Arun Jaitley
Union Finance Minister Arun JaitleyReuters

One of the major announcement in terms of relief of income tax in the Union Budget of 2017 came for the micro, small and medium-sized enterprises (MSMEs). Union Finance Minister Arun Jaitley announced a reduction of tax from 30 per cent to 25 per cent for the MSMEs. This, he said, would make the micro, small and medium firms more viable and also encourage them to migrate to the format of a company.

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The reduction in taxes is for companies whose annual turnover is Rs 50 crore. As per the data of 2015-2016, there are 6.94 lakh companies filing returns of which 6.67 lakh companies fall under the category for which the tax reduction is applicable. This means 96 per cent of the companies will get the benefit of five per cent lower taxation. Jaitley said this would make the country's MSMEs more competitive compared to large companies.

The total revenue loss due to this announcement for the government is expected to be Rs 7,200 crore per annum. While the move seems to be a great initiative to promote further growth in the MSME sector, some in the sector believe this is just a small move to recovery and there was a need for much more. Around 60 to 70 per cent of the MSMEs in India belong to a cash-driven economy. The industry has been badly affected post demonetisation. According to the a survey of All Indian Manufacturing Organisation of India, the MSMEs had a 35 per cent loss in terms of employment in the post-demonetisation period.

"Well, the move is good, but it will not affect the growth of the sector. The need of the hour post demonetisation is bringing back the employment. There has been nothing announced to generate employment in the sector. The cost of land and generation of employment is the major concern for the industry which has not been addressed," said Jacob Crasta, founder and chairman of CME Group as well a ex-member of Prime Minster's SME Council.

Crasta said that the announcement is just like giving a small tip to the MSME sector.