SMART ADVERTISING: SMEs need to keep an eye

SPEAK & SPAN

SMB and mid-markets are a key area of focus for Cisco. Since 2004, Cisco has spent over $3 billion on R&D to develop customised SME products and solutions that are affordable and easy to use

out for opportunities where they can play up their PG2 brands using interesting advertising
NEGATIVE IMPACT: High inflation is going to

Avinash Purwar Senior VP Cisco India

adversely affect prices of raw materials and other commodities used by MSMEs PG3 THE ECONOMIC TIMES PRESENTS

Need to boost entrepreneurship in the country

A RESPONSE CONNECT INITIATIVE
FEBRUARY 7, 2011
THE IMPORTANCEand contribution of the SME sector to the economic growth and prosperity is well established. Their role in terms of employment creation, upholding the entrepreneurial spirit and innovation has been vital in fostering competitiveness in the economy. Towards meeting the national developmental objective of a growth rate of over 8 percent, it is imperative for the industrial sector to grow at a faster pace supported by a vibrant SME sector. Towards this end, governments policy initiatives like enactment of the new MSMED Act, 2006, bridging of information gap on the sector through periodical census, formation of SME Rating Agency, pruning of reserved SSI list, advising FIs to increase their flow of credit to the sector, are all initiatives towards boosting entrepreneurship, investment in the sector. However, the taxman continues to elude any major direct concession to the deserving category, which contributes 40 percent of the industrial output of India. This article attempts to discuss few items in the direct tax wish-list of SMEs for the forthcoming Union Budget 2011, which will bring cheer to this category. The SME sector in India comprises of a diverse range of units from traditional crafts to high-tech NAVEEN AGGARWAL industries. Since SMEs constitute E X EC UTIVE DI R ECTOR K P MG the bulk of companies registered under the STPI scheme, the expiry of tax benefits under the STPI scheme from 1 April 2011 will impact the SME sector in a big way. While large IT companies may be able to mitigate the tax pressures arising from the expiry of tax holiday by moving into SEZs, SMEs will not be able to do so as they do not possess the size, scale and financial wherewithal to avail the benefits of SEZ. The extension of tax holiday for STP / EOU enterprises by at least one year would provide the timely succour to the SME industry, which is already reeling under tight margins and increased competition. The hike in Minimum Alternate Tax (MAT) from 15 percent to 18 percent was a dampener for the industry in the last Budget. The SME industry hopes for the restoration of MAT rate back to 15 percent. A major advantage of the SME sector is its employment potential at low capital cost. As per available statistics, SME sector employs an estimated 31 million people and the labour intensity in the SME sector is estimated to be almost 4 times higher than the large enterprises. In such a scenario, restricting employment generation based deductions contained under section 80JJAA of the Income-tax Act, 1961 to companies only, has the effect of denying this deduction to the deserving SME sector, where majority of the SMEs operate in an unincorporated form. Accordingly, extension of this deduction to all categories of taxpayers will provide good relief to the SMEs.
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PLAGUED BY CORRUPTION: A survey

has revealed that most SMEs have PG4 been victims at least once

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PE FIRMS WOO SMALL COs

The smart recovery shown by SMEs and growing domestic demand prompted PE firms to invest in small firms in 2010

HE SMART recovery shown by SMEs in the country and growing domestic demand saw private equity firms increase their investments in small firms in 2010. PE investors, both domestic and overseas, invested close to $6,150 million (nearly `27,675 crore) in SME firms last year, up 66 percent from 2009, says financial research firm VC Edge. Growing export orders and domestic demand have strengthened the financial performance of SMEs. These companies now have another funding option to tap apart from banks. Nearly 26 million SMEs in India accounts for 45 per cent of India's manufactured output and 8 per cent of domestic product. With a number of new PE firms coming into the country and focusing on small and medium enterprises, there is a new found confidence among these firms.

recording 63 and 62 deals respectively in 2010. Industrial, healthcare and IT & ITeS sectors too witnessed significant deal volume. PE experts believe that because of improved recovery, in both domestic and international GROWTH PATH markets, 2011 too would be a year for small The utility sector saw a total goodinvestments. firms looking for Robust ecoinvestment of $1,209 million nomic growth has been making country in 2010, more than double the many PEan attractive market for players. Also, fund the figure in 2009. FMCG and managers are aggressively helping potential SME firms in crossfinancial services saw the border funding options. As Indihighest number of deals in an companies have matured, the 201063 and 62 respectively hesitation of the small business owner to sell equity too has reduced and they are now welThe utility sector, surprisingly, coming PE firms. The entrepreneurship scene in emerged the winner among other sectors, seeing a total invest- the country is hotting up and a ment of $1,209 million, almost proof of that is the $180 million double of $555 million in 2009. raised by five early stage venture FMCG and financial sector saw funds last year. Last year global the highest number of deals private equity and venture capiPE firms made 298 investment deals in 2009. In 2010, the figure has jumped to 318 in 2010, with an average deal value of $22 million against $18 million in 2009.

tal fund DC Group invested about $ 12.5 million in earlystage VC firm Seedfund that has plans to fund education and agribusinesses. Global consultancy firm Ernst & Young estimates that India would get over $7 billion in private equity investments in 2010 and is quite bullish about a few sectors that would certainly leverage SMEs indirectly. Tapash Talukdar

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