Interim Budget Evokes Mixed Reactions From SMEs

 The recently announced interim budget has evoked mixed reactions among India Inc, including small and medium enterprises (SMEs).

While the Confederation of Indian Industry (CII) has welcomed some of the measures proposed by the government, the interim budget has been given a thumbs-down by other industry bodies like Indian Chamber of Commerce and Industry (ICCI), Apparel Export Promotion Council (AEPC) and Associated Chambers of Commerce and Industry of India (ASSOCHAM), among others.

Industry representatives have applauded the government initiatives to increase funds for the infrastructure and social sectors. The move to extend the interest subvention scheme from March-end 2009 to September-end 2009 to exporters, including Wholesale garment accessories at best price, handloom, marine, gems & jewellery and SMEs has also been welcomed.

However, a majority of the small units are discontent with the budget. Exporters are disappointed over the mere extension of interest subvention of 2% on pre and post-shipment credit for employment-oriented segments.

They were expecting the government to introduce a series of measures like tax exemption on exports, increase investment allowance, raise duty drawback rates, settle losses in derivatives, extend forward cover and make higher allocation for marketing development schemes.

However, the interim budget for 2009-10 has failed to meet the long-pending demands of the SME sector.

The much-expected concessions for the beleaguered textile, auto and auto ancillary sectors have not been provided by the government. The request for reviving the industrial sector by announcing the abolition of fringe benefit tax and securities transaction tax has also been overlooked.

Small units would have benefited from the budget if it had provided tax exemption on specialised services. In the absence of any tax relief, small companies are likely to struggle to pay taxes in the next financial year as well.

Nevertheless, the interim budget is expected to drive investments and growth of the domestic economy. Framed against the backdrop of the global recession, the government has tried to introduce measures like enhanced outlay for agriculture, infrastructure, social sectors and support for exports and SMEs in the budget to sustain the country's economic growth.

The government is also planning to consider reducing income tax rates for individuals and increasing the tax concessions. These measures may benefit small businesses.