Industry body CII has urged the government to raise service tax exemption limit for small units to Rs 25 lakh, from existing Rs 10 lakh, to maintain the growth momentum of the sector.

In its pre-budget recommendations to the Finance Ministry, CII has stated that creation of different kinds of funds are needed to promote the sector.

"A venture capital fund of Rs 10,000 crore, under public-private partnership mode, could promote first generation entrepreneurs and greenfield investments," it said.

Besides, technology fund could be instituted for incentivising climate-friendly technologies, it said.

In view of the delayed payment problem faced by small-scale units, the chamber said interest should be levied on delayed payments beyond 45 days.

The sector faces this challenge not only from private firms but also from state-owned enterprises.

The chamber favoured the implementation of 'public procurement policy' under which PSUs will give preference to micro and small enterprises (MSEs) with regard to their purchases.

The government, in November 2011, had cleared the policy which sets an annual target of 20 per cent procurement for the central government departments and PSUs from MSEs.

MSMEs, which account for 45 per cent of the country's manufacturing output and 40 per cent of exports, have also been hit by the rising input cost and interest rates.

The sector employs 60 million people in 26 million units producing over 6,000 products.