Nirmala Sitharaman

BENGALURU: Small businesses in Karnataka say finance minister Nirmala Sitharaman ’s announcement on cutting corporate tax rates on Friday has nothing for them.

“For SMEs [small & medium industries] falling under the Companies Act , the tax rate remains unchanged at 22%. For those that don’t fall under it, tax is exempt,” said DT Venkatesh , former president of the Peenya Industries Association and owner of Growell CNC. “The tax cut the government has announced will benefit a few corporates, for whom I do not see the rationale for such a tax cut.”

Small-business entrepreneurs highlighted differences in the government’s latest measures and those taken during the 2008 global financial crisis. “A package was announced for SMEs back then, considering that we form the bulk of India’s employment and economic growth. Today’s measures will do nothing to stop the large-scale slowdown in sectors across the industry — machine tools, auto parts, textiles, garments, construction, chemicals. It’s so severe,” Venkatesh said.

Some analysts on Dalal Street agree with this assessment. “Friday’s steps will boost growth, but it will probably be fairly small. Most firms in India are SMEs and, as such, are already exempt from paying corporation tax. The move will benefit only a handful of large firms,” said Shilan Shah, senior India economist, Capital Economics. “The big picture is that while GDP growth probably bottomed out in second quarter, the recovery from here will be more gradual than spectacular.”

Small and medium businesses painted a worrying picture: job losses, industries being forced to cut back on number of shifts, and an overall reduction in consumption.

“We can feel the recession hitting every single unit, be it electricals, fabrications, cottage industries, garments. And no relief has been announced,” said R Raju, president, Karnataka Small Scale Industries Association (KASSIA). The only positive SMEs see is the upcoming loan mela announced by the Centre.

“If properly implemented, the loan mela will provide much-needed credit to the industry,” said Syed M Hussain, promoter of Kauvery Enamel & Allied Industries.

Jacob Crasta, founder of CME Group, said the government’s focus should have been on increasing people’s disposable income. “To increase consumption, we suggested that the tax exemption of Rs 5 lakh be raised to Rs 10 lakh. If people have more purchasing power, consumption will automatically go up,” he said.

The budget, he noted, had already reduced taxes for those with a turnover of up to Rs 400 crore, and now, those with a higher turnover would also come under that rate. “Also, RBI has already made an announcement on nonperforming assets, giving an extension from 90 to 180 days. That’s six months, meaning we already had an extension till February. Now how much of a difference does FM’s extension till March make?” Crasta said.

MLA and former state revenue minister RV Deshpande said the moratorium period for credit advances for repayment of long-term loans, which is normally five years, should be increased to 10-15 years.

Some are hoping for a trickle-down effect of the tax cut. CR Janardhana, president of the Federation of Karnataka Chambers of Commerce & Industry, said the move could give a general boost to the economy and lift consumer sentiment.

Naveen Kulkarni, head of research at Reliance Securities, said though there was no direct benefit for SMEs, they would gain from structural changes. “If an automobile major ramps up production, it will benefit their suppliers and auto component makers, which are SMEs,” he said.

