Government Initiatives to Promote the SME Eco-System

BANGALORE, INDIA: This is a question a lot of citizens ask, "What is the government doing to promote the SME ecosystem in India?". Here are some answers:

Role of the government

The government should not always be held accountable if SMEs are failing. All over the world, we have this habit of blaming the government for everything. The failure of SMEs should not always be attributed to the government. SMEs and start-ups are inherently risky, business owners need to keep upgrading themselves to fit in with the changing business environment. At the same time, there is a lot the government can do to make the SME ecosystem more business friendly.

What makes the SME ecosystem business friendly?

Simplification of filings: SMEs want lesser paperwork to deal with so that they can focus on their business rather than spending time on regulatory filings. In Singapore, it takes just 3 hours to incorporate a company. In India, it probably takes about 2 weeks. The system in India is filled with bureaucracy and red tape. I am told that, in the infrastructure sector, there are so many regulations that it takes over 9 months to get all the necessary permissions. This is a huge bottleneck for businesses to deal with.

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Simplified and reasonable taxation: A private limited company pays about 33% in corporate tax, another 16% in dividend tax and there are several indirect taxes like service tax, VAT, professional tax, provident fund, etc. We need to simplify these taxation policies, maybe cut down corporate tax to 25% and dividend tax to about 8% so that businesses will have more capital for business expansion. The government may ask, how do we cut taxes when we have a fiscal deficit. My answer to that is, cut down government expenditure, get rid of government departments and agencies that are not adding any value to the government or to it's citizens. The government needs to get more frugal with its expenditures.

Infrastructure: Infrastructure includes good roads, water, electricity, garbage disposal, sewage, etc. Almost everybody will agree with me that the infrastructure in India is one of the worst in the world. It's really hard for SMEs to compete with global businesses in terms of quality and performance when the infrastructure is bad. Setting up factories in remote locations and access to these factories will be a big challenge if the infrastructure is bad. So, infrastructure development is the key to development of SMEs and the rural sector in India. The Government should also consider tax benefits to companies that set-up factories in rural areas. Developing the rural sector is very important for poverty reduction.

Access to capital: Capital is also an important factor for development of SMEs in India. FDI and credit policies are also important ingredients in the development of SMEs. The government needs to have consistent policy making to facilitate positive investor sentiments and bring in more capital into India.

It's time for the government to wake up and realise that SMEs are the driving force for any economy. SME's are the primary source of job creation in any economy. India does have an entrepreneurial culture and it's time this entrepreneurial culture is harnessed to benefit the Indian economy. The need of the hour is to bring in more business friendly policies.

India has a great opportunity to be one of the largest economies in the world. For this to happen, the government needs to wake up and frame business friendly policies along with building the country's infrastructure. There is a long road ahead for brand ‘India'.

Source: www.smallenterpriseindia.com