A tiny place for SSIs in Union budget
The small scale industry (SSI) sector features in the Union budget 2005-06 certainly not in a way that would reflect the important position it is universally acknowledged to occupy in production, employment and exports.
As expected, there is an announcement of a further slew of dereservation of more than one hundred items (including about 30 relating to textiles and hosiery) to be notified (probably not in haste) by the Union ministry concerned. And also, as expected, there is an upward revision of the limit for eligibility for exemption from Central excise.
But most entrepreneurs would have been disappointed that only the eligibility criterion has been raised (to Rs 4 crores of clearances from Rs 3 crores) but not the exemption limit itself, which stays at Rs 1 crore. This does not even compensate for the inflation that has occurred since the limit was last raised to Rs 1 crore, not to say of accommodating the need for improving the scale of production.
A major change in the SSI excise regime is that the option of a mix of exemption and eligibility to Cenvat credit has been removed. Henceforth, SSIs can opt for either excise exemption up to Rs 1 crore without Cenvat credit or full Cenvat credit without any exemption. The present exemption scheme, which provides for a concessional rate of 60 per cent of the normal rate for clearances up to Rs 1 crore (notification No 9/2003-CE) is being withdrawn.Thus, the changes in the excise norm have the effect of facilitating bigger SSIs to avail themselves of the existing exemption up to Rs 1 crore without access to setoff of input tax credit. The changes in the excise regime for SSIs will come into force on April 1, 2005.
In fact, policy makers seem to have decided to encourage manufacturers in general to decide one way or the other in the matter of excise levy. This is indicated by a clause in the Finance Bill amending Sec. 5A of the Central Excise Act 1944 so as to provide that "if any excisable good is exempted from duty of excise absolutely, the manufacturer of such goods will be bound to avail of the exemption". This may have been intended to check abuse of the exemption by certain elements in the value chain. The long-term effect is likely to be a reduction of pressures for granting exemption to items from excise levy. Medium and large enterprises are likely to opt for excise with Cenvat credit in preference to exemption to attract buyers of inputs who seek excised purchases eligible to input tax credit. There will thus be a lower incidence of what is called breaking of the Cenvat chain.
The Finance Minister mentioned that the Minister for Small Scale Industries will introduce in the current session of Parliament the Small and Medium Enterprises Development Bill. He gave no clue as to the nature of the changes proposed, including whether there will a new approach to definition of SSI and tiny sectors and creation of a separate category in the `medium' scale or whether the norms of turnover and employee strength will be prescribed along with or in place of in investment in plant and machinery.
It passes one's comprehension as to why no attempt is ever made or promised to grant incentives to SSI and tiny sectors in the area of direct taxes. Surely, nnovative incentives in direct taxes would be wellwithin the powers of the ministry and not incompatible with good economics or politics.
Mr Chidambaram said that the SME Growth Fund established this year by the Small Industries Development Bank of India (SIDBI) with a corpus of Rs 500 crores would provide equity support to "small and medium" units in "knowledge-based industries" such as pharmaceuticals, biotechnology and information technology (IT). Does this mean that the traditional "brick and mortar" manufacturing, engineering/fabrication, processing and job work units would be neglected amidst the fancy for "knowledge-based" industries?
(Published on Mar.06, 2005)
SSIs : A review