Almost exactly two years ago, Tamil Nadu was perhaps the only state stoically opposed to the Goods and Services Tax.
In June 2016, then Chief Minister J Jayalalithaa had said, “a manufacturing state like Tamil Nadu will permanently lose substantial revenue if GST is implemented.”
Jayalalithaa even predicted a revenue loss of Rs 9,270 crore, under the new tax regime.
A year into GST, state GST collections in Tamil Nadu stand at Rs 86,859 crore out of its total tax revenue of Rs 98,693 crore for FY18. In other words, GST alone accounted for 88% of the state's tax revenue in just nine months, even as the state managed to lower fiscal deficit from 4.14% to 2.82%.
Five MSMEs sectors under stress
While the State exchequer may wear a satisfied look today, that isn’t the case with its Micro Small and Medium Enterprises (MSME) sector. Five industries in the MSME sector have been red-flagged by the Tamil Nadu Government for special attention, post-GST.
“The automotive, textiles, leather, electrical and electronics and general engineering sectors are being closely studied for any GST-related stress to business,” said Tamil Nadu’s MSME Secretary, Dharmendra Pratap Yadav.
“The final report is awaited. Once that comes, we will look at the possibility of providing subsidies to affected sectors,” he added.
GST refunds a pain-point
The pain-point of GST is best understood in the electronics sector. A printed circuit board, for instance, requires components from nearly 100 different suppliers.
Only 65 of these suppliers, companies say, have acclimatised to the new tax regime. For the remaining third, GST refunds are proving problematic.
“The refunds haven't come. Even though the government has sped up the process, there is still a lot of pending refunds out there so that affects their cash-flow and is a pain-point for our suppliers,” said Sreeram Srinivasan, CEO, Syrma Technology.
Srinivasan adds that his company is lending a hand at helping smaller suppliers with compliance.
If refunds are one problem, delayed payments and a spike in capital requirements have only added to these woes. Companies say that banks are hesitant to lend and that there is an NPA cloud lurking overhead.
MSME registrations dip in 2018
As per State Government statistics, FY18 saw 49,329 fewer companies register as MSMEs under the Udyog Aaadhaar scheme, when compared to the previous year. The current fiscal also saw 5 lakh fewer jobs being created, in the sector.
While certain sections of the media reported that several thousand MSME units were being shut in the aftermath of GST, the Tamil Nadu government shot down
these reports as misrepresentation of statistics.
To its credit, Tamil Nadu has seen 89,924 new companies register as MSMEs on the Udyog Aadhaar scheme, in the first two months of FY19.
Is a revival around the corner?
These encouraging numbers may point to a revival in new business for MSMEs in the State. Electronics and Manufacturing majors like OnePlus, Xiaomi and Flex India
have spoken at length about local procurements and expanding their local supplier base.
Energy companies are also looking to follow suit. "We are looking at localisation going up from 25% to 50%,” said Ravichandran Purushothaman, President, Danfoss India, “In the last two and a half years alone, we have established close to 140 suppliers in and around Chennai."
Industry bodies in the State are also optimistic about the future. “The Defence Industrial Corridor in Tamil Nadu that was announced earlier this year, will benefit MSMEs by allowing for supply of products to large manufacturers of defence equipment,” said M Ponnuswamy, Chairman, Confederation of Indian Industries (Tamil Nadu).Coupled with the Tamil Nadu Government's plan to offer a subsidy scheme for GST-hit MSMEs, and a soon-to-be-unveiled Electronics Policy, there might be a ray of light at the end of the tunnel.