Ask most industry representatives across sectors for the high point during the year, they reply invariably: GST. The impact was positive, if the volume of cash transaction was low in their business, and negative, if high. The fall out of demonetisation implemented last year comes a close second. The SME sector is no exception.
For SMEs in the formal sector GST has levelled the playing field across States as they can participate in inter-State tenders for supply of products, says D Ravi, President, Ambattur Industrial Estate Manufacturers’ Association. Except for logistics costs, “we are competitive on base prices,” he said.
With inter-State check posts no more and tax rates simplified faster goods movement and companies have access to a wider market. “We see trucks from Mumbai arriving in 3-4 days,” he says.
Previously, only a full truck load of any one cargo could move smoothly, chimes in R Ramchander, Honorary General Secretary, AIEMA. It is in this context that the introduction of the E-way Bill planned in February 2018 is a worry, they say. Inter-State movement should not be slowed down at borders for paper work, Ravi hoped. In general, it has been a good year for SMEs in the manufacturing sector.
Particularly, with a strong automobile sector, component suppliers have had no major cause for complaint. But it has been tough year for those in civil construction as demonetisation and GST together impacted industries in this area.
The SME’s major concern is that some chronic issues continue to fester. “There is a policy vacuum in supporting existing industries”, feels Ramchander. The government has to address the needs of traditional engineering industries as much as on start-ups.
Ramchander says high interest rates continue to handicap SME sector. It ranges around 12-14 per cent for most units with just the premium customers accessing credit at 10-11 per cent. This is a huge burden.
Availability of skilled human resource is another issue.
Compared with the enthusiasm for investing in SMEs in 1970s and 80s, Ravi and Ramchander feel there is a perceptible lack of interest for investors to get into this sector.
Most units that are in business are those that have been around for over 30-40 years and are run by second and third generation family members who have got into the business handed down to them. If given an option most would exit the business is their feeling.
Margins are being continuously constricted. OEMs and Tier I suppliers are demanding continuous quality improvements even as they compress costs. “There is a huge cost pressure,” felt Ravi.
Small units hit by GST
K Balasubramanian, Chairman, SICCI-MSME Council, said tiny and small industries that are a one-man operation were thrown out of gear and unable to recover during the first half of the year following demonetisation. This was followed in July by the implementation of GST.
For these units payment delay of up to 90 days is routine and they have to shell out 12 or 28 per cent GST. This means their working capital requirements go up by 14-15 per cent but no provision was made for higher working capital, he said.
E-Way Bill
The proposed E-Way Bill is another major cause for worry. Even major industrial estates face connectivity issue because of poor IT infrastructure. Only those with hotlines and landline connectivity can manage it. Vehicles cannot move out of units without data being uploaded under the provisions of the E-Way Bill, he pointed out. Delays in disbursing capital subsidy are an issue. Modernisation is slow with equipment costs five times the subsidy available.
But consider the competition, large OEMs like Daimler and Hyundai come in with component suppliers from their countries. They come in as FDI with working capital at 2 per cent interest, 180-day credit for raw materials and other benefits. How can local players compete with a load of 12 per cent interest rate and other handicaps? he asks.