Uncategorized

Small is the New Big

Small business can help unlock a fuller potential of Indian economy

A closer connect with the local environment, low overheads and faster decision making enable the MSMEs to be more responsive and resilient in the wake of changes

At a time when sustainable development of the economy is a growing concern, did you know that playing your role could be as easy and simple as buying local? Yes, barring a few areas of exception, locally sourced and produced goods have lower carbon footprints, which makes them lighter on the environment.

How? Take the example of locally grown fruits and vegetables that are sold in the local markets. Now, even if lorries are used to port these goods from the farms to the markets, very little fuel is burnt as compared to a scenario where the goods are transported to more distant towns and cities. In smaller cities and towns, where bullock carts or hand trollies may often be employed, the carbon footprints are even smaller.

The analogy is extendable to the micro, small and medium enterprises (MSMEs) in general. These businesses also tend to employ more people from the nearby communities and contribute to their financial empowerment, which is important from a social sustainability point of view. In fact, given that MSMEs employ around 40 percent of the workforce in India, they literally form the backbone of the country’s economic sustainability.

Equally importantly, the MSMEs also serve as the suppliers and ancillary units for the large enterprises, both in the manufacturing and service sectors. It goes without saying that a vibrant supply-chain ecosystem locally could make even the large enterprises more competitive globally. Even a country like China, which is already the world’s dominant shop floor, has recognized the need to further strengthen its SME sector and has been taking policy-level measures to the effect.

The sustained market leaderships of companies like Maruti Suzuki are a testimony to the role that MSMEs have got to play in the success stories of large enterprises in the country. It is a well-recognized fact that much of Maruti’s cost and operational efficiencies are a result of the thriving supply-chain ecosystem that was built around it locally. Even though most of the large passenger car makers have established their base in India, Maruti continues to maintain its leadership. The same holds true for companies like Tata Motors and Mahindra & Mahindra in their respective automobile fortes.

Amul is another example of a large home-grown enterprise that has thrived on the back of a vibrant local supply-chain ecosystem. In fact, the brand stands for more than just an enterprise and may be seen as a culmination of a cooperative movement at its best. It is also a neat illustration of how sustainable growth could be achieved by leveraging a cooperative model that leverages micro businesses or even marginal individual suppliers.

What makes MSMEs capable of contributing to the growth of the economy is their ability to be flexible and resilient in the wake of changes in the environment. Their owner-driven characteristic makes it possible for them to be more responsive and nimble. Also, they have low overheads and simpler organizational structures, which makes decision making and financial controls easier to maintain.

These organizations are also mostly better rooted in their surrounding social environments, which makes it possible for them to be more sensitive to the expectations of the communities. In particular, the micro businesses are able to establish closer bonds with the environments from which they derive their human resources.

It is therefore important that MSMEs are further leveraged to unlock a fuller potential of the Indian economy. To achieve that, they need to be incentivized through Budgetary instruments such as taxation.

Incidentally, in the Union Budget for the fiscal 2016-17, the government just seems to have taken some concrete steps in that direction.

The Budget provisions that small businesses with turnovers up to Rs 5 crore in the fiscal gone by could avail lower corporate income tax rates of 29 percent, though surcharge and cess components are left untouched. Also, if these businesses are registered in the fiscal of 2016-17, they could exercise an option of being taxed at the rate of 25 percent (apart from surcharge and cess), subject to certain conditions.

Further, the ceiling under the presumptive taxation scheme (PTS) has been significantly relaxed, which is a major incentive in terms of ease of doing business for MSMEs. It is particularly likely to benefit the smaller businesses among the MSMEs. From an existing Rs 1 crore, the turnover threshold has been raised to Rs 2 crore before making it compulsory to maintain the detailed books of accounts and get audits done. Even professionals who have less than Rs 50 lakh in annual receipts will from the new fiscal become eligible for the PTS benefits.

The stage has been set just in time as India prepares to cruise ahead on an economic growth trajectory.

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