MSME bodies seek audit exemption for firms below Rs 5 crore turnover

In budget recommendations, FISME emphasised that SMA framework should go beyond merely identifying stressed accounts and halting banking operations to include guidelines for reviving these accounts

Industry bodies representing micro, small, and medium enterprises (MSMEs) have urged the government to exempt MSMEs with turnovers below Rs 5 crore from unnecessary audits and inspections unless major discrepancies are detected.

 

“Additionally, the budget should include guidelines and funding to train compliance officials to handle honest errors by MSMEs with leniency, promoting a supportive regulatory environment. A comprehensive error-forgiveness program should be established, waiving penalties for minor GST filing mistakes or delays, and providing simplified reinstatement processes for canceled GST registrations with minimal fines,” stated the India SME Forum, which represents over 98,200 MSMEs as direct paid members.

   

To improve the Trade Receivables Discounting System (TReDS) platform and ensure timely payments to MSMEs, the India SME Forum recommended integrating TReDS with the GST system and the Government e-Marketplace (GeM) portal, as advised by the Standing Committee on Finance chaired by Jayant Sinha.

 

“An interlinked GST-TReDS-GeM platform could automatically forward unpaid invoices to the buyer's GST portal after the stipulated payment due date—15 days or 45 days in the case of a written agreement,” the recommendation noted.

 

The Federation of Indian Micro and Small & Medium Enterprises (FISME), a leading MSME representative body, called on the government to develop a comprehensive policy to address flaws in the current Special Mention Account (SMA) framework aimed at supporting MSMEs showing early signs of financial stress.

 

In its budget recommendations, FISME emphasised that the SMA framework should go beyond merely identifying stressed accounts and halting banking operations to include guidelines for reviving these accounts.

 

“The SMA framework, introduced during Raghuram Rajan’s tenure, has serious flaws. We are inundated with complaints that instead of reviving struggling MSMEs, the framework is leading to premature closures,” FISME stated.

 

FISME also recommended that banks adopt need-based financing as an independent approach, combining need-based assessments with cash flow analysis.

 

Asset-heavy or high-turnover MSMEs often face challenges in meeting stringent collateral requirements, limiting their access to credit. Recognising the creditworthiness of MSMEs based on timely repayments and sound financial management would incentivise responsible business practices. FISME proposed that banks significantly reduce collateral requirements for such MSMEs if they demonstrate good conduct over a sufficiently long period. This would free up valuable assets for reinvestment in growth and expansion while promoting financial discipline.

 

For the first time, India’s services exports have exceeded merchandise exports, highlighting the challenges faced by goods exporters, where MSMEs contribute nearly 50 per cent. Adequate credit at competitive rates is critical for goods exporters to secure quality raw materials and inputs at international prices.

 

“There is a need for the EXIM Bank to lend liberally to exporters, particularly budding exporters. Currently, assistance is extended only if exports constitute more than 10 per cent of total sales, which is an illogical condition. The EXIM Bank should provide packing credit at least against LC-backed orders, irrespective of the percentage of exports to total sales. While some threshold level can be maintained, the existing condition should be revised,” FISME suggested. 

On the table 

To train compliance officials to handle honest MSME errors with leniency and establish an error-forgiveness program for minor GST mistakes

  Seamlessly integrate TReDS with GST and GeM to ensure timely payments to MSMEs by automatically forwarding unpaid invoices to the buyer's GST portal

  Develop a comprehensive policy to address the current SMA framework, focusing on reviving stressed MSME accounts 

  Encourage banks to consider need-based financing for MSMEs, combining need-based assessments with cash flow analysis, and reduce collateral requirements for asset-heavy or high-turnover MSMEs