Union Budget 2017: Arun Jaitley gives tax sops to startups/SMEs, but key concerns remain

SMEs would get 5% reduction in tax rate, announces Finance Minister Arun Jaitley

by | Feb 2, 2017 | General, SME

Union Budget 2017 strengthens the push to a digital and cashless economy. It takes baby steps towards Digital India, the move that was started with the demonetization drive. Union Budget 2017, which has revolved around farmers, youth and affordable housing, has provided tax exemptions for SMEs and startups.

Small and medium enterprises (SMEs) have got a drop of 5% on the tax rate, which, according to the Finance Minister Arun Jaitley, should end up benefiting 96% of the businesses. These moves have been welcomed by industry. SMEs and startups employ 40% of India’s workforce. The skill upgradation program and tax relief for MSMEs will strengthen the economy.

“I want to welcome Union Budget 2017. Increased spending on rural economy will help India. Finance Minister has made a push towards Digital India and wants to encourage cashless economy. I hope Budget provisions will provide boost to economy. However, I expected more policy measures for MSMEs and startups, particularly in the IT sector, at the grassroots level,” said Shashank Dixit, CEO, Deskera, a global provider of cloud software.

However, institutional reforms are needed for the growth of the SME sector, which is still unorganized as well as unregulated. They face fundamental issues, such as red tape, institutional apathy, corruption and insufficient financial support. Budget 2017 could have done better to improve ease-of-doing business for SMEs and startups. The startup ecosystem had hoped for a more organized and energized plan. Investments have been falling; a majority of startups underperform. Around 85% of the startups fail due to factors including lack of viable business model and/or financial crunch. The main concerns of SMEs as well as startups need attention. The Startup India plan is witnessing a waning of interest among investors and other stakeholders.

The downward trend in startup ecosystem needs to be arrested. Institutional reforms along with improved ease-of-doing business are the need of the hour. This will improve profitability of small businesses and help loss-making startups. The Indian government should also try to get the views of the stakeholders of the SME sector, listen to their issues, and formulate a plan. Overall, the business climate needs to improve.

Looking at the big picture, startups and SMEs have welcomed the Budget, calling it forward-looking, which will improve the business environment. However, larger questions about imparting a direction to the MSME sector and the need for institutional reforms remain. Probably, Budget 2018 would take more steps and accelerate the digital transformation of India.

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