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State Of The Economy 2017

Ebb and Flow
Barring a couple of clusters, most SMEs across the 11 clusters we visited were critical of the demonetisation exercise

N Mahalakshmi

For all the expectations, the post-demonetisation Budget presented by finance minister Arun Jaitley seemed like an attempt to assuage the working class. The FM reduced their income-tax burden by lowering the tax rate from 10% to 5% for those earning between 2.5 lakh and 5 lakh per annum. 

Though there were no goodies in store for India Inc, the Budget doled out some relief for the micro, small and medium enterprises (MSMEs) by reducing the corporate tax rate from the current 30% to 25%, for units clocking a turnover of less than 50 crore. This move is likely to benefit over half a million MSMEs to the tune of 7,200 crore.

The MSME sector employs 80 million people, contributes 45% to total manufacturing output, accounts for 40% of exports and makes up for 8% of GDP. Currently, almost the entire MSME sector operates either as proprietorship or partnership firms, with less than 3% registered as body corporates under the Companies Act.

It seems unlikely that MSMEs will make a song and dance about the tax break as they are still coming to terms with the fallout of demonetisation. Operating largely as a cash economy, a majority of the units found their working capital drying up overnight as the country’s entire supply-chain choked under the cash ban. Already grappling with a general slowdown, the cash ban proved to be a double whammy.

Not surprising that, barring a couple of clusters, most small business owners across the 11 clusters that Outlook Business’ reporters visited for the annual State of the Economy edition, were critical of the exercise. But despite the back-breaking development, there’s optimism that FY18 will bring in good tidings.

Whether it indeed turns out that way will be clear after a few months. This special edition also has the inaugural Outlook Business Brunch roundtable where leading finance minds came together to share their views on how FY18 could play out. 

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