For whose benefit?

MSMED ACT: Core issues in financing remain unaddressed, feel Bengal unit owners. The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, that came into operation from October 2 this year was expected to benefit small and medium enterprises (SMEs) in India but has failed to satisfy SMEs.

"The act also does not recognise some of the core problems of SMEs. For example, in order to get listed on the stock exchange, one needs to have a minimum net worth of Rs 10 crore. This is expensive for most SMEs making it difficult to access the capital markets," complains Pradeep Rawat, president, Federation of Small and Medium Industries (FOSMI), West Bengal.

Rawat points out that interest rates for SMEs is higher than those for bigger corporates, which also have the options of raising money through bonds and other market based instruments, says Rawat.

"Even housing loans and finance for consumer durables including cars are provided at below prime lending rates to bigger corporates. This puts the small and medium sector at a huge disadvantage. This problem has not at all been addressed in the Act. SMEs, who are not defaulters, should not be charged interest rate above the PLR," said Rawat.

Sukhendu Bikash Ghosh, general secretary, Federation of Associations of Cottage and Small Industries

(FACSI), emphasised the need for introduction of a single tax law for SMEs. Ghosh also emphasised the fact that introduction of 12.5 per cent value-added tax (VAT) is extremely inconvenient for SMEs.

"VAT has only increased paperwork for SMEs. We are ready to pay taxes but let there be only one tax paying system, payable in only one phase. At present, VAT is imposed in 12 phases, which is unnecessary," said Ghosh.

The MSMED Act talks about how to handle defaulters delaying payments to SMEs. The grace period for all payments to SMEs has been revised to 45 days. After 45 days, the interest on balance payment would be 18 per cent charged annually, compounded monthly. "Earlier the grace period used to be 120 days and 6 per cent interest used to be levied on the balance payment post the grace period. How this is going to be enforced is not explained," pointed out Rawat.