New regulatory landscape- Great time ahead for SMEs in India
Recent reforms that were undertaken by Govt. of India such as Introduction of GST, Demonetisation
Since the formation of new Govt. at the centre since May 2014, the structural inadequacies or hindrance for doing business have come under intense scrutiny. Govt. has been focusing on the regulatory challenges faced by the entrepreneurs and evolving the remedies to make entrepreneurs life easier.
There are three regulatory actions which are implemented /going to be implemented will alter the landscape for doing business in India and SMEs will also be impacted. They are:
- The introduction of GST:
So far the tax structure is varying with states. It is well said that India is rather 29 countries to deal with the taxation of goods as it moves between states.
Intense complexities in compliance forcing many SMEs to abandon their desire to sell their products in other states and rather lean on informal market channels for doing so.
Further, too many exemptions in different segments and different states are creating unequal opportunities for entrepreneurs to deal with.
The introduction of GST which is nearing the launch is going to unite the country as whole to single market. GST will create the second largest common market in the world. It will standardise the tax rates and eliminates the complexities in the treatment of goods in different states.
GST will facilitate industries to close down the warehouses in less significant markets and focus on efficiency. Elimination of state border check-posts itself is a great money saver and makes logistics very efficient. GST will eliminate the scope for unbilled business, which many SMEs abhor.
- Demonetization of Rs 500 and 1000 currencies:
Recently Govt. took bold decision to demonetise high-value currency. Though this is causing pain now as cash crunch is forcing the business to delay purchase and facing difficulty in selling the products, it is considered beneficial in the long run.
It is going change the trade culture by increasing digital payments thus improving the transparency. It will lead to improving the credit rating and consequently lower interest rate.
Further recent statistics shows that present round of demonisation is resulting in the surplus liquidity in the banking system and interest rate cut is expected.
So far, many SMEs are unwillingly accepting the cash to settle the transactions because counterparty insists for it. It is because most of the trades on selling and buying inputs and outputs happening through intermediaries. They were considered via media to negotiate complex taxation structure and other trade-related challenges.
Online channels will accelerate the integration of value chain and compress the time.
Adoption of transparent trade practice will increase the capacity to handle more business. Also, it will meet the unspoken desire of many entrepreneurs to stay away from the informal business.
Please read DEMONETISATION- A GAME CHANGER FOR SMEs IN INDIA
- The introduction of Bankruptcy code:
Exit from the distress situation is the most painful process in the Indian business context. Businesses are made to kneel even for genuine failures. A relief like a bank loan restructuring is not leading to the turnaround of distressed businesses as turnaround needs more than that.
Though there is a law for bankruptcy now, faulty prioritisation of clearing the dues (read: paying upfront the statutory dues) is only adding to complexity during the process of liquidation.
The new law has been drafted keeping in view the global best practices and difficulties of entrepreneurs. It extends support to businesses in genuine difficulties and imposes tough punishments for those who abuse the law.
It empowers the creditors to seek winding action swiftly against corporate who do not pay as promised. It is an important piece of legislation which can help SMEs in India. SMEs are always at the receiving end and exposed to payment risk by OEMs.
The new law envisages setting up of the exclusive professional body and dedicated courts to deal with distress among the businesses. It also extends to individuals and partnership firms.
How prepared are you?
Govt. has many ambitious plans to reform the legal structure which will go a long way in addressing many pressing concerns of citizens in general and businesses in particular.
Do not remain indifferent to new laws coming to force. Keep a tab on how these changes will impact you.
It is imperative for all the businesses to rejig the processes significantly. What was considered the non-issue, mainly in the areas outside their core competency in the past, now entrepreneur need to work on those aspects.
Post GST, the filing of returns will be online and one need not depend on anybody. Further, there are online account packages which can be used to reduce the expenditure. Use such facilities to make your life easier and manage the risks.
Keep participating in the seminars sponsored by the association and other social organisations on these new regulations. Take initiative to arrange by association for the benefits of all.
These new regulations will reset the economy. They also hold potential threat for those who refuse to reorient their business practices. The competitive landscape is going to be redefined and those who accept them wholeheartedly only will survive. Make system changes without loss of time.
These big reforms trigger a tectonic shift in the way the business is conducted in India. These can create big discontinuity, and there will be some learning also. There will be disruptions. Though adoption is inevitable, these reforms will make business easier to do and better in the long run.