Incentive Scheme for MSMEs in state of Maharashtra & Gujarat

The Micro, Small and Medium Enterprise sector contributes significantly to the economic and social development of the country by fostering entrepreneurship, generating employment and by acting as ancillary to large industries. The government has prioritized this sector in recent years as they are considered crucial in achieving the objective of a $5 trillion economy by the year 2024. To achieve this a basket of schemes have been rolled out over the years by the central government. As per the most recent data available MSME units contribute 29 per cent to the GDP of the nation while contributing 48 per cent to the exports. In the year 2015-16 nearly 11.10 Crore people were employed in the MSME sector.

One of the critical indicators of measuring the success of the MSME schemes is the establishment of new MSME enterprises. Since 2015 the process of registration has been simplified by implementation of Udyog Aadhar Memorandum (UAM) which is a one-page online registration based on self-certification. The state of Maharashtra and Gujarat has ever since witnessed a steady growth in UAM registrations. Some of the key statistics are tabled below:       

(Figures in Lakhs)

Particulars	Maharashtra	Gujarat	Total in India
UAM Filings (2015 to 2019)	3.49	3.86	38.94
Total MSME Units	47.78	33.16	633.88
Employment by MSMEs	90.77	61.16	1,109.80

(Source: MSME Annual Report 2018-19)

The states of Maharashtra and Gujarat have rolled out several business-friendly schemes and policies over the years which have attributed to the growth of MSMEs. These incentive schemes which constitute the backbone of state industrial policy are aimed at incentivizing the new units while offering support in expansion of existing ones. This article analyses the general schemes offered to MSMEs in the state of Maharashtra and Gujarat.

Incentives to MSMEs in the State of Maharashtra

The Maharashtra Industrial policy, 2019 was introduced w.e.f 01^st April,2019 and will remain in force for a period of five years. The Package Incentive Scheme (PSI-2019) provides incentives to MSMEs in form subsidies on SGST payments, power subsidies, interest subsidies, stamp duty and electricity duty exemptions. These benefits are available subject to certain conditions which are discussed in detail below:

Eligibility:

• The MSME unit must be a manufacturing enterprise as defined in the MSMED Act,2006.
• The scheme shall be applicable to a new unit. A new unit is one whose one of effective steps such as acquiring land/shed, incorporation, Consent of MPCB etc. is completed on or after 01^st April,2019 and is not formed as a result of reconstruction of existing unit. However, establishing a unit by purchasing assets of an existing enterprise shall qualify for PSI-2019.
• The scheme is also applicable to new unit or existing units for expansion/diversification The scheme also applies to small units outside the definition of MSME with gross fixed capital investment (GFI) up to Rs.50 Crores.
• Units manufacturing textiles covered under textile policy 2018-2023 will be eligible for the scheme in respect of only those incentives which are not offered by other state agencies.
• Units engaged in manufacture of Liquor, cigarette, bidi and other tobacco products and other banned products will not be eligible for the scheme.

Classification of Areas of States:

For the purpose of this scheme the state has been divided into different categories of “talukas” based on the level of industrial development. The quantum of incentive to a unit is contingent upon the category of taluka in which it is located. The various categories of talukas, in order of most industrially developed to least ones are – A,B,C,D,D+, No industry districts, Naxal affected area. In addition, a special category of “aspirational districts” consisting of four districts has been carved out.

Expansion/diversification Project:

Before we dwell upon the intricacies of the scheme it is important to understand what an Expansion or a Diversification Project is – When an Existing / New Unit in any of the areas covered under Group “B”, “C”, “D”, D+, Naxalism Affected Areas, Aspirational Districts or No – Industry – Districts, makes, on or after 1st April, 2019, an additional fixed capital investment in additional manufacturing facilities for manufacture of the same product  or for manufacture of different products then it qualifies as an expansion project. It must be noted that units covered under Group “A” making expansions are not covered within the scope of this definition and resultantly do no qualify for the incentives.

Fiscal Incentives to MSMEs under the scheme:

• Industrial Promotion Subsidy(IPS) : New and expanding MSME unit will be eligible for this incentive as per their taluka categorisation. Incentive subsidy will be offered on 100 per cent. Gross State GST payable by unit on sale of eligible products as detailed below.

Taluka/Area Classification	Maximum Permissible Fixed Capital Investment (FCI) (INR Crores)	Maximum Ceiling of basket of incentives as % of FCI	Eligibility period (Years)
A	For the purpose of this policy, MSMSE shall include units as per the MSMED Act,2006, as well as the units with FCI of upto INR 50 Crores	—	–
B		30%	7
C		40%	7
D		50%	10
D+		60%	10
Vidarbha, Marathwada, Ratnagiri, Sindhudurg and Dhule		80%	10
No Industry District, Naxal affected areas* and Aspirational districts**		100%	10
*Naxalism Affected areas as per Government Resolution No. PSI-2013/(CR-54)/IND-8 Dated 01.04.2013 issued by Energy and Labour Department, Government of Maharashtra. ** Aspirational districts are Osmanabad, Gadchiroli, Washim and Nandurbar.

For instance, an eligible unit located in “C” category makes a fixed capital investment of Rs. 5   Crores then as per the scheme it will be eligible to subsidy of 40% on such investment amounting to Rs.2 Crore which will be awarded over a period of 7 years (i.e 28.57 lakhs per year) in form of refund of Gross GST payable on sales made by the enterprise. In a situation where the gross SGST for the year is less than the sanctioned incentive  then such differential will be carried forward.

Note 1: Eligible units undertaking expansion will be entitled to equivalent of 80 per cent of the incentives tabled above and the eligibility period will be also be reduced by 1 year.

Note 2 : Food and agro processing unit, eligible green energy unit and bio fuel manufacturing units to get 20% above the limit mentioned above (subject to maximum of 100 per cent) and will get 2 additional years of eligible period.

• Interest Subsidy: This subsidy is allowed only to new units in respect of interest actually paid to Banks and Public Financial Institutuons on term loan taken for acquiring Fixed Assets. The amount of subsidy is capped at lower of rate of interest (net of any other interest subsidy) and 5 per cent. The quantum of interest subsidy payable to the eligible unit every year will not exceed the bills paid for electricity consumed during the relevant year.
• Other Subsidies to New units: Other forms of incentives available to only new units include-

1. Exemption from electricity duty ( In category “A” and “B” only 100% EOUs, IT manufacturing and Bio Tech manufacturing units will be exempted for 7 years)

2. Power subsidy for period of 3 years of Rs.1 per unit for units in Vidarbha,Marathwada, North Maharashtra and certain specified areas. Subsidy for other areas is Rs.0.5 per unit.

• Waiver of Stamp Duty: New units as well as units undertaking expansion will be eligible to the said waiver during investment period for term loan purpose or assignment of lease rights and sale certificates. Incentive in category “A” and “B” shall be restricted to IT and Bio Technology manufacturing units  in certain IT/BT Parks.

• Additional Incentives to Expansion projects of all eligible MSMEs (including units in Category “A” ):

1. 5% subsidy only on additional capital equipment acquired for Technology Up-gradation, subject to a maximum of Rs. 25 lakhs.

2. 75 % subsidy on the expenses incurred on quality certification limited to Rs. 1 Lakh.

3. 25% subsidy on additional capital equipment acquired for cleaner production measures, limited to Rs. 5 Lakhs

4. 75 % subsidy on the expenses incurred on patent registration limited to Rs.10 Lakh for the National patents and Rs. 20 lakhs for the International patents.

5. 75% of cost of water audit limited to Rs. 1.00 Lakh

6. 75% of cost of energy audit limited to Rs. 2.00 lakh

7. 50% of the cost of Capital Equipment under the measures to conserve/recycle water, limited to Rs. 5 lakhs.

8. 50% of the cost of additional Capital Equipment for improving energy Efficiency, limited to Rs. 5 lakhs

• In addition to these all eligible MSME units will be entitled to Incentives for:

1. Credit Rating of MSMEs of 75% of the cost of carrying out Credit Rating by Small Industries Development Bank of India/ Government accredited Credit Rating Agency, limited to Rs. 40,000.

2. During the policy period, first 250 SMEs fulfilling the criteria for listing, which will be enlisted on the SME Stock Exchange, Mumbai will be given refund of listing expenses equal to Rs. 6 lakhs or actual C.A. certified listing expenses, whichever is lower.

3. Eligible MSME units shall be provided a Green Industrialization Assistance for undertaking measures to conserve water, energy and environment covering waste management system, pollution control system, health and safety system, water harvesting devices, captive renewable power generation system and budgetary support from MPCB.

Investment Period:

An eligible MSME unit must commence commercial production, acquire the fixed assets, put them in use having paid for the asset within a period of 3 years from date of submission of application. Any asset acquired prior to or beyond the investment period will not be considered for the incentive except vacant land which was acquired earlier and in respect of which no incentive has been availed under any other scheme.

Eligible Fixed Assets: For the purpose the scheme Fixed assets shall mean and include –

• Land for commercial use.
• Building including administrative or residential building as part of facilities in manufacturing process.
• Plant and Machinery including tools for sustaining the working of unit.
• Development Cost (fencing, roads, other infrastructure under the project).
• Installation and pre operating expense to extent capitalized.
• R&D units with benefit limited to lower of 25 per cent of investment or Rs.100 Crore
• Royalty on technical know how and drawings capped at 10% of capital cost.
• Amount paid for supply of power for development of infrastructure of the unit.
• Cold Storage which integral part of manufacturing process.

Incentives to MSMEs in the state of Gujarat

The state of Gujarat as part of its Industrial policy, 2015 had introduced the Scheme for Incentives to Industries (General) 2016-2021 w.e.f 25^th July,2016 for a period of 5 years. This scheme provides financial assistance by way of Net SGST / Net VAT Reimbursement to MSMEs, Large, Mega & Ultra Mega Industrial Undertakings.

Eligibility:

• This scheme is applicable to a new industrial Undertaking which has commenced production during the operative period of the scheme in respect of a new project.
• The incentives w.r.t expansion are available only to the new units set up under this policy which carry out subsequent expansion activities on fulfilling the following conditions:

1. The unit should have achieved 75 per cent on installed capacity in any one of preceding three years.

2. There must be a minimum increase of 50 percent of Gross Fixed Capital at the same location of which 60 per cent should be in plant and machinery.

3. Such expansion should result in increase of capacity by 50 per cent.

• SEZ units are not eligible to incentives under the scheme. In addition, there are 18 other industrial sectors which are not eligible for the scheme. (List of industries : https://ic.gujarat.gov.in/documents/commondoc/2019/4-Annexure-B_10072019.pdf)
• An enterprise which has availed incentive for the same asset under any other scheme of the state government shall not be eligible for the scheme.
• An industrial undertaking that shifts to a new location by closing down, completely or partially, the original unit in the previous location will not be eligible for incentive under this scheme.

Classification of Areas of States:

The talukas are categorized based on existing investments done by large industrial projects and are classified into Category-I, II and III (Category of Talukas: https://ic.gujarat.gov.in/documents/commondoc/2019/5.Category_of_Taluka_080719.pdf)

Fiscal Incentives to MSMEs under the scheme:

The quantum of assistance varies depending on the category of the taluka in which the investment is made. The eligible unit will get reimbursement of Net State GST paid through cash ledger i.e. against the output liability of SGST after utilizing eligible ITC available (including ITC of IGST) in credit ledger on common portal. It must be noted that the total incentive in one financial year cannot exceed 1/10^th of total incentive due under the scheme without the option to carry forward the differential amount. A summarized structure of the incentive scheme is given below:

Category of Taluka	% of Fixed Capital Investment entitle for incentives	% of Net SGST Reimbursement to the unit	% of Net SGST to be paid to Government	Incentive period (no. of years)
1	100%	90%	10%	10
2	80%	80%	20%	10
3	70%	70%	30%	10

This table can be understood with below given illustration:

Category of Taluka in which investment is made	2
Value of Capital Investment	Rs. 5 Crores
Eligible fixed capital investment for reimbursement (80%)	Rs. 4 Crores
Net SGST paid from cash ledger	Rs.0.7 Crores
Available Net SGST reimbursement (80%) {Column-3 of table}	Rs.0.56 Crores
1/10th of total incentive due {10% of Rs.4 Crores}	Rs.0.4 Crores
Reimbursement Amount	Rs.0.4 Crores

Investment Period

Only those eligible assets acquired and paid for from the date of coming into force of this policy (01.01.2015) till completion of 12 month from the date of commencement of production will be eligible for the incentives in this scheme. For example, if production of the new unit commences on 01^st February,2020 then the eligible assets acquired up to on 31^st January,2021 will be eligible under the scheme for incentives.

Eligible Fixed Capital Investments

• Land (inclusive of stamp duty and registration fee)
• New Building for the project including administrative building
• Other construction such as compound wall, gates, roads, water tanks etc.
• Plant and Machinery – New or imported second hand P&M with usable life of at least 10 years.
• Other Project related Infrastructure. This entry has a very wide scope.

Important Conditions to avail the scheme:

The incentive shall be available by way of reimbursement only and on fulfillment of following conditions by the eligible units:

• The eligible industrial undertaking shall manufacture the goods on its own for which it is eligible for incentive.
• The eligible industrial undertaking shall remain in production during the incentive period.
• Employ persons domiciled in Gujarat to the extent of at least 85% of its total number of employees. Employees domiciled in Gujarat must comprise at least 60% of managerial and supervisory staff.
• Renovation, modernization, rehabilitation, or rationalization will not be eligible for incentive
• Enterprise must install and effectively operate and maintain pollution control measures as per the standards prescribed in state.
• The eligible unit shall not carry out any trading activity or provision of any services not relating to eligible products from its place of business. Separate registration to be taken for such other services and trading activity.
• Incentives shall be allowed only for eligible goods manufactured in the eligible unit and not on the resale of goods.
• In order to be eligible for incentive under this resolution, the industrial unit must have commenced commercial production during the operative period of the scheme.

The MSMEs are emerging and extending their footprint over the Indian economy and while doing so they are faced with a very turbulent economic atmosphere. The support offered by the government is praiseworthy, but they come with their set of strings attached. It is therefore of vital importance to understand the fine prints of the incentive schemes. A proper implementation of the schemes can be a real game changer and propel growth.

Source 

• Maharashtra Package Incentive Scheme – https://maitri.mahaonline.gov.in/PDF/Package%20Scheme%20of%20Incentives%20-%202019.pdf
• Gujarat Scheme of Incentives : https://ic.gujarat.gov.in/new-scheme-for-incentive-to-industries-general-2016-2021.aspx
• MSME Annual Report 2018-19 – https://msme.gov.in/sites/default/files/Annualrprt.pdf