The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socio-economic development of the country. In India, the sector has gained significant importance due to its contribution to Gross Domestic Product (GDP) of the country and exports. According to statistics, the MSME’s contribute towards approximately 40% of total exports and 30% of India’s GDP and more than 6000 types of products are manufactured in these industries. The sector has also contributed immensely with respect to entrepreneurship development especially in semi-urban and rural areas of India.
With a view to boost the development of MSME sector in the country, the Government of India has enacted “Micro Small and Medium Enterprises Development (MSMED) Act, 2006 to address policy issues affecting MSMEs as well as the coverage and investment ceiling of the sector. Further in May 2007, a separate Ministry of Micro Small and Medium Enterprises, was set up which currently designs policies and promotes/ facilitates programmes, projects and schemes and monitors their implementation with a view to assisting MSMEs and help them to scale up.
Entity Structure/Classification
MSME’s may comprise of various types of entities viz Self proprietors, Partnership firm, HUF, AOP, Pvt Ltd Companies, LLP, One Person Companies etc. As per the latest provisions, effective 1 July 2020, the classifications of MSMEs have been done based on investments in plant and machineries and turnover. The distinction between manufacturing and service enterprises have been done away with.
The criteria for determining the value limit of Investment and turnover have also been clarified. Like the Investment in equipment will exclude land & building. The Turnover excludes exports which will encourage the MSME to export more and more without fearing to lose the benefits of a MSME unit. Further very recently on 7th July 2021, the MSME benefits have also been extended to Wholesale and Retail traders and now they can also get themselves registered as MSME for priority sector lending purposes. RBI has also issued three NIC codes for this category thus facilitating these traders either to shift or file for new registration.
Registration and Schemes
Government has been floating several beneficial schemes for the growth of MSME sector in India. These benefits are only available to the MSME’s which are duly registered. The registration process has been simplified and made more of self declaratory format. Registration also gives support in obtaining licenses and approvals from respective Governmental authorities in a simplified manner. Some of the key benefits available to MSME’s are:
- 50% Subsidy on Patent/ Trademark registration.
- Collateral free loans for running their businesses.
- Exemption of interest on Overdraft subject to good credit history/bank relations.
- Exclusive purchase of more than 350 products from this sector.
- Low interest loan for upgradation to latest technology.
Legal Enforcement
Legal ecosystem has also been developed in such a manner that MSME sector shall get their rights enforced in timely and efficient manner. Some of the key initiatives in this regard are:
- Protection against payments from buyer. Buyers have to pay within 45 days. Any delay in making payment will make them liable to pay compound interest at the rate of 3 times of the bank rate notified by the Reserve bank.
- Jurisdictional Advantage- MSME can file claims where they are registered.
- Alternate Dispute Resolution- Micro and Small Enterprise Facilitation Council has been set up by States for early disposal of MSME suits. If the facilitation council fails to conciliate the dispute, the same will be referred to an Arbitrator, who has to decide the matter within a span of 90 days.
- Corporate sector has also been enjoined to file periodical specified returns with respect to MSME.
Conclusion
MSME’s sector is booming and poised to grow. Government is also from time to time bringing special benefits for MSME sector through policy framework. The budget for the MSME sector has also been doubled to 15700 crore for FY 21-22. As Govt is pushing for Make in India, manufacturing by small units, cottage units and MSME’s, if effectively facilitated, will be the game changer to accelerate economic growth, employment, income levels and enhance supply chain efficiencies. It is important that those working as MSME’s shall get themselves registered in order to take benefits available to this sector. For any guidance/information on entity structure, MSME registrations, debt recovery, eligibility/advantages of schemes and legal ramifications.