MSME Sector in India - Recommendations on Legal, Tax and Labor Policies - Part - 34

Recommendations on Legal, Tax and Labor Policies

MSME Sector in India

Part 34


1. Manufacturing MSMEs in the organized segment should be encouraged by offering lower corporate tax rates, exemptions and concessions in Direct Tax in the first three years of operations. Such a tax exemption may not lead to significant loss in Government revenue as the first few years generally involve considerable struggle for establishing a business.


2. State governments to be encouraged to approve public procurement policy at the State level. The policy measure, should not only be looked as a means for enlarging the market for MSMEs, but also as a means of building enduring professional relationships between the government enterprises and the MSMEs


3. Government should simplify procedures and reduce paper work for processes related to registration for VAT and other local taxes, land/property and provision of utilities. This is critical as majority of the MSMEs do not have much of knowledge and expertise in various company laws and taxation policies, and also do not want to approach legal experts or CAs for consultation because of the high cost involved. Additionally, Governments should encourage the use Information technology to simplify and ensure greater transparency in the services.


4. Simplify legal procedures and overhaul existing bankruptcy Laws to facilitate quick closures and exit. Ministry of MSME to conduct a detailed exercise on simplifying procedures for closure of MSME units. The focus should be on streamlining the procedures and improving the access and understanding of information for MSMEs. These procedures relate to legal compliances under the company law, labor laws, direct taxes, excise and service tax, customs and DGFT, VAT, power utility, water utility, municipal body, creditors, financial institutions etc.


5. The Department of Financial Services to also look into revamping of policies on bankruptcy laws to help viable companies survive while safeguarding the interests of the creditors. The intervention in the existing policy should be such, that it helps viable companies in distress, and make closing and re-starting easier.


Establish compliance assistance center for MSMEs in MSME Development Institutes to create awareness on better environment management practices, policies and procedures as well as for better compliance of environment regulations.


6. Establish strong legislation for IPR enforcement. Existence of weak legislative and enforcement mechanisms on IPRs have severely dented the country’s commitment to promoting innovation.

7. The compliance of labor related enactments should be simplified and be linked with incentives so as to ensure better adherence by MSMEs.

8. The Government should initiate steps to ensure ease of setting up business. The Government should announce additional measures to fast-track decision making, provide quick clearances, reduce regulatory compliance burden and bring down the cost of doing business.


Suggestions for MSMEs

Recommendations / Suggestions for MSMEs

1. Establish strong accounting system and use ICT for data management and control- MSMEs should invest in a strong accounting and reporting system for managing company related information. Adoption of ICT / accounting software’s should be encouraged for better data management and control.


2. Develop managerial capabilities and establish a strong organization structure –A clearly established organization structure with clear lines of authority will precipitate prompt decisions and give confidence to lenders to sanction loans / enhance existing loan limits.


3. Build strong succession practices – Strong succession planning will ensure business continuity in case of a disaster or unforeseen conditions. This will further strengthen lender confidence in the firm.

4. Establish well defined debtor mgt. practices- A clear well defined system of debtor management should be established. There should be a process of identifying possible risky parties and issuing internal red flags. Analysis of outstanding while processing purchase orders should be internally set in stone in the business. This will also help the firm seeking credit as most lenders consider cash flows while appraising loan proposals.


5. MSMEs should adopt modern technology / lean manufacturing techniques to cut out excess activities during the procurement, production and distribution phase. Techniques such as Kaizen, TQM and Six Sigma would help in eliminating unnecessary activities and result in optimum utilization of resources.

6. Identify and choose and appropriate financing option- MSMEs to evaluate the pros and cons of each financial option before selecting the final choice. Decisions to borrow at exorbitant rates from the grey market should be avoided.


7. MSMEs should proactively assign resources and time to gain understanding of the applicable laws and acts. It has been witnessed, that significant number of financial issues and business problems can be resolved with understanding and knowledge of business linked information.

Conclusion

The MSMEs play a vital role in contribution to the development of Indian economy in terms of production system, employment generation, GDP etc. MSMEs have also shown an ability for innovation, creativity, and flexibility which qualifies them to respond promptly to changing market conditions and to adapt the dynamic needs of the consumers.

Conclusion

However, the global environment has brought in newer challenges in terms of larger volumes of mechanized production, better designs and marketing of products at lower costs. In order to compete with the large firms and global players in the market place, it will be imperative to develop competitiveness beyond just cost.

Conclusion

This would also necessitate support from the Government towards formulation of supportive and friendly policies to provide the necessary impetus to the sector. Prime Minister’s flagship campaign ‘Make in India’ is a progressive step in the same direction. With the right pushes, it holds key to herald a new revolution for the identified manufacturing and service sectors.

THANK YOU

Email: [email protected] Call Us: +91 124 4754550

www.resurgentindia.com

Read full report on : http://blog.resurgentindia.com/msmes-sector-in-india/

mailto:[email protected]

MSME Sector in India - Recommendations on Legal, Tax and Labor Policies - Part - 34

Business

legal procedures

labor laws

service tax

labor policies msme

tax exemption

legal compliances

taxation policies

revamping of policies