Bold Push Towards A $5 Trillion Economy: Rakesh Dube, Founder- Tax Genie

MSME sector contributes close to 37.5% to the country’s GDP but the biggest problem is to bridge the gap in shortage of working capital, writes Dube.

We believe that the recent initiatives by the Government like Open Network for Digital Commerce (ONDC) and Open Credit Enablement Network (OCEN), will help the economy leapfrog to greater heights.

As India marches forward, to become an economic powerhouse, hopefully a USD 5 trillion economy, by FY 26, we believe that the recent initiatives by the Government, will be able to drive this goal. I strongly believe that to achieve this goal, the inefficiencies in the system, more so, in the Micro, Small and Medium Enterprises (MSME) sector needs to be eradicated and we sincerely hope that these initiatives will play a key role, in this endevour.

The problem. It’s a given fact that for India to become a USD 5 trillion economy, the scale of money that moves within, the economy needs to increase manifold. In other words the number of transactions that would propel, the economy, to next stage, will be huge. And for that to happen the MSME sector needs to do well. 

Afterall, the MSME sector contributes close to 37.5% to the country’s GDP. The biggest problem is to bridge the gap in shortage of working capital requirements of the MSME sector. Infact one of the demands of the industry before this year’s Union budget was to provide for better schemes of credit that too at a lower cost for the MSME sector. The World Bank had estimated the credit cap in the MSME sector to be around USD 380 billion. And this is the biggest challenge for the sector. Unless the MSME sector has the necessary working capital, it won’t be able to function or in other words will lead to lower transactions as a whole. The way transactions happen between businesses is the other area where inefficiencies crop up and that is something the Government has been trying to iron out.  

The inefficiency. Before the Unified Payment Interface (UPI) became a norm, even among individuals, transferring money was a cumbersome, at times tedious process. Either one could issue a cheque, demand draft (DD) or do a bank transfer, by going to the bank. With UPI coming into the picture, this process has not only become faster but it has become effortless.

A similar thing is now possible for transactions between two business entities. What has now happened is that on the basis of payment terms, between two entities, financial institutions can now give credit. The problem arises because there is no mechanism where the three parties—buyer, seller and the financial entity—can communicate with each other.

To overcome this impediment, the Government has recently come up with two initiatives-Open Network for Digital Commerce (ONDC) and Open Credit Enablement Network (OCEN). These initiatives will revolutionize B2B transactions, the same way that UPI did for B2C transactions. Thanks to these initiatives by the Government, we feel that the UPI movement will gain further strength, in the coming days, where one can capture the invoice and get paid.

The way forward

In the last few years, with GST coming into force, every business entity is now identified by a unique Goods and Services Tax Identification Number (GSTIN) and a Permanent Account Number (PAN).The other key document is the invoice. However, earlier there was no standard form to raise one. With e-invoicing coming into the picture not only is that problem resolved but there is proper coordination between the three parties—buyer, seller and the Government. With initiative we believe that India will leapfrog in the settlement of transactions between businesses. And once initiatives like OCEN gather strength, money will start flowing into the MSME sector, which will in turn help the economy to expand further and reach towards USD 5 trillion. However, for that to happen all the concerned parties need to speak the same language. Electronic invoicing is just one part of the process. 

We strongly believe that in the days to come the Government in coordination with all the concerned parties is going to change the entire business landscape of the country which will benefit the MSME sector and help in growth of the economy as a whole.  

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