Mains – 31th Oct 23
MSME Sector in India
Why in News?
Recently, importance of MSMEs was reiterated by experts for India’s growth.
About
The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socio-economic development of the country. Currently, MSMEs are defined based on the investment criteria in plant and machinery and turnover.
According to Udyam Portal, Maharashtra recorded maximum number of registrations with 27.60 lakh units, TN 15.43 lakh units, UP 12.6 Units, Gujarat 11.27 lakh units and Rajasthan 11.24 lakh units.
Majority (72%) of the registered MSMEs, as of December 31, 2022 were service enterprises, while manufacturing covered 28%.
Challenges Faced by MSMEs
- Limited access to formal finance and credit facilities.
- Lack of technological advancements and limited digital infrastructure.
- Difficulty in complying with complex regulatory and bureaucratic processes.
- Limited market access and competition from large-scale enterprises.
- Skilled labor shortage and challenges in talent acquisition.
- Vulnerability to economic downturns and market fluctuations.
- Lack of awareness about government schemes and support programs.
Government Initiative related to MSMEs
- Raising and Accelerating MSME Performance (RAMP) Scheme
- Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
- Interest Subsidy Eligibility Certificate (ISEC)
- A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)
- Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)
- Zero Defect & Zero Effect (ZED)
Electoral bonds (EBs)
Why in news?
- The government has approved the issuance of the 27th tranche of electoral bonds that will open for sale on July 3. The decision comes ahead of assembly elections of Rajasthan, Madhya Pradesh, Chhattisgarh, Telangana and Mizoram.
Political Funding
- Santhanam Committee in 1964 warned of the corrosive effects of collusion between businessmen and politicians.
- 1969 PM Indira amended Companies Act and imposed a total ban corporate giving to political parties.
- In 1985 Rajiv Gandhi once again legalised corporate giving, but donations remained under the table.
- Dinesh Goswami Committee in 1990 and later Indrajit Gupta Committee recommended limit support in kind while simultaneously recommending a ban on company donations.
Funding related provisions
- Sec 29B of RPA: Every political party is entitled to accept contribution offered to it by any person or company voluntarily, other than a Government company.
- Sec 29C of RPA: The political parties are required to declare the details of contributions of more than Rs. 20000/-. It is mandatory to submit these details to EC else they will not get any tax rebate. Finance Act 2017 reduced this limit to Rs. 2000/-. Now any contribution above Rs. 2000/- must be made only through cheques, drafts etc.
- Sec 13A of Income Tax Act 1961: It provides for exemption of all voluntary contributions received by a political party from payment of income tax. Electoral bonds have also been exempt from IT Act.
- Companies Act: Companies can donate to political parties. Section 182 of the Act provides that:
- A company needs to be at least three years old to be able to donate to a political party.
- Companies can donate up to 7.5% of average net profits made during three simultaneous preceding financial years. Finance Act 2017 removed this limit.
- Such contributions must be disclosed in the company’s profit and loss account. Finance Act 2017 removed this obligation.
- Approval of the Board of Directors needs to be obtained for the contribution.
- FCRA 2010: It allows donations by foreign companies to entities including political parties.
What is an Electoral Bond (EB):
- An electoral bond is a bearer instrument, like a promissory note, that is payable to the bearer on demand to donate their contributions to political parties. It was introduced by the Government of India in 2018 as a means to facilitate anonymous political donations.
- Donor’s bank will know about who bought how much of Electoral Bonds, but the name of the party which received it. The party’s bank would know the amount deposited through Bonds, but not the identity of the donor.
| What Is a Promissory Note?
A promissory note is a written and signed promise to repay a sum of money in exchange for a loan or other financing. A promissory note typically contains all the terms involved, such as the principal debt amount, interest rate, maturity date, payment schedule, the date and place of issuance, and the issuer’s signature.
What Is a Bearer Instrument? A bearer instrument, or bearer bond, is a type of fixed-income security in which no ownership information is recorded and the security is issued in physical form to the purchaser. The holder of a bearer instrument is presumed to be the owner, and whoever is in possession of the physical bond is entitled to the coupon payments. |
When are the bonds available for purchase?
- The bonds shall be available for purchase for a period of 10 days each in the months of January, April, July and October, as may be specified by the Central Government. An additional period of 30 days shall be specified by the Central Government in the year of the General election to the House of People.
- Electoral bond would be issued/purchased for any value, in multiples of `1,000, `10,000, `1,00,000, `10,00,000 and `1,00,00,000 from the specified branches of the State Bank of India (SBI). SBI is the only bank authorised to sell these bonds.
- A citizen of India or a body incorporated in India will be eligible to purchase the bond.
- The purchaser would be allowed to buy electoral bond(s) only on due fulfilment of all the extant KYC norms and by making payment from a bank account. It will not carry the name of payee.
Electoral bonds: Conditions:
- Electoral Bonds would have a life of only 15 days during which it can be used for making donation only to the political parties registered under section 29A of the Representation of the Peoples Act, 1951 and which secured not less than one per cent of the votes polled in the last general election to the House of the People or a Legislative Assembly.
- The bond shall be encashed by an eligible political party only through a designated bank account with the authorised bank.
Are electoral bonds taxable?
- In February 2017, the then finance minister Arun Jaitley said that the donations would be tax deductible. Hence, a donor will get a deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party.
Reasons for the introduction of EBs:
- To ensure that all the donations made to a party would be accounted for in the balance sheets without exposing the donor details to the public.
- To keep a tab on the use of black money for funding elections. In the absence of electoral bonds, donors would have no option but to donate by cash after siphoning off money from their businesses.
- To encourage digital transactions as EBs will promote a shift from cash-based political donations to digital transactions.
- To formalize political contributions by channelling donations through the banking system. This will establish a documented trail of donations, making the process more transparent and accountable.
Criticisms of EBs:
- Critics argue that the anonymity offered by electoral bonds may be exploited to facilitate money laundering or channel illicit funds into the political arena.
- The sale of these bonds through a government-owned bank like SBI creates a situation where the government could potentially have insight into the identities of those financing its political adversaries. Consequently, it opens the door to the government using this information to either coerce contributions, particularly from major corporations, or subject them to reprisals for not supporting the ruling party.
- Electoral bonds, unlike other modes of political funding, do not necessitate approval or verification by the Election Commission of India (ECI). This can weaken the ECI’s authority in supervising political financing and ensuring a level playing field.
- The Election Commission in 2019 told the Supreme Court of India that while it was not against the Electoral Bonds Scheme, it did not approve of anonymous donations made to political parties.
- The electoral bonds scheme eliminates any previous restrictions on political contributions, effectively enabling well-funded corporations to finance elections, potentially creating conditions conducive to crony capitalism.
Way Forward:
- Companies and political parties could exercise moral leadership and voluntarily disclose the identity of recipients and donors, as the Jharkhand Mukti Morcha did it in 2021.
- In many advanced countries, elections are funded publicly, thereby safeguarding the principles of equity and preventing an excessive resource disparity between the ruling party and opposition. Dinesh Goswami committee, 2nd ARC, and several others have also recommended state funding of elections.
- The voters should become self-aware and reject candidates and parties that violate the principle of free and fair elections.