Small biz exports hit by GST refund delay

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Mumbai: Exports by small businesses were adversely affected by a delay in refund of upfront goods and services tax (GST) and input credit, which put pressure on their working capital requirements, a study published by the Reserve Bank of India (RBI) said. According to the study, micro, small and medium enterprises (MSMEs) saw a slowdown in credit even before demonetisation and declined further during the note ban phase. In contrast, GST implementation does not seem to have had any significant impact on credit.

MSME credit and especially microcredit — including loans by banks and NBFCs — show a healthy rate of growth in recent quarters. According to the report, bank credit to MSMEs increased on an average by 8.5 per cent in the first quarter of FY19.

The findings of the staff study are significant considering that the trade deficit has widened. Numbers released last week show that merchandise exports growth eased 370 basis points (100bps = 1 percentage point) to 14.3 per cent year-on-year in July, compared with 18 per cent in June. On the other hand, import growth soared 930bps to 28.8 per cent in July. MSMEs contribute nearly 40 per cent of the shipments from India despite accounting for only 30 per cent of gross domestic product (GDP).

Gems and jewellery, carpets, textile, leather, handlooms and handicrafts items are export items that are highly labour-intensive and depend heavily on cash for working capital requirements and payment towards contractual labourers, the report said.

“MSME exports showed only mild weakness post-October 2016 (demonetisation period) but decelerated sharply during April and August 2017 (GST implementation period) with only a temporary recovery during the post-GST implementation period,” it said. In contrast, non-oil, non-MSME exports growth showed healthy growth after demonetisation but also suffered a dip during April-July 2017, it added.

Given the difficulties faced by MSMEs in debt repayments after demonetisation, the RBI announced a series of measures to provide some relief, it said. “The prudential norms were relaxed (on November 21, 2016) by providing an additional 60 days for repayment of dues, beyond what is applicable for loans to be considered as sub-standard for running working capital account, for accounts with a sanctioned limit of Rs 1 crore or less,” it said.

The relaxation was extended (on December 28, 2016) by providing additional 30 days for repayment of dues, it said. “On December 29, 2016, the RBI advised banks to use the facility of providing an additional working capital limit to their MSME borrowers to overcome the cash flow mismatches. This was a one-time measure valid up to March 31, 2017,” it said.

Source : https://timesofindia.indiatimes.com/business/india-business/small-biz-exports-hit-by-gst-refund-delay/articleshow/65445699.cms

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