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Services or IL&FS led to a subsequent fall in the flow of credit from NBFCs to
MSMEs.
The GST reform implemented in July 2017, while being hugely benefi-
cial, impacted MSMEs adversely by disrupting their supply chain with the large
industry for whom they were ancillary suppliers. This was because the small
units opted out of the GST duty regime on compliance concerns and the large
units could not therefore avail of the input credit on purchases from the smaller
units. This situation could have been avoided if the original provision of the GST
law - of providing the unregistered unit the option of GST payment on a Reverse
Charge Mechanism (RCM) - had been retained. This facility was only confined to
a few specified commodities.
Therefore, it is suggested that the original provision of RCM for pur-
chases from smaller units including units opting for compounding should be
fully restored. This would ensure that the large units pay GST duty on behalf of
unregistered small units by raising input invoices and then availing of the credit.
Here, the larger units may face some higher working capital issues but this
would be compensated by negotiating a better price with the smaller units.
The other change which needs to be made is to persuade the larger units
to both accept and raise GST invoices on the Trades Receivables Discounting Sys-
tem (TReDS) platform so that payment to MSMEs are made in a time-bound
manner. To prod the large units in this direction, the Securities and Exchange
Board of India (SEBI) could issue guidelines that will incentivise these units to
participate in the TReDS platform by factoring this in for higher credit ratings.
In the post-COVID-19 scenario, as MSMEs fight for survival, the GST
amendment together with ensuring quick payments for supplies made would be
useful. The MSMEs package announced by the government will definitely help
the sector tide over difficult times. The definitional changes made for MSMEs
would address the problem of “dwarfism” which was basically the disincentive
for small units to grow because of the fear of losing many of the fiscal and mone-
tary benefits.
This has led to a situation where the micro units employing less than 10
persons constitutes more than 90 per cent of the MSME universe. The small scale
of operations makes them vulnerable to any economic crisis. Therefore, the
changes announced by the government would help the process of micro units to
become small and small units to become medium sized. This requires the units to
have better access to markets capital and technology.
To sum up, the growth of the MSMEs depends on larger units embracing
them in the supply chain. The suggested GST changes in the law together with
the SEBI guidelines will help in achieving this.
[Source : Business Standard, New Delhi, dated 18-5-2020]

Exports fall more than 60% in April, worst show in 30 years
Coronavirus has battered Indian exports - which fell over 60% in April,
the worst in almost 30 years - with the monthly value of outbound shipments at
$ 10.4 billion being the lowest in 14 years. The lockdown, which halted almost all
economic activity in the country, also resulted in a 59% slump in imports to
$ 17.1 billion, the lowest monthly value since February, 2009.

GST LAW TIMES  21st May 2020  51