SME- The sector that Jaitley crushed

In the past few years, this priority and a key sector of our economy, has been at the receiving end of a raw deal from the government

The small and medium enterprises, which battle all odds to survive, are the backbone of the Indian economy. They contribute to 45% of India’s manufacturing output, to 40% of our total exports, to 25% of our service sector and employ 40% of India’s workforce. In a country where jobs are not easy to come by, this sector represents the tenacity and entrepreneurial spirit of the middle class, to earn their own livelihood and provide it to the millions of others that they employ. In the past few years, this priority and a key sector of our economy, has been at the receiving end of a raw deal from the government, primarily from the Ministry of Finance and the Ministry of Corporate Affairs, both under the senior minister Mr Arun Jaitley.

It has to do with the irrational and mindless heavy-handed regulation and list of unending expensive compliances, which have been unleashed on the SMEs by these ministries and the laws that they administer. If the draconian demonetisation disrupted the businesses of the SMEs, from which they are yet to recover, and has decimated their turnover, cash flows and profits, it is the continuous flow of new and new regulations, loaded with more and more forms to be filled and returns to be filed, that have dealt a body blow to this sector. This continuous never-ending flow of endless and often overlapping and multiple forms have tormented the SMEs, receding their prospects even further. The Companies Act, the Income Tax Act and the GST Act are the three primary laws that are involved in the daily operations of SMEs, and they have been made so complicated and onerous, that many SMEs have preferred to close down, than face the heavy penalties and prosecution that are imposed, even for minor unintentional violations of these laws. The government claims misplaced credit for the closure of many shell companies, but the fact is that many SMEs have themselves preferred to close down, unable to bear the expenditure of such heavy-handed compliance.

The daily life of an SME is loaded with the filing of forms and returns and any delay in filing attracts huge system driven penalties, with no differentiation between a small enterprise and a large one, or a bonafide violation for genuine reasons, which must be pardoned and not punished. There are complicated monthly, quarterly and annual forms and returns to be filed under the Income Tax Act and under the GST law, and also many others under the Companies Act. These forms are complicated, they seek all kinds of overlapping, at times irrelevant information and documents and thus need the services of consultants, which SMEs are often unable to afford. Non-filing of such overpopulated forms automatically attracts heavy penalty, on a per day basis of delay and very often criminal prosecution too. One does not quite know as to what is achieved by the government, through the filing of such repetitive and overlapping forms, since neither has the quality of governance improved in India, nor has red-tapism and corruption gone down, and nor has it become easier to do business in India. It has only tormented the struggling SME sector, leading to closures, inequality and unemployment. The BJP had promised minimum government and maximum governance, but what has happened is the reverse.

In a much-belated realisation, the Ministry of Commerce, in order to reduce the compliance burden on the SMEs, has approached the Ministry of Corporate Affairs, to improve their ease of doing business. It seeks to reduce the number of forms filed by clubbing them and permitting the self-certification of returns, instead of involving expensive professionals. Why does it take the government so long to accept/recognise a crisis visible in your face is not clear, but if the Ministry of Commerce is sincere and serious about deburdening the SME sector, then it also needs to reform the tax departments, that demand the filing of complicated returns, then raise frivolous demands, undertake their coercive recovery and withhold refunds, thus choking them to closure.