Micro, Small and Medium Enterprises- Engine for Economy Growth.

The Government of India enacted Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 to promote MSME industries in India. Mr. Nitin Gadkari, Union Minister for MSME said that MSME sector contributes 29% in India’s GDP and employs nearly 110 million people. The vision of the government is to increase the contribution of MSME sector in India’s GDP to 50% with employment generation of 150 million people to scale the India’s economy to 5 trillion dollar.

Indian Government to boost the economy and to take the advantage of changed business scenarios and concern of world economies to reduce dependence on China has introduced various measures during COVID19 pandemic. Some of the measures were introduced keeping in mind the scope of growth in MSME Act. Businesses are keen to gain knowledge about MSME, benefits, registration etc.

In this article, author has tried to shed light on MSME Act and how it can benefit many businesses.

Scope of MSME

Following enterprises whether proprietorship, Hindu Undivided Family, Association of Persons, Co-operative society, Partnership or undertaking or any other legal entity by whatever name called are covered under the definition of MSME

a) Manufacturing Enterprises– The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use.

b) Service Enterprises: The enterprises who engaged in providing or rendering of services.

Enterprises have been classified into Micro, Small and Medium Enterprises based on investment in Plant & Machinery/Equipment

Enterprises engaged in Manufacturing or Production of Goods

S. No. Particulars Before COVID19 relief package After COVID19 relief package
1. Micro Enterprise Investment below 25 lacs Investment below 1 crore and Turnover below 5 crore
2. Small Enterprise Investment below 5 crore Investment below 10 crore and Turnover below 50 crore
3. Medium Enterprise Investment below 10 crore Investment below 50 crore and Turnover below 250 crore

Enterprises engaged in rendering of services

S. No. Particulars Before COVID19 relief package After COVID19 relief package
1. Micro Enterprise Investment below 10 lacs Investment below 1 crore and Turnover below 5 crore
2. Small Enterprise Investment below 2 crore Investment below 10 crore and Turnover below 50 crore
3. Medium Enterprise Investment below 5 crore Investment below 50 crore and Turnover below 250 crore

Businesses who are engaged in trading activities are not covered under the definition of MSME. Further the change in definition of MSME during COVID19 pandemic has increased tensions among existing businesses who were earlier covered under the scope of MSMED Act, but now with an additional condition of turnover limit gets excluded from the MSME registration.

Benefit of MSME

  1. Disallowance of deduction of interest paid under Income Tax act: Any interest recoverable or paid by or to MSME from or by buyer under MSMED Act on account of delayed payment shall not be allowed as deduction to such buyer. It will discourage the buyers to stop or delay payments of MSME unit and therefore will improve the liquidity of MSME.
  2. Apply for insolvency of buyer: Any MSME can apply for insolvency of a buyer company if such buyer makes default in payment to MSME. It is a very beneficial provision for MSME as no company would intentionally delay the payment to MSME unit.
  3. Public Procurement Policy: It is mandatory for Central Government departments and PSU’s to procure goods and services to the tune of minimum 25% of annual purchases from MSME’s. Some State Governments have also mandated the procurement policy to support MSME’s in their state.
  4. Easy Loans and Interest Subsidy: Central Government has launched various schemes wherein MSME’s can obtain collateral free loans with less paperwork along with Interest subsidy.
  5. Reporting to MCA: Ministry of Corporate Affairs has made it mandatory for companies to file form MSME-1 to declare the amount payable to MSME which is payable for more than 45 days. It will provide the necessary data to the government to take actions against defaulter companies.
  6. Access to Government Scheme: Government of India has launched various scheme to promote MSME and generate employment in MSME sector. The scheme ranges from providing easy loans, providing necessary infrastructural support, common facility center, subsidies etc.
  7. Priority in Central Government and PSU tenders: MSME’s are given priority in many government tenders which brings them on parity with big corporates and businesses.
  8. Reimbursement/Concession available to MSME:
    • 50% subsidy on registration of Trademarks and Patents
    • Concession in Electricity Bills
    • Subsidy on Interest on Bank Loans
    • Reimbursement of ISO Certification.
  9. Exclusive Price and Purchase Preference Policy: More than 350 items have been listed by Central Government which will be procured by the government exclusively from MSME’s which gives them ready market.

Registration Authority

Any business enterprise covered under the definition of MSME and who wishes to register itself under MSMED Act, 2006 is required to file application with Ministry of Micro, Small & Medium Enterprises. MSME enterprise on successful registration is granted Udyog Aadhaar (UA).

Why Registration is necessary in MSME

All the government scheme and benefits of MSME are available to registered businesses only. If a business is covered under the definition of MSME, but it has not taken registration under MSMED Act, then it shall not be able to reap benefits from various government schemes and incentives

Government Schemes for MSME sector

NAME OF THE SCHEME DETAILS
Udyami Mitra Portal It is an initiative of Small Industries Development Bank of India (SIDBI) to provide platform to MSMEs to avail financing facilities from banking institutions
A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE) The objective of the scheme is to establish Technology Centre Network to promote Innovation, Entrepreneurship and Agro-Industry. The scheme aims to creates new jobs & reduce unemployment, promotes entrepreneurship culture, grassroot economic development, facilitates innovative business solution etc.
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) This is a trust jointly formed by Ministry of MSME and SIDBI to provide guarantee to financial institutions who provide loans to MSME’s.
Micro & Small Enterprises Cluster Development Programme (MSE-CDP) With this programme, Ministry of MSME has adopted cluster development approach as key strategy for enhancing the productivity and competitiveness as well as capacity building of Micro and Small Enterprises. The programme aims to develop common facility centre, infrastructural facilities etc.
National Manufacturing Competitiveness Programme (NMCP) The scheme aims to assist SME’s with information and communication technology (ICT), design improvement, skill development skill development, manufacturing management, access to capital and marketing support to develop global competitiveness
Revamped Scheme of Fund for Regeneration of Traditional Industries (SFURTI) To organize traditional industries and artisans into clusters to make them competitive by enhancing their marketability & equipping them with improved skills. The scheme is applicable on Khadi Industries, Village Industries and Coir Industries.
MSME Sambandh Central Government Departments are mandatorily required to procure 25% goods or services from MSMEs. In order to facilitate the same and to assess the performance of Central Ministry, Departments and PSU’s, this portal is launched by Ministry of MSME
MSME Samadhaan It is an online Delayed Payment monitoring portal launched to facilitate the settlement of disputes regarding delayed payment. MSMEs can register their complaints on the portal which is then transferred to jurisdictional facilitation centre to assist in resolving the dispute.
Digital MSME Scheme The main objective of scheme is to make MSMEs digitally empowered and motivate them to adopt ICT tools and applications in their production & business processes with a view to improve their competitiveness in national and international market.
Credit Linked Capital Subsidy Scheme (CLCSS) To promote upgradation of technology in Micro and Small Enterprises by providing upfront capital subsidy on institutional finances availed by them in specified sub-sector/products approved under the scheme.
Prime Minister Employment Generation Programme (PMEGP) It is a credit linked subsidy program implemented by KVIC and state KVIC. Under this scheme, micro enterprises are given loans at subsidized rate of interest.

Apart from above, there are various other schemes which have been implemented by Government of India from time to time for the benefit and upliftment of MSME Sector in India.

Benefits given to MSME during COVID19

  1. a) Change in Definition of MSME and elimination of distinction between Manufacturing sector and service sector
  2. b) Additional Loans upto 20% of outstanding credit as on 29.02.2020 without any additional collateral security. The loan tenure will be 4 years with 12 months of Moratorium. The benefit of this scheme can be availed till October 31st, 2020.
  3. c) Stressed MSME Units or MSME units which have been declared as NPA by Banks will be given additional fund to CGTMSE which will give partial guarantee to financial institutions to grant additional loans to stressed MSMEs.
  4. d) Creation of Fund of Funds to provide equity funding to MSME with growth potential and viability.
  5. e) Release of all dues to MSME by Central Government and CPSE within 45 days.
  6. f) Government procurement Tenders upto the value of Rs. 200 crores to be awarded to Indian Companies and MSME’s only.
  7. g) E-market linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.
  8. h) Special insolvency resolution framework for MSMEs under Section 240A of the Code to be notified soon.

Frequently Asked Questions

  • Is it Mandatory to take registration under MSMED Act:

No, registration under MSMED Act is not mandatory. However, in order to avail various benefits and exemptions given by central and state government, a enterprise is required to take registration under the act.

  • Is the registration free or is any amount payable for registration with MSME

No, there is no fees for registration.

  • Is there any unique number allotted to registered MSME similar to PAN, GSTIN

Yes, a twelve digit Unique Identification Number known as “Udyog Aadhaar” is provided by the Ministry of MSME to all registered enterprises.

  • Is Aadhar Card Mandatory for registration:

Yes, Adhaar number is mandatory to register a enterprise with Ministry of MSME

  • Is trading activity covered under the scope of MSME

No Trading activities are not covered under MSME. Only specified Manufacturing activities and services are covered under MSME

  •  Is there any validity period of MSME registration Certificate

No there is no expiry of MSME Registration certificate. It remains valid till the entity is operational.

  • Is there any manufacturing activity or service activity which are excluded from the scope of MSME.

Yes, following activities have been specifically excluded from the scope of MSME and no entity can take registration if they are engaged in such activities:

  1. Forest and Logging;
  2. Fishing and aquaculture;
  3. Wholesale, retail trade and repair of motor vehicle and motorcycles;
  4. Wholesale trade except for motor vehicles and motorcycles;
  5. Retail Trade Except of Motor Vehicles and motor cycles;
  6. Activities of households as employees for domestic personnel;
  7. Undifferentiated goods and services producing activities of private households for own; and
  8. Activities of extraterritorial organisations and bodies.
  •  Can I register under MSME before starting commercial operations.

No, registration under MSME can be obtained only after starting commercial operations.

  •  How is the value of Plant and Machinery calculated:

While calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded.

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On May 27, 2020   /   Education, MSME, News