Union Budget and its Effect on MSMEs and Investment Sector

On 5th July 2019, the Union Finance Minister Nirmala Sitharaman announced the financial budget for the Assessment year 2020-21. It had many pragmatic amendments affecting the general investmentpractices of a regular investor and the MSMEs.

The budget has announced many changes, in the MSME sector, such as proposing ease in angel tax for start-ups, removing the requirement of scrutiny of angel tax from IT department for start-up, enabling e-verification mechanism for establishing investor identity and source of funds for start-ups, 2% interest subvention for GST-registered MSME on fresh or incremental loans, ‘stand up India’ scheme to continue till 2025, new television channel for start-ups and pension benefit extended to retail traders. All these changes are sought to have a positive impact on the MSME sector and flourish the growth of start-ups. Also, the start-ups are being given a whole set of tax benefits.

The investment sector has also met some changes such as simplification and formalisation of existing KYC norms for FPIS to make it more investor-friendly, long-term bonds for market to allow FIIS & FPIS investment in debt securities issued by NBFCs, credit guarantee enhancement corporation to be set up long-term bonds with specific focus on infra sector and propose social stock exchange under SEBI for listing social enterprises & voluntary organizations.

All these changes along with those in other sectors have led to huge swings on Budget day. An examination of trading data shows that the Sensex has swung an average of 3.1 percent in past 21 budget day sessions. The India VIX index ended at 13.53, down 1.2 percent on Thursday. The index has cooled off sharply from May’s high of 28.7.

‘We will ask SEBI to mull a rise in MPS for listed companies from 25% to 35%,’ said Finance Minister Nirmala Sitharaman, during the budget speech. While this move will ensure more public investment in equity markets it will also force corporates to go on a public offering spree.

This can be seen by the downfall of the market value of TCS by Rs. 30,400 crores after the union budget. The IT giant has a public float of 28% with Tata Sons holding the rest. If the proposal is implemented, Tata Sons would need to sell share worth Rs. 57,000 crore.

All these are implemented in order to increase the contribution of start-ups and MSMEs in the country’s economy as well as include the general public’s participation in the investments in corporate giants. The union government has also sought to spur growth with a reduction in corporate tax and sops to the housing sector, start-ups, and electric vehicles. This budget is the first since the BJP led by Prime Minister Narendra Modi returned for a second term in power and is aimed at boosting infrastructure and foreign investment. The budget is said to be presented with a 10-year vision in mind. ‘The budget is for a New India and has a roadmap to transform the agriculture sector of the country, this budget is one of hope’, says Narendra Modi.

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