Overview of Micro, Small and Medium Enterprises (MSMEs) in India

Overview of Micro, Small and Medium Enterprises (MSMEs) in India

Introduction

The birth of Micro Small and Medium Enterprises commonly known as “MSMEs” began way back in the year 2007 when the government of India introduced MSMEs in agreement with the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006.

MSMEs are considered to be the backbone of the Indian economy and contribute to nearly 30% of the country’s GDP, around 45% of the manufacturing output, and approximately 48% of the country’s exports. The main objective of the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 is to facilitate the promotion, development and also enhance the competitiveness of micro, small and medium enterprises and for all matters connected to such enterprises.

Classification

Before 2018, the classification of MSME was based on investment in plant and machinery for manufacturing units, and investment in equipment for service enterprises, however, the government of India made a proposal to redefine MSMEs via the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018, to classify them as manufacturing or service-providing enterprises. As per the aforesaid bill, changes have been made on the basis of classifying Micro, Small and Medium enterprises from being based on ‘investment in plant & machinery/equipment’ to ‘annual turnover’.

Now, for a company to be classified as a Micro Enterprise, the investment value should be less than Rs. 1 crore and a turnover less than Rs. 5 crore. For a company to be classified as a Small Enterprise, the investment value should be less than Rs. 10 crore and turnover may be up to Rs. 50 crore. For a Medium Enterprise, the investment value should be less than Rs. 50 crore and with a turnover up to Rs. 250 crore. These new definitions and criterion have been effective since the 1st July 2020.

While computing the turnover of the MSME enterprises, it is provisioned to exclude exports turnover. This move was made to encourage MSMEs to export more without the fear of losing the benefits of an MSME unit. This is expected to exponentially add to the exports from the country leading to more growth and economic activity as well as job creation.

Registration of MSMEs

The Ministry of Micro, Small and Medium Enterprises (MSME) has notified the Udyog Aadhaar Memorandum (UAM) under the MSMED Act, 2006 to undertake the work of registering MSMEs. For a company, sole proprietorship or any other legal entity to register themselves as MSMEs, they shall be required to register online on the website of the Ministry of Micro, Small and Medium Enterprises, Government of India at http://udyogaadhar.gov.in.

After which, they shall be required to file a memorandum. The memorandum shall only be filed after establishing the unit and obtaining all regulatory approvals and starting commercial operations. The memorandum shall be filed on a self-certification basis and there shall be no fee. No enterprise shall file more than one memorandum and it shall be filed along with the required documents as specified on the website of Ministry of Micro, Small and Medium Enterprises, Government of India.

Benefits to Registration

The entities registering themselves as MSMEs obtain a lot of benefits, such as

· Collateral free credit, wherein MSME’s can avail of a maximum collateral free credit (Fund based / non fund based – LC, BG etc.) of up to of Rs. 200 Lacs from eligible institutions.

· Protection against delay in payment: Under the MSME Act, it is mandatory for the buyer to make payment to the MSME seller within the period as mentioned in the agreement and if here is no stipulated time frame then the payment shall not exceed 45 days from the date of acceptance or date of deemed acceptance. Also, the provision of compound interest on the event of default is made under the MSME Act.

· Trade Receivables Discounting System (TReDS): The MSME can avail the benefit of TReDS which enables market making and discovery of competitive rates for invoice/exchange bills of MSME sellers through an auction mechanism to ensure the prompt realisation of trade receivables at competitive market rates.

· Credit Facilitation Through Banks: MSME can avail of various different kinds of credit support such as term loan, working capital and non-fund-based limits.

· Technology Upgradation Support: Credit Linked Capital Subsidy Scheme (CLCSS) for technology upgradation, provides an upfront capital subsidy for upgrading technology for new or existing Micro, Small and Medium Enterprises (MSMEs).

· Reimbursement of certification fees for acquiring ISO standards: The scheme envisages the reimbursement of charges incurred for the acquisition of ISO-9000/ISO-14001/HACCP certification to the extent of 75% of expenditure, subject to a maximum of Rs.75,000/- in each case.

· Raw Material Assistance Scheme: Under this scheme, Manufacturing MSMEs having a Udyog Aadhaar Memorandum (UAM) may receive financial assistance for the procurement of raw materials (both indigenous & imported) up to 90 Days.

· Marketing Support/Assistance to MSMEs (Bar Code): Under this scheme, the Ministry of MSME will reimburse 75% of the one-time registration fees for bar coding and 75% of the annual renewal fees incurred for the first three years.

Conclusion:

MSMEs produce and manufacture a wide variety of products for domestic, as well as international markets. MSMEs help in the promotion of growth and development of Khadi, Village, and Coir Industries, in cooperation with concerned ministries, state governments, and stakeholders.



Bosky Tanmay Gokani Bosky Tanmay Gokani

Bosky Tanmay Gokani

Legal Advisor
Bosky Gokani, a qualified Indian lawyer, is currently based in Shanghai.
Veronica Gianola Veronica Gianola

Veronica Gianola

Senior Associate
Veronica Gianola, an accomplished Italian lawyer, is a member of the Milan Bar Association.

Contact us for a
free consultation

CONTACT US FOR A FREE CONSULTATION

This field is for validation purposes and should be left unchanged.