Government of India under the leadership of Prime Minister Shri NarendraModi has announced Atmanirbhar Bharat Abhiyaan to support the economic activity impacted by Covid-19 pandemic. Prime Minister Shri NarendraModialso urged the nation to go vocal for locally manufactured products.
As part of Atmanirbhar Bharat Abhiyan, recently, the government announced an economic package of Rs. 20 lakhcrore and introduced systematic reforms. The measures includes liquidity infusion, direct cash transfer to poor and long term reforms in growth critical sectors to make them globally competitive and attractive.
Given the importance of MSMEs for Indian Economy, employment generation (MSMEs being second largest employment generating sector) and to support the slogan “Vocal for Local” the Government has announced following measures for MSMEs –
A. Rs. 3 lakh crore collateral free automatic loans for MSMEs to meet operational liabilities, buy raw material and restart businesses
B. Revision in MSMEs definition to render maximum benefits to the sector
C. Disallowing global tenders in procurements uptoRs. 200 crores to create more opportunities for domestic enterprises
D. Clearing of MSMEs dues by the Government and Public Sector Units within 45 days
Given the situation, it is important to understand the changes brought out for MSMEs sector along with other government benefits available for the sector.
Given the situation, it is important to understand the changes brought out for MSMEs sector along with other government benefits available for the sector.
MSME Classification:
After a long 14 years since the existence of MSME Development Act, 2006, The Government has notified on 1st June, 2020, the amendment in the criteria for classification of MSMEs effective from 1st July, 2020. The amendment has brought in for the first time additional criteria of Turnover along with upward revision in the value of Investment in Plant and Machinery or Equipment. Further, the distinguishing manufacturing and service sector is also done away with. The revised criteria for classification is as under:
| Revised MSME Classification (As per Notification dated 01/06/2020) | |||
|---|---|---|---|
| Criteria: Investment in Plant & Machinery or Equipment and Annual Turnover of the Enterprise | |||
| Classification | Micro | Small | Medium |
| Manufacturing & Service Enterprise | Investment does not exceed Rs. 1 crore and Turnover does not exceed Rs. 5 crore |
Investment does not exceed Rs. 10 crore and Turnover does not exceed Rs. 50 crore |
Investment does not exceed Rs. 50 crore and Turnover does not exceed Rs. 250 crore |
For the benefit of readers, the erstwhile criteria was as follows:
| Earlier MSME Classification | |||
|---|---|---|---|
| Criteria: Investment in Plant & Machinery or Equipment | |||
| Classification | Micro | Small | Medium |
| Manufacturing Enterprise | Investment up to Rs. 25 Lakhs | Investment more than Rs. 25 lakhs but up to Rs. 5 crore | Investment more than Rs. 5 crore but up to Rs. 10 crore |
| Services Enterprises | Investment up to Rs. 10 Lakhs | Investment more than Rs. 10 Lakh but up to Rs. 2 crore | Investment more than Rs. 2 crore but up to Rs. 5 crore |
Analysis:
On 13th May, 2020 The Finance Minister, has announced the revised criteria for Medium Enterprise with upward revision in investment value to Rs. 20 crore and Rs. 100 crore of turnover. After the package announcement several representations were made to bring the revision in tune with the market and pricing conditions. Considering the representation it was decided to further increase the aforesaid limit of investments from Rs.20 crore to Rs. 50 crore and Turnover limit from Rs. 100 crore to Rs. 250 crore. It is a welcome change and will help the industry in ease of doing business, attracting investments and creating more jobs.
Important positive Change:
It is worth noting here that there is one important positive change which has far reaching impact. The amendment has changed the language used to determine criteria of classification of enterprise as compared to previous. As per amendment:
- a micro enterprise, where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
- a small enterprise, where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees;
- a medium enterprise, where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.
- a micro enterprise, where the investment in plant and machinery does not exceed twentyfive 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; or a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;
Whereas previously (Section 7 of the MSMED Act, 2006), the language was as under:
While classifying small and medium enterprise, the words “more than____but does not exceed______”is replaced with “does not exceed___ “. Therefore, a unit will classified as MSME in more than one segment depending upon its investments and turnover.This will provide greater flexibility to some special high value products, service sector, capital intensive units, etc. This will result in many more units now classified as MSMEs and take advantage of the sector. Therefore any unit with capital investments up to Rs.50 crore and turnover up to Rs.250 crore will fit in as MSMEs. This is very positive change.
Having both, the criteria of investment and turnover is not justified. If a unit fails in one of the two criteria at the top end it will lose MSME status. It will be good if it can be modified to a single criteria by inserting “or” instead of “and”. It is disadvantage to some special Capital Intensive Units, High value products and Service sector. Such units will be left out. A change from “and” to “or” will allow such special units to classify as MSME.
Registration of MSMEFor registration as MSME, theUdyogAadhaar scheme was launched in September 2015 by Ministry of Micro, Small and Medium Enterprises under the MSMED Act, 2006. It is applicable to running units only. The UdyogAadhar Registration is a completely online process which is totally free of cost. Only One UdyogAadhaar number shall be issued for each enterprise.It is to be noted that UdyogAadhar Scheme is limited only to the units covered under MSME.
Before this, to register as a MSME enterprise the entrepreneur need to file Entrepreneurs Memorandum Part-I (EM-I) and Entrepreneurs Memorandum Part-II (EM-II) since the introduction of MSMED Act, 2006.Previously all MSME units need to apply for EM-Part I before starting of the units and then for EM-Part II once the unit is started. But now EM-I & EM-II is completely abolished.
There is no change for units which are classified as Large Industrial Units. They are continued with the registration of Industrial Entrepreneur’s Memorandum (IEM) with Ministry of Commerce & Industry of Government of India.
Registration under UdyogAadhaar scheme isto be done online by making application through www.udyogaadhaar.gov.in. The Process of obtaining UdyogAadhar is very simple and user friendly. The site contains Forms and Guidelines for registration. The registration process is discussed by some other author and hence it is not considered in this write up.
What are the benefits to register as a MSME?There are various benefits available for the MSME which are as under:
1. Availability of Various Subsidy Schemes from State as well Central Government.
2. Loans under CGTMSE Scheme (Collateral free) up to Rs. 200 Lakhs.
3. Loans under PMEGP Scheme.
4. Rebate on Electricity Bills and/or Electricity Duty Exemption
5. ISO Certification Reimbursement
6. 6inancial support for;
- Participating in foreign expos to showcase their products.
- Market Promotion & Development
- Export Market Promotion
- Research & Development
- nvironment Protection
7. The Registration of Udhyog Aadhar would facilitate hassle-free opening of current bank accounts in the name of the business.
8. Protection against Payments under the MSMED Act, 2006 (Tracking through MSME Samadhan Portal)
Subsidy Schemeby Central Government
• Credit Linked Capital Subsidy Scheme for Technology Up-gradation
• Prime Minister Employment Generation Scheme (PMEGP)
• Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
Sector Specific SubsidiesSubsidy Scheme by State Government of Gujarat
• Assistance for Micro, Small and Medium Enterprise (Capital and Interest subsidy)
• Schemes for Assistance to MSEs for Shed and Plot Development by Private Developer and GIDC
• Assistance to Labour Intensive Industries
• Assistance to Plastic Industry
• Assistance to Startups & Innovations
• Assistance to Textile Industry - Gujarat Textile Policy & Assistance to Strengthen Specific Sectors in the Textile Value Chain
• Assistance to Aerospace and Defence Sector
• Incentive to Industries Scheme (SGST Benefit)