In a diverse, developing country such as India, which faces several challenges, MSMEs (Micro, Small & Medium Enterprises) has emerged as a highly vibrant and dynamic sector of the Indian economy and form the backbone of the country. MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth.
The Micro; Small and Medium Enterprises Development (MSMED) Act was notified in 2006 to address policy issues affecting MSMEs as well as the coverage and investment ceiling of the sector. The Act seeks to facilitate the development of these enterprises as also enhance their competitiveness.
What is Micro, Small & Medium Enterprises?
According to the provisions of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:
1. Manufacturing Enterprises: The enterprises engaged in the manufacture or production of goods pertaining to any industry
2. Service Enterprises: The enterprises engaged in providing or rendering of services
MSME Classification as notified vide S.O 1642(E) dtd 29-09-2006
|Criteria: Investment in Plant & Machinery & Equipment’s
||Investment < 25 Lac
||Investment < 5 Cr.
||Investment < 10 Cr.
||Investment < 10 Lac
||Investment < 2 Cr.
||Investment < 5 Cr.
Revised MSME Classification as amended by Finance Minister in its Press Conference dated 13 May 2020 during Stimulus package to MSME due to COVID – 19 Outbreak
|Composite Criteria: Investment & Turnover
|Manufacturing & Services
||Investment < 1 Cr.
Turnover < 5 Cr.
|Investment < 10 Cr.
Turnover < 50 Cr.
|Investment < 20 Cr.
Turnover < 100 Cr.
Registration of MSMEs with Udyog Aadhaar
A single form is to be filed with www.udyogaadhaar.gov.in
Information required for registration:
1. Aadhar number
2. Enterprises name
4. Bank account details
5. Some common information
6. List of Services provided/ Goods Manufactured
7. No of Employees
Benefits available to MSMEs
1. Automatic Collateral Free Loans from Banks:
- The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) was launched by the GOI to make available collateral-free credit to the micro and small enterprise sector.
- Both the existing and the new enterprises are eligible to be covered under the scheme.
- The Ministry of Micro, Small and Medium Enterprises, Government of India and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises.(Depends on Bank ). Collateral free loan up to a limit of ₹ 100 lakhs is available for individual MSE on payment of guarantee fee to bank by the MSE.
- MSME is also eligible for priority sector lending
2. Subsidy of 50% on Patent Registration:
Enterprises that have MSME Registration Certificate can avail 50% subsidy for patent registration.
3. 1% Exemption on the Interest Rate on Overdraft:
Enterprises can avail the benefit of up to 1% exemption on the interest rate on OD as mentioned in the scheme (this is bank dependent).
4. Protection against Delayed Payments (45 Days):
- The Ministry of Micro, Small and Medium Enterprises gives protection to MSME Registered Business against delay in payments from Buyers and right of interest on delayed payment.
- In case there is no payment date on the agreement, then the buyer is required to make payment within fifteen days of acceptance of goods or services. Further, in any case, a payment due to a micro or small enterprise cannot exceed forty-five days from the day of acceptance. Then the interest should be paid by the buyer to MSME and the penal interest chargeable for delayed payment to a MSME enterprise is three times of the bank rate notified by the Reserve Bank of India.
- The government has also launched an online delayed payment monitoring system called the MSME Samadhaan for ease of filing an application under the MSEFC. Any MSME, having a valid Udyog Aadhaar Memorandum (UAM) can make an application via this portal.
5. Support provided by the Ministry to improve the quality of products produced in the MSME Sector:
- The TEQUP scheme envisages another activity, namely, Product Quality Certification.
- The main objective of this scheme is to encourage MSMEs to Acquire Product Certification Licenses from National / International Bodies, thereby improving their competitiveness.
- The primary objective of this activity is to provide subsidy to MSME units towards the expenditure incurred by them for obtaining product certification licenses from National / International standardization Bodies.
- Under this Activity, MSME manufacturing units will be provided subsidy to the extent of 75%of the actual expenditure, towards licensing of product to National/International Standards. The maximum GoI assistance allowed per MSME is ₹1.5 lakh for obtaining product licensing /Marking to National Standards and ₹2.0 lakh for obtaining product licensing /Marking to International standards.
- One MSME unit can apply only once under the scheme period.
*TEQUP Scheme –Technology and Quality Up-gradation Support to MSME Scheme
6. Concession on Electricity Bills:
Enterprises that have MSME Registration Certificate can avail Concession on electricity bill by making an application to the electricity department along with MSME Registration Certificate. However this subsidy on electricity rates is subject to the State.
7. Credit Linked Capital Subsidy for Technology Upgradation (CLCSS):
- CLCSS provides 15% subsidy for additional investment up to ₹ 1 Cr for Technology up-gradation by MSMEs. Technology up-gradation would ordinarily mean induction of state-of-the-art or near state-of-the-art technology. In the varying mosaic of technology covering more than 7,500 products in the Indian small scale sector.
- List of technologies is available athttp://www.dcmsme.gov.in
- Units looking to replace existing equipment/technology with the same equipment/technology will not qualify for subsidy under this scheme. Similarly, units upgrading with used machinery would not be eligible under this scheme.
- The revised scheme aims at facilitating technology up-gradation by providing 15% up front capital subsidy to MSEs, including tiny, khadi, village and coir industrial units, on institutional finance availed by them for induction of well-established and improved technologies in specified sub-sectors/products approved under the scheme.
8. Support provided by the Ministry to promote conservation of Energy in the manufacturing process for SMEs:
- The scheme advocates the use of energy efficient technologies (EETs) in manufacturing units so as to reduce the cost of production and adopt clean development mechanism. Capacity building of MSME cluster for energy efficiency/clean development and related technologies. Funding support of up to 75% for awareness programmes, subject to maximum of ₹ 75,000 per programme;
- Implementation of energy efficient technologies in MSME units 75% of actual expenditure for cluster level energy audit and preparation of model DPR;
- Setting up of Carbon Credit Aggregation Centres. 50% of actual expenditure subject to maximum ₹ 1.5 lakh per DPR towards preparation of subsequent detailed project reports for individual MSMEs on EET projects;
Thus encouraging MSMEs to acquire product certification / licenses from National / International bodies.
- 25% of the project cost as subsidy by Government of India, balance amount to be funded through loan from SIDBI/banks/ financial Institutions. MSMEs are required to make the minimum contribution as required by the funding agency;
- 75% subsidy towards licensing of products to national/ international standards; ceiling ₹1.5 lakh for obtaining product licensing/marking to National standards and ₹ 2 lakh for International standards.
9. Entrepreneurial and Managerial Development of SMEs through Incubators:
The objective of the scheme is to provide early stage funding to nurture innovative business ideas (new indigenous technology, processes, products, procedures, etc.) that could be commercialised in a year. The scheme provides financial assistance for setting up business incubators. Funding support for setting up of ‘Business Incubators (BI)’: The cost may vary from ₹ 4 to 8 lakh for each idea, subject to overall ceiling of ₹ 62.5 lakh for each BI.
a) Up-gradation of infrastructure ₹ 2.50 lakh
b) Orientation/training ₹ 1.28 lakh
c) Administrative expenses ₹ 0.22 lakh
WHO CAN APPLY
Any individual or MSME with innovative ideas ready for commercialisation can apply to the host institution (e.g., IITs, NITs, technical colleges, research institutes, etc.) in order to obtain fund support.
10. Support provided by the Ministry for participation of MSMEs in International and Domestic events:
- Under the International Cooperation Scheme, financial assistance is provided on reimbursement basis to the State/Central Government organizations, industries/enterprises Associations and registered societies/trusts and organizations associated with MSME for deputation of MSME business delegation to other countries for exploring new areas of MSMEs, participation by Indian MSMEs in international exhibitions, trade fairs, buyer seller meet and for holding international conference and seminars which are in the interest of MSME sectors.
- Eligible beneficiary organizations can apply to the Ministry directly to avail the assistance under IC Scheme as per Scheme Guidelines.
- The Government also provides assistance for domestic trade fairs and organises various Trade fairs.
11. Marketing Assistance Scheme:
The marketing assistance scheme provides assistance for the following activities:
a) Organisation of exhibitions abroad and participation in international exhibitions/trade fairs
b) Co-sponsoring of exhibitions organised by other organisations/industry associations/ agencies;
c) Organising buyer-seller meets, intensive campaigns and marketing promotion activities.
12. Performance and Credit Rating Scheme:
- The purpose of rating scheme is to provide a trusted third party opinion on the capabilities and creditworthiness of the micro & small enterprises (MSEs) so as to create awareness amongst MSEs about the strengths and weakness of their existing operations.
- This provides them an opportunity to improve and enhance their organizational strengths and credit worthiness, so that they can access credit at cheaper rates and on easy terms.
- It also facilitates them in increasing their acceptability from Customers / Buyers and Vendors.
- Rating under the scheme is a combination of credit and performance factors.
- Rating symbols are standardized and followed uniformly by all Rating Agencies.
Rating fee payable by the MSMEs is subsidized by the Government to the extent of 75% subject to maximum ceiling of ₹ 40,000/- based on the turnover of the unit.
COVID – 19 Stimulus Package to MSMEs (Press Conference of Hon’ble Finance Minister on 13 May 2020)
New Definition for MSMEs
As per this new classification, the MSMEs are categorized in term of business turnover and investments as given in the table above.
- Under the previous classification a separate methodology was adopted for service sector. However, the new definition does not differentiate between manufacturing and service enterprises.
- By increasing the limits of the turnover, several MSMEs which were unable to take the benefits, can now take advantage of the same.
₹ 3 Lakh Crores Collateral-Free Automatic Loans For Business Including MSMEs:
The main highlighter of the Package is the Additional 20% loan facility that is available to existing loans creditors. While assessing the additional loan facility, the future Cash flow should be assessable. Additional Collaterals is not required. Not required to submit Audited books of Accounts.
- Borrowers with up to ₹ 25 Cr outstanding and ₹ 100 Cr turnover eligible.
- Loans to have 4 year tenor with moratorium of 12 months on Principal Repayment.
- Interest to be capped.
- 100% credit guarantee cover to Banks and NBFCs on Principal and interest.
- Scheme can be availed till 31st Oct 2020.
- No guarantee fee, no fresh collateral.
₹ 20000 Crore Subordinate Debt For Stressed MSMEs:
- Stressed MSMEs require Equity support.
- GoI will facilitate a provision of ₹ 20,000 Cr as Subordinate Debt.
- Functioning MSMEs which are NPA or are Stressed will be eligible.
- Government will provide a support of ₹ 4,000 Cr to CGTMSE.
- CGTMSE will provide partial Credit Guarantee support to the Banks.
- Promoters of the MSME will be given debt by banks, which will then be infused by promoter as Equity in the Unit.
₹ 50,000 Cr Equity Infusion For MSMEs Through Fund of Funds (FoF):
- MSMEs face severe shortage of Equity.
- Fund of Funds (FoF) with a Corpus of ₹ 10,000 Cr will be set up.
- It will provide Equity funding for MSMEs with growth potential and viability.
- FoF will be operated through a Mother Fund and a few Daughter Funds.
- The Fund structure will help leverage ₹ 50,000 Cr of funds at the Daughter funds level.
- It will help to expand MSME size as well as capacity.
- It will encourage MSMEs to get listed on main board of Stock Exchanges.
Global Tenders To be Disallowed Upto ₹200 Crore:
- Indian MSMEs and other companies have often faced unfair competition from foreign companies.
- Therefore, Global Tenders will be disallowed in Government procurement tenders up to ₹ 200 Cr.
- Necessary amendments of General Financial Rules will be effected.
- This will count as a big step towards SELF RELIANT INDIA and will also be supporting MAKE IN INDIA.
This will also help the MSMEs to enhance and increase their business.
- MSMEs currently face problems of marketing and liquidity due to COVID 19.
- E-Market Linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions.
- Fintech will be used to enhance transaction based lending using the data generated by the E-market place.
Government Receivables In 45 Days:
- Government has been continuously monitoring settlement of dues to MSME vendors from Government and Central Public Sector Undertakings.
- MSME receivable from Government and CPSEs to be released in 45 days.
PSB Loans For MSMEs In 59 Minutes Loan Scheme via State Bank of India (SBI):
- The initiative reimagines and simplifies the overall process of fund raising and has been designed to ease access of credit to Individuals and MSMEs.
- This is a unique platform that ensures seamless In-principle loan approval
- The initiative aims at automation and digitization of various processes of Business Loan i.e., (Term Loan, Working Capital Loan and Mudra Loan) and Retail Loans i.e, (Personal Loan, Home Loan and Auto Loan) in such a way that a borrower gets an In-principle approval letter in less than 59 minutes.
- Business Loan In-principle approvals, with /without collateral, are currently provided for value from ₹ 1 Lac to ₹ 5 Crores. The Rate of Interest starts from 8.5% onwards.
- The Platform is integrated with CGTMSE to check eligibility of borrowers.
- Mudra Loan In-principle approvals are currently provided for value from INR 10000 to 10 lakh.
- MSMEs are complementary to large industries as ancillary units and this sector contributes significantly in the inclusive industrial development of the country. The MSMEs are widening their domain across sectors of the economy, producing diverse range of products and services to meet demands of domestic as well as global markets.
- The setback caused to the MSMEs due to the lockdown initiated as a precautionary measure against COVID-19 and the resultant grievances are to a certain extent being compensated by the COVID-19 Special Package announced by the Honorable FM in May 2020.
- With the increase in limits of turnover, several MSMEs which were not able to take the benefit will now be able to take advantage of the same.