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Demonetization and GST, The Nightmares of an MSME

This article written by Hardik Vats, presently working as content writer with LegalRaasta.

Biggest Market Playssssers: Demonetization and GST:

The past 2 years of 2016 and 2017 have been nothing short of path-defining years for major changes introduced in the management of finances and taxes in India. The first significant and somewhat controversial of these changes was the note-ban put into action on the 9th of November 2018. Another one of the big changes to the system was the introduction of the Goods and Services Tax (GST) Act on July 1, 2017.

It’s been more than a year since these changes were implemented and the general population seems to have adjusted their day-to-day activities accordingly. Some even acclaim the genius of these changes. However, MSMEs (Micro, Small, Medium Enterprise) were not as happy with the aftermath that followed the implementation of these huge changes in governance since credit exposure fell low and the frequency of exports fell drastically.

MSMEs: Critical to business dealings in India

Even In the age of Franchises and big-money corporations using extravagant online outreach programs and user-targeting with analytics, small local businesses, as well as MSMEs, have proven to remain pivotal to the country in terms of their contributions to the economy of the country. Here are some facts about the MSME sector in India and the contributions to our economy which cannot be overlooked.

· The MSME sector in India is a vast network of organizations with over 6 Crore 30 Lakh (63 million) companies who have undergone MSME Registration.

· MSMEs provide employment to an estimated total of 11 Crore 10 Lakh people(111 Million)

· With GDP contributions amounting to 30% MSMEs are a crucial source of revenue generation for the economy.

· 45% of the country’s manufacturing output is delivered by MSMEs

· MSMEs are responsible for over 40% of all exports from the country.

Thus, it is easy to see why MSMEs are pivotal to all business dealings in India. However, the implementation of notes ban and the GST act has exposed the MSME sector to a wide range of issues the effects of which can still be seen in the way companies now handle their administration.

GST and Demonetization: A hurdle for MSMEs

GST and Demonetization as a whole have been very helpful in laying down specific guidelines and laws dictating these areas of the economy. However, MSMEs have suffered some setbacks which makes it hard for business owners across the country. Here’s a list of challenges MSMEs have been facing since the implementation of these two provisions.

· Relative Credit Exposure declined drastically even though it was brought to normal standards by March 2018

· Exports have gone down drastically since the implementation of GST

· The payments of contractual labourers employed in wearing apparel as well as Gems and Jewellery industries were either restricted or not paid for at all since the notes were banned. Outstanding payments caused distress

· Implementation of GST led to a significant rise in compliance costs as well as operational costs of MSMEs.

Conclusions

Therefore, MSMEs faced a lot of troubles while dealing with implementation of the ever-changing laws and reports from RBI also suggested that more than 60% of MSMEs were not even equipped to deal with the changes in the Tax regime. The situation for MSMEs across the globe is also challenging because there is a reported 251 billion dollars’ worth of shortage of credit options for MSMEs which is not an encouraging statistic to look at if you’re a business owner. MSMEs are also crippled by their inability to access timely and adequate financing which means credit appraisal becomes tough for such organizations.

However, it is not all gloom and doom for MSMEs with the GST regime stabilizing and the government taking active steps for the betterment of MSMEs. On the 4th of August 2018, the GST council held its 29th meeting where declared multiple provisions for the betterment of MSMEs and their administration. Few of these steps include Increasing threshold exemption on taxation for inter-state supplies and setting up a committee to better study the issues surrounding the Micro, Small, and Medium-sized Enterprises.

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