A common GST quiddity has been the increased compliance burden on many small and medium-sized enterprises (SMEs). In this light, the GST Council’s recent decision to allow composition dealers under GST to file one annual return along with a simple declaration is more than just a welcome move. While the GST Council has made return filing an annual affair for small and medium-sized enterprises (SMEs), the payment of taxes must still be done on a quarterly basis. In addition to this, the GST Council has also relaxed threshold limit for composition schemes to Rs 1.5 crore against the erstwhile Rs 1 crore.
Experts suggest that the new norms coupled with the Reserve Bank of India’s one-time restructuring scheme for MSME loans are much-desired relief for SMEs and MSMEs. This would not only encourage a larger number of SMEs to opt for composition scheme but also improve their credit profiles. With much stronger working capital cycles, MSMEs will be saved from defaulting on their credit lines.
A Revived Credit Profile
In order to match up to the increased GST compliance post-2017, a large number of SMEs had to compromise with credit ratings. This was particularly accentuated following delayed tax refunds owing to technical glitches in the GSTN Portal during return filing.
However, as per data shared by credit rating agency CARE, the modified credit ratio for SMEs has shown substantial improvement in the last year or so. As against the 0.99 times credit ratio for SMEs in 2017, the credit ration for the calendar year 2018 stood at 1.13 times. These figures indicate a stable recovery by the sector post the initial jolts of GST and Demonetisation.
FMCG and Steel sector has witnessed maximum upgrades in credit profile. Other sectors like Textile, ceramic and construction have recorded a stable upgrade. In sharp contrast, the diamond and jewellery industry, owing to limited access to bank finance, witnessed considerable stress during the same period.
Ease Of Scale
While India has performed wonderfully well in the ease of doing business rank, scaling remains a concern for most MSMEs. This is mainly because of restricted access to bank finance. A recent global report highlights that compared to China, Sri Lanka, and Indonesia, only 4% MSMEs get access to significant formal finance. This is because of non-transparent and abstruse credit lines of MSMEs which significantly congest any scaling chances whatsoever. In this light, the recent GST Amendments and RBI Scheme will help to infuse positive sentiments for MSMEs. However, one must remember that MSMEs remain fragile ground for a formal financial institution as the risk of default is higher. The impact of recent GST and RBI Relief must be seen as long-term and gradual well-being of SMEs credit profiles.
