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SME Trends in 2017

With the Indian economy expected to emerge as the most leading economies in the world, a great impetus is being laid on the growth and development of the SME sector in India. Here are some of the major trends that were dominant in the year 2017 in this sector:

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Advancement in Technology

The advent of advanced technology has given rise to newer channels for businesses across several sectors. This is particularly true for B2B ecommerce firms focused on the Indian SME sector. Further, innovative technological platforms is making possible in bringing on board many small players including the neighborhood kirana store. This is proving to be a win-win situation for all, thereby enabling smoother transaction, procurement of raw materials and industrial goods, and forging a forging a better connection between established brands and small shop owners. With SMEs in India expected to be a  $25.8 billion market for emerging technologies by 2020, the B2B ecommerce is a trend that is sure to gain more momentum in 2017.

Amalgamation of ecommerce & m-commerce:

With the deeper penetration of Internet in recent times, digital transformation in the Indian SME sector is no longer a distant dream. This coupled with extensive usage of smartphones which are becoming more accessible and affordable, is resulting in SMEs simultaneously adopting to both web as well as mobile based technology. As per an EY report, companies have shifted their focus on mobility as against social resulting in a change from Social-Mobility Analytics & Cloud (S-M-A-C) to Mobility-Analytics-Cloud & Social (M-A-C-S). M-A-C-S technologies are being readily adopted by second generation entrepreneurs in order to bring in operational efficiency and transform customer experience and thereby enhance their revenue. Indian SME sector is geared up to benefit the union of ecommerce and m-commerce as a perfect recipe for success in 2017.





Improvement in SME Lending:


One of the constraints in the growth of the SME sector is the non availability of easy finance.  Small and medium enterprises face difficulty in banking with traditional banks due to lack of experience, absence of collaterals and infrastructure, poor financials, and small ticket size. Emergence of Fintech players with their significant online presence is now making it convenient for the SMEs to receive loans. The year 2017 has experienced a surge in NBFCs with special focus on offering customized loan solutions on online platforms. These alternative lending companies are using technology like analytics and other scanning metrics like their sales and fulfillment records to check the credit worthiness of the sellers and disburse loans in less than 48 hours. Many mainstream banks like Bank of Baroda is partnering with new age Fintechs to expand their reach in the SME sector.  


Government Initiatives

The MSME sector is expected to contribute significantly to India’s growing GDP. This sector is projected to improve the nation’s financial inclusion and mitigate the urban rural divide.  Again, it is expected that by 2020, India will have the largest job ready, youth population in the world and this sector will not only generate employment of significant level but will also become the hotbed of entrepreneurial activities. The government realizes the urgency for providing a congenial atmosphere to foster the growth of Indian MSME and 2017 witnessed the strengthening og current policies and introduction of new initiatives to improve the business environment for MSMEs. Secondly, the implementation of the much awaited GST Bill has benefitted MSMEs not only with simpler tax structure but also with improved technology adoption in order to comply with GST system. With the “one Nation, One tax” approach, Indian is poised to be an open market helping SMEs explore new markets with few entry barriers for business expansion. The GST bill is set to revolutionize the Indian tax system and offer the SME sector an equal footing as compared to their bigger more established counterparts.


To conclude, 2017 has been a year of progressive changes in the Indian SME sector based on the above-mentioned trends. Several policy interventions along with technology and innovation continue to play a pivotal role in creating a business-friendly atmosphere for the SMEs. 


2017: A better year to set-up MSME Business

The nation as a whole is on a massive drive to become cashless and the government is trying to promote cashless transaction as a weapon against corruption. Tough it is yet to be decided whether this drive would be completely successful, a cashless economy holds a lot of hope for the MSME segment. Let us look into how cashless transactions will help in MSME business. For one, going cashless will help entrepreneurs keep their monetary dealings transparent and thereby help them to get low interest business loans. It would also help small businesses to avail loans easily. The load of paperwork to get a bank loan has diminished and it is a matter of days to get loans sanctioned courtesy to NBFCs. Moreover, with the introduction of several pro- MSME government policies, business finance has become even easier this year. Several non-banking organizations are also collaborating with banks or financial organizations to extend help to the small or medium business ventures. SMEs can also procure hassle free funds from online lending companies to build their business. 

Another marked change visible in 2017 is that the competiveness of the manufacturing industry is increasing rapidly and it is amply visible is the big Indian cities like Pune, Kochi, Chennai, Delhi-NCR, Kolkata, Mumbai, Chandigarh, Bengaluru, Hyderabad, and Ahmadabad. The service tax structure of the country has also been reviewed and the new structure is also shaped in favour of SMEs

SMEs pertaining to electronic goods, building materials or automobile parts will largely benefit as the central excise duty has been reduced significantly. Taxation on purchase as well as the advertisement will be lowered in the days to come. 2017 is projected as a year that will make possible for SME owners to enjoy skilled workers, better energy usage and cost competitiveness and thereby enhancing the success ration in their business.  

Lastly, Make in India initiative has improved the industry standards and most policies are reworked upon, signalling the growth of MSME in India.

1.       Impact of GST on MSMEs:  

The most awaited reform in 2017 is implementation of GST bill.  The GST Bill is expected to benefit MSMEs not only with simpler tax structure but also with aspects such as improved technology adoption in order to comply with GST system. An in-depth study into the impact of GST on MSME brings into perspective the following features:

Negative Impact of GST:

While tax neutrality is a factor welcomed by MSMEs, reduction in duty threshold has become an area of major concern. The GST bill proposes a reduction in threshold to Rs 9 lakh as compared to the central excise law threshold of Rs.1.5 crore.  (However, GST council has increased the threshold limit from 10 lakh to 20 lakh and from 4 lakh to 10 lakh for North eastern states). The present GST reform demands that any service provider or retailer will be subjected to levy of service tax. The current central excise law is Rs.1.5 crore. This reduction in threshold will significantly impact the MSME’s working capital. For example, a trader today who does business of Rs 50 lakhs today without any tax imposition will be expected to pay GST post implementation. At present with a low threshold, most MSME are exempted but in future, they are expected to pay a big chunk of their capital towards tax. With GST implementation, there is no tax differentiation between luxury and normal goods. In the past, the state and the central government was levying higher taxes on luxury items. Under GST, all goods and services come under same tax bracket leading to rich becoming richer and poor becoming poorer. This is an uneven situation with MSME competing against large businesses. Thirdly, under selective tax levying, in alcoholic liquor for human consumption and Petroleum based businesses, GST is not applicable. This creates a gap and goes against the “unified market” ideology of GST. In the past, Service Tax rate was 15% while GST rate will be around 18%. Further, the concept of Centralised Registration has been done away with and each unit in different states will have to take separate registration. Therefore, even if services are supplied by company’s one Unit in State A to another Unit in State B , then also taxes will be payable. Another negative impact that GST Implementation is that the taxation of stock transfer will affect working capital requirements.  The quantum of impact will vary depending on stock turnaround time at warehouse, credit cycle to customer, quantum of stock transfer, etc. Higher amount of Capital Requirement will increase interest cost which ultimately will increase the price of Finished Goods.

On the positive side, GST has made it easier to start a new business. In the past, the Sales Tax department had various turnover slabs which required VAT registration. Therefore, a business with multi-state operation in this case had to abide by all tax rules applicable to different states. This created not only complication but also burdened the MSMEs will additional procedural fees. Now, with uniform GST, the process will be standardized.  GST will also pay a significant role in MSME market expansion. Pre GST, big corporations procured goods based on the locality of MSME in order to reduce overheads. Consequently, they preferred to limit the customers within the state to save on the burden of tax and as a result lost out on this customer base. In the present scenario, this will be nullified and the tax credit will get transferred. This has made possible for MSMEs to expand across borders.  Another benefit of GST lies in the fact that it is tax neutral and therefore it eliminates border tax procedures and toll check posts.  This will promote supply of goods across borders and reduce the logistics cost for manufacturing bulk goods. This will be a breather for all small MSMEs.

GST does not demarcate between sales and service. Consequently, companies that follow both sales and service model of business will have a simplified taxation plan and will be calculated on total. GST has made possible that the entire amount of input tax to be credited in the year of purchase in the purchase of capital goods. Previously, only 50 percent of the amount was available in the year of purchase and the balance in subsequent years. This policy is a definite step towards the “Make in India” campaign. 

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