Budget 2006-07 brings no special benefit for SMEs, given the endemic nature of constraints they face. The sector needs continuous push by policy authorities to implement even the existing measures for aiding competitiveness. Most of the announcements are in line with the phased dereservation approach (180 items are to be dereserved, leaving only 317 in the reserved list) and last August’s policy package for increasing credit. For SMEs competing in a globalised market, unless chronic constraints are addressed, a concessional approach means little, anyway.
The FM announced moves such as treating service sector SMEs on par with those in manufacturing, and lowering the guarantee fee of the CGTSI (Credit Guarantee Trust for Small Industries) from 2.5% to 1.5% for all borrowers, in a bid to give fresh impetus to lending. It is doubtful, however, if cosmetic changes can unleash credit flow to a fund-starved sector. As the medium-term appraisal (MTA) of the 10th Plan put it, commercial banks are still averse to lending to small enterprises—even RBI’s guidelines are not being adhered to. Banks have also not opened enough specialised branches and credit rating has not yet caught on among the enterprises. Sidbi, the MTA states, does not have the network to cope.
The FM’s reference to schemes for technology and marketing support is welcome—if actualised in the promised PPP mode. As a survey recently revealed, less than half the enterprises surveyed were aware of government schemes for tech-upgradation and less than a third used these. SSI ministry data indicates likewise for most schemes. The promise of an empowered group for pushing policy on the cluster development front sounds good, if driven efficiently. Corporate-linked SME cluster models boost competitiveness, as they work on a mutual benefit basis and need to be actively promoted by banks linked to large corporate houses. Finally, it needs to be seen if the excise exemption (for turnover up to Rs 4 crore or tax payable up to Rs 1 crore) that continues with this Budget is not misused, as the revenue cost of Rs 12,500 crore in 2005-06 (NIPFP estimate) is no mean amount.
