, no refund" policy for promotion of the five export sectors has also been granted. This includes the textile, leather, sports, and carpets, surgical and medical goods sectors, all of which have a significant number of small and medium enterprises involved in production of these goods.
Other proposals include incentivising the cottage industry by enhancing the limit of annual turnover from Rs5 million to Rs10 million for exemption from taxes.
Another encouragement came in the form of a reduction in the rate of Long-Term Financing Facility for the up-gradation of technology provided in particular to the value added sector. The government also plans to set up a Technology Up-gradation Fund for the textile sector to promote the adoption of new technologies for SMEs operating in the sector. However, it would be necessary to conduct awareness seminars and training on textiles entrepreneurship in innovative business development and product diversification so that SMEs can realise how best to utilise this tech fund. Most SMEs are not yet aware of the progress in production methods using the latest technology, which has left them to continue using out-dated and often inefficient methods.
The government has also announced a host of measures to alleviate the poor condition of the agricultural sector, which includes reduction in the amount of taxes and duties imposed, reduction in price of fertilisers and enhancement in the amount of agricultural credit available to small farmers. This column will analyse the efficacy of these proposals in the days to come.
Although the budget proposals warrant some appreciation for promoting the SME sector through favourable proposals, yet it has to be understood that these measures on a standalone basis will not be able to provide the boost the sector requires. For one, market linkages are crucial for increasing export orders, and only if export orders are increased can proposals like "no tax, no refund" be taken advantage of.
The policy framework should be aimed at boosting diversification and encouraging businesses to introduce innovative product ranges as well as explore new markets. Exports for value-added goods should be incentivized as opposed to raw material and semi-finished products particularly in the sectors granted a zero tax rating.