With an eye on job creation, MSMEs set to get a boost in Budget

Monetary incentives under Skill India to small entrepreneurs, capital infusion into technology fund to help businesses expand operations

With recognition of micro, small and medium enterprises (MSMEs) as major employment providers, finance minister Arun Jaitley is said to be considering a number of proposals to provide boost to MSME businesses in his upcoming Union Budget 2016-17.

These proposals include providing monetary incentives under Skill India to small scale entrepreneurs to help them impart specific training to unskilled labour and a flush of capital into the Technology Acquisition and Development Fund (TADF), which is meant to help business the requisite machinery and technology to expand their operations.

Any such steps would be in addition to the big-ticket initiatives already announced by the Narendra Modi government including Start-Up India, MUDRA, and Stand-Up India for women and scheduled caste/scheduled tribe (SC/ST) entrepreneurs.

At the launch of Startup India this past Saturday, Jaitley had already pledged to ease regulations to encourage startup businesses and to lower long-term capital gains tax for new ventures in the upcoming Budget for the next fiscal.

Revenue secretary Hasmukh Adhia had said the Budget will address the anomaly of venture capital funds in unlisted companies attracting a long-term capital gains of 20 per cent compared with nil for investment in listed equities. Besides a three-year tax holiday for entrepreneurs is also expected in the upcoming Budget.

"When we talk of the focus on job creation as being a major theme of the Budget, we have to give importance to the MSME sector, whether technology startups or the more traditional businesses, as employment generators," said a senior government official aware of the deliberations.

The official said there was a proposal to provide monetary incentive to the traditional non-IT businesses for skilling people. "In a lot of cases, small entrepreneurs in non-IT businesses take unskilled people and train them as per their specific needs. Ways are being examined on how to incentivize such enterprises," the person said.

Additionally, the TADF, which was set up by Commerce Minister Nirmala Sitharaman in November, is expected to see an allocation, of which there has been none yet, as per the official government statement on the matter.

TADF was set up to facilitate acquisition of clean, green and energy efficient technologies, customised products, specialised services, patents, and Industrial designs available in the market in India or globally, by MSME businesses.

Apart from these initiatives there are also MUDRA and Stand-Up India. Earlier this month, the Cabinet approved the Rs 3,000 crore (Rs 30 billion) MUDRA Credit Guarantee Fund (CGF) that will act as hedge against default of Rs 50,000 to Rs 10 lakh (Rs 1 million) loan extended to small entrepreneurs and the Rs 5,000 crore (Rs 50 billion) Stand Up India CGF for guaranteeing Rs 10 lakh to Rs 1 crore loans to be provided to least 250,000 SC/ST and women.