The government on Friday proposed setting up a Rs 5,000 crore venture fund with SIDBI to enhance availability of equity to micro, small and medium enterprises.
While presenting the Budget for 2012-13, Finance Minister Pranab Mukherjee said: "In order to enhance availability of equity to MSME sector, I propose to set up a Rs 5,000 crore India Opportunities Venture Fund with SIDBI."
He said small and medium enterprises are the building blocks of the country's economy and they rely primarily on loans from banks and informal sources to raise capital.
He said MSME sector is a fertile ground for the production of low-cost medical devices.
"In order to provide impetus to this sector, I propose to reduce basic customs duty to 2.5 per cent with concessional CVD of 6 per cent on specified parts, components and raw materials for the manufacture of some disposables and instruments," he added.
He also extended full exemption from basic customs duty and CVD to specified raw materials for the manufacture of coronary stents and heart valves. However, these concessions would be subject to actual user condition.
The MSME sector contributes 45 percent to overall the manufacturing output and 40 percent exports of the country. The sector employs 60 million people.
The sector faces huge problems of easy and affordable credit as almost 95 per cent of the sector is unorganised and banks are usually reluctant to lend funds to it in the absence of adequate collaterals.
To enable these enterprises greater access to finance, two SME exchanges have been launched in Mumbai recently, Mukherjee said.
Further, he informed that with the objective of promoting market access to micro and small enterprises (MSEs), the government has approved a policy which requires ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs.
Of this, 4 per cent will be earmarked for procurement from MSEs owned by SC/ST entrepreneurs, the minister said.
Further, the turnover limit for compulsory tax audit of accounts as well as for presumptive taxation is proposed to be raised from Rs 60 lakh to Rs 1 crore for SMEs.
In order to augment funds for SMEs, Mukherjee proposed to exempt capital gains tax on sale of a residential property, if the sale consideration is used for subscription in equity of a manufacturing SME company for purchase of new plant and machinery.
"Budget is a quite progressive. The venture capitalist fund is a well-thought decision. However, no targets are set in terms of implementation," National Small Industries Corporation (NSIC) Chairman-cum-Managing Director H P Kumar said.
Commerce and Industry Minister Anand Sharma said: "SMEs are the driving engines for the manufacturing sector. Setting up of augmenting funds and proposed measures for skill development are right step in this direction".
The capital gains tax exemption would give lot of relief to the micro sector and will spur investments in the case of new units, NSIC's Kumar added.
"Exemption of capital gains tax would also help augment funds for SMEs to a certain extent," online B2B portal IndiaMART.com CEO Dinesh Agarwal said.
The Finance Minister just made passing remarks on the GST, national manufacturing zones, SME exchange, 20 per cent mandatory procurement from MSEs in public procurement instead of a strategic view on an investment-friendly policy, said Federation of Indian Small and Medium Enterprises (FISME).
Union Budget 2012-13: Complete coverage
