The country is keenly waiting for the new government to unveil its economic recovery strategy in the Budget 2015. Clearly, the fiscal stress that the country is going through has constrained the government to undertake bold reforms.
Manufacturing – Made in India
The BJP government’s ‘Make in India’ initiative could get top billing in the 2015-16 Union Budget with tax breaks and other measures for several sectors. Make in India is the centerpiece of the Narendra Modi administration’s bid to revive manufacturing activities and create millions of jobs. With the Chinese economy slowing, India senses an opportunity in the industrial sector.
It is without doubt that companies who decide to make in India shall not only contribute to the growth of the Indian economy but will also reap the benefits that access to such a phenomenal market and a great manufacturing hub can present to their own stakeholders in terms of growth. Opportunities in the shape, size and momentum of the Indian economy are extremely rare in the days of the global economic downturn and it is in the best interest of the companies themselves to be here.
The scenario for SMEs
While it’s hard to miss the air of optimism in the country, longevity of this sentiment was totally contingent on the announcements in the Union Budget. SMEs continue to be plagued with challenges that are inhibiting them from growth in revenue and scale.
The Union Budget 2013-14 did little to uplift the sentiments of the SME sector and offered no additional support and guidance. SMEs expect the new Narendra Modi led NDA government to focus on their key challenges and provide definitive schemes and programs to help solve long pending matters.
MSME, which are seen as the mainstay of the Make in India initiative, had the ministry proposing that there should be direct tax exemptions during the first three-year of operations, a move that may be tough to implement. To encourage small entrepreneurs, an Investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs. 25 crore in any year in new plant and machinery has been announced.
Clear tax policies for foreign companies and retrospective tax
After causing consternation in the international business community in the 2012-13 budget by way of a retrospective amendment to tax indirect transfers, the government has now proposed that all fresh cases of indirect transfer taxation arising will be scrutinized by a high level committee. Unfortunately, contrary to expectations, the budget does not contain any proposal that would provide relief to taxpayers who are already in litigation on this matter. In Part 2 of our post on the expected Union Budget 2015, we will cover GST and its impact on SME’s.