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Micro, Small and Medium Enterprises

Updated on April 16, 2019
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New regime The Micro, Small and Medium Enterprises (MSMEs) have always been a major factor for growth process of Indian economy.

New regime

The Micro, Small and Medium Enterprises (MSMEs) have always been a major factor for growth process of Indian economy. These have been always driving force for promoting equitable development in India. The pivotal role in growth through its contribution in Industrial outputs, Exports, and majorly in Employment generation at low capital cost is remarkable in the overall industrial economy of India. In recent years the sector has shown remarkable growth and adaptability to survive the recent economic downturn and recession compared to the overall industrial sector.

The current government in rule have also given a push to the MSME segment. With the increasing importance and radical changes that the government has brought in, in the month of November 2018, we thought to brief you little about this segment.

This article covers the basic understanding of MSMEs and the recent changes brought in by the government.


Classification criteria of enterprises into a MSME

In case of manufacturing enterprises, the enterprise is classified as:

  • A micro enterprise, where the investment in plant and machinery does not exceed twenty-five lakh rupees.

  • A small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees.

  • A medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees.

In case of Service enterprises, the enterprise is classified as:

  • A micro enterprise, where the investment in equipment does not exceed ten lakh rupees
  • A small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees
  • A medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

Registration Process...

Registration can be done online as well as offline.

  1. For Online Registration, The MSME entrepreneurs need to file a simple one-page Udyog Aadhar Memorandum online on the official website of the Ministry of Micro, Small and Medium Enterprises, Government of India which permits self- certification (no documents need to be attached and is free of cost).
  2. For Offline Registration, the enterprises can apply through the Zonal or District office of the Department.

    • Documents/ Details required for the registration is
      1. Aadhar Number
      2. Business address proof.
      3. Copies of Sales bill and purchase bill.
      4. Partnership Deed/ MOA and AOA.
      5. Copies of licenses and Bills of machinery purchased.
    • The MSME Authority provides two types of certificates
      1. A provisional Certificate- This certificate is for pre-operation period of business and is valid for only 5 years. It can also be used to apply for term loans and working capital.
      2. A permanent registration certificate- It is applied for when a business or production is started.
    • Permanent SSI registration will be provided only if the following conditions are satisfied by the SSI unit
      1. The unit has obtained all necessary clearances whether statutory or administrative.
      2. The unit does not violate any restrictions in force.
      3. value of plant and machinery is within prescribed limits and the unit is not owned, controlled or subsidiary of any other industrial undertaking as per notification.

Benefits of Registration

Some of the benefits from Central Government include

  • Easy sanction of bank loans
  • Lower rates of interest
  • Excise exemption scheme
  • Exemption under Direct Tax Laws, Banking Laws and Excise Laws
  • And statutory support such as reservation policy and the interest on Delayed Payments Act.

Some of the benefits provided by State Government for MSMEs include

  • Development of specialized industrial estates
  • Tax subsidies, power tariff subsidies, capital investment subsidies and other support.

Both the Centre and the State, whether under law or otherwise, target their incentives and Support initiatives to develop MSMEs

Owing the benefits and recognizing the potential of MSME Sector, our honorable Prime Minister Mr. Narendra Modi has shifted his entire focus on revival of this sector, which may have suffered the most in the wake of demonetization and the implementation of the Goods and Services Tax (GST).

While launching the “MSME Support and Outreach Program” on 12th November,2018 the PM had announced the implementation of 12 new policies that will boost the MSME
sector in India.

Major features of the Policies of the MSME Outreach Program

  1. 59-minutes loan sanction portal

    The first, in the policies of MSMEs is intended to enable quick credit to the small businessmen. Generally, the days consumed in loan approval leads to downtime for MSMEs and wastage of man-hours. This step eliminates the delay in approval of a loan.A portion of the features of this web- based platform are as per the following:

      • The government website for MSME borrowers offers automated processing of loans with no human intervention that will enable In-Principle approval for MSME loans worth INR 10 lakhs up to INR 1 Crore in 59 minutes from Public Sector Banks.

      • The website reduces the loan processing turnaround time from 20-25 days to 59 minutes. After receiving In-Principal approval letter, the loan will be disbursed in 7-8 working days.

      • The rate of interest starts from 8% and collateral coverage is not mandatory because these loans are connected to Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme.

    The following are the 10 quick and simple steps to login and get a loan Approval:

        1. Register on government portal – https://www.psbloansin59minutes.com
        2. Answer 4 questions- You need to answer four simple questions such as whether you are registered with GST and have been filing your GST returns regularly and have never defaulted on a loan.
        3. Provide your GST details
        4. Provide tax info – You can either upload your tax returns in XML format or login with your tax credentials – your PAN and date of incorporation.
        5. Provide bank account info – You can either upload your bank statements or log in with your net banking credentials.
        6. Select the bank- Select the bank from where you want a loan. Currently, about a dozen banks are linked with this website.
        7. Pay fee- You will have to pay a convenience fee of Rs 1,000 + GST.
        8. Download approval letter- This is the last step. Your approval letter is ready to be downloaded.

    The details and soft copies of documents that need to be provide are:

    The details and soft copies of documents that need to be provide are:

        1. GST Identification Number
        2. Income tax returns in XML format or your PAN and date of incorporation
        3. Bank statement for last six months in PDF format or your net banking credentials
        4. Details of director and owners and other basic ownership details.
  2. Loan option for GST registered firms will be available through the GST portal itself

    GST portal will have a facility for GST-registered firms to apply for a loan. All Goods and Services Tax (GST) enrolled MSME’s will get a 2% interest rebate on new or incremental loans up to Rs. 1 Crore. For this plan, the government has reserved Rs. 11 Billion

  3. Interest concession on loans for MSME exporters to be raised from 3% to 5%

    The rebate has been enhanced from 3% to 5% for the exporters seeking loans on pre-shipment and post-shipment. This will encourage exporters for more business, thereby improving the GDP.

  4. Cash flow certainty

    It will now become imperative for companies with a turnover of more than INR 500 crore to join Trade Receivables e-Discounting Systems. Joining this portal will enable entrepreneurs to access credit from banks, based on their upcoming receivables. This will remove hurdles in their cash-flow.

  5. Procurement by PSUs

    Public sector companies, which were mandated to source 20% of their annual procurement from MSMEs, will now source at least a quarter of their purchases (25%) from this sector.

  6. Mandatory for PSUs to procure up to 3 per cent from MSMEs led by women

    Out of the 25% procurement mandated from MSMEs, 3% must now be reserved for women entrepreneurs.

  7. Government e-Marketplace platform procurement will be mandatory

    All central public sector enterprises will have to take membership of the Government e-Marketplace (GeM) to facilitate online procurement of common use goods and services. By facilitating business between the Government, Industry and entrepreneurs online, GeM helps in improving the quality and efficiency of the products and services on offer, particularly the ones sourced from the MSME sector.

  8. Government will set up pharma clusters for MSMEs

    The Modi government will be setting up pharma clusters for MSMEs in which it will bear 70% of the setup cost. Moreover, the government will offer INR 6,000 crore technology upgradation package for MSMEs. 20, 000 hubs and 100 tool rooms will be developed around the country for this. This will help to improve the economy by boosting the growth of the healthcare sector in India.

  9. Computerized random allocation for inspection- No more Inspector raj

    Inspections of factories in the MSME sector will be sanctioned only through a computerised random allotment and inspectors will have to upload reports on the portal within 48 hours.

  10. Relaxation in environmental rules

    MSMEs will need single air and water clearance along with the consent of the government to establish a factory. The rules regarding environment are very rigid but defining the basic necessities for starting a factory will alleviate the teething troubles MSMEs face at the time of incorporation of the factory.

  11. Relaxation in labour laws

    MSMEs will have to file just one annual return on 8 labour laws and 10 central rules. This will ensure that MSMEs will not be facing obstacles for trivial loopholes in labour compliance.

  12. Ordinance in the Companies Act

    An Ordinance has been brought, under which, for minor violations under the Companies Act, the entrepreneur will no longer have to approach the Courts, but can correct them through simple procedures.

Disclosure Requirements

Half yearly return
On 2 November 2018, the Union government issued a notification under the Micro, Small and Medium Enterprises (MSMEs) Development Act, 2006 to ensure timely and smooth flow of credit to MSMEs and minimise sickness among them.
Vide this notification, the Central Government has also directed that all companies who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of the Act, shall submit a half yearly return to the Ministry of Corporate Affairs stating the following:

  1. The amount of payments due
  2. The reasons of the delay

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