MSME Sector in India

First, complete this lecture by Ankit Sir on the MSME Sector of India. And then read this comprehensive notes. Your retention level will increase exponentially.

Micro, Small and Medium Enterprises Development Act (MSMEDA), 2006

• Ministry of MSME established in 2007. MSME Act, 2006 is 1st-ever legal framework for recognition of the concept of “enterprise” which comprises both manufacturing and service entities.
• The Act also provides a statutory consultative mechanism at the national level.
• The primary responsibility for the promotion and development of MSMEs is of State Govt.
• As per National Sample Survey (NSS), there were 6.3 crore unincorporated non-agricultural MSMEs, excluding those registered under Factories Act, 1948; Companies Act, 1956; Construction Activities of Section F of National Industrial Classification (NIC) 2008.
• MSME (Amendment) Bill, 2018
  1. The 2006 Act classifies and regulates enterprises as Micro, small and medium enterprises on the basis of the investment. The 2018 Bill classifies All Enterprises on the basis of Annual Turnover.
  2. Under the Act, the Center may classify micro, tiny or village enterprises as small enterprises. The Bill seeks to extend this to allow their classification as small as well as medium enterprises.

Prime Minister’s Employment Generation Program (PMEGP): - MoMSME

1. It is a Central Sector Scheme administered by MoMSME. It is a credit-linked subsidy programme by merges 2 schemes namely PM Rozgar Yojana (PMRY) and Rural Employment Generation Program (REGP).
2. Objectives
   1. Generate continuous and sustainable employment opportunities in both Rural and Urban areas especially to artisans through setting up micro-enterprises.
   2. To facilitate the participation of financial institutions for higher credit flow to the micro sector.
3. Eligibility: > 18 years, 8th pass (for > 10 lakhs in manufacturing and > 5 lakhs for Service sector), SHG and Charitable trusts, Production based cooperatives societies.
4. Features
   1. At the National level: by Khadi and Village Industries Commission (KVIC).
   2. At State Level: by State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs) and District Industries Centres (DICs) and banks.
   3. It is implemented through KVIC and State/ UT KVIB in rural areas and through District Industries Centers (DIC) in Urban and Rural areas in a ratio of 30:30:40 between KVIC/ KVIB/ DIC.

Khadi and Village Industries Commission (KVIC), 1957

• It is a statutory organization under KVIC Act, 1956 the administrative control of the Ministry of MSME.
• It works with regard to khadi and village industries within India and rural development.
• In April 1957, it took over the work of the former All India Khadi and Village Industries Board.
• The main objectives of KVIC include:
  1. The social objectives or providing employment in rural areas;
  2. The economic objectives of producing saleable articles, and
  3. The wider objective of creating self-reliance amongst people and building up a strong rural community spirit.
• To create a market niche for eco-friendly pure and bio-degradable natural products, the KVIC has introduced 2 new brands viz., “Sarvodaya” and “Khadi”. It has also opened Khadi Gramodyog Bhawans in Australia, Germany, U.K., U.S.A., Canada, Dubai and Singapore.
• Honey Mission by KVIC: KVIC has distributed > 1 lakh bee boxes among farmers and unemployed youths across the country in < 2 years under its 'Honey Mission' initiative.
• Interest Subsidy Eligibility Certificate (ISEC): It is a mechanism to fund the Khadi programme. The loan is given at 4% Interest rate and the difference between the Actual rate and 4% is paid by the Center through KVIC.

Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTF SME)

1. Established jointly by Ministry of MSME and SIDBI.
2. To implement Credit Guarantee Scheme for Micro and Small Enterprises.
3. 75% loan amount to bank is guaranteed by Trust Fund.
4. Collateral free loan upto a limit of 1 crore is available for individual MSE on guarantee fee to the bank.
5. Both existing and new enterprises are eligible under the scheme.

Click here to read about ASPIRE and SFURTI scheme for MSMEs.

Other efforts by Government of India

• SIDBI launched ‘Udyami Mitra’ Portal
  1. To improve accessibility of credit and handholding services to MSMEs.
  2. Scheduled Commercial Banks are to ensure a target of 7.5% of ANBC for Micro enterprise,
  3. No collateral security needed for loans upto 10 lakhs to MSE sector.
• Udyog Aadhaar Memorandum (UAM): It is a 1 page registration from which constitutes a self declaration format under which MSME will self certify its existence, KYC etc. There is no fee. It will get Udyogi Aadhar Number (UAN).
• RBI's U K Sinha Panel's recommendations on MSME Sector
  1. It has recommended doubling the cap on collateral-free loans to Rs 20 lakh from Rs 10 lakh.
  2. This will be extended to borrowers falling under Mudra scheme, SHGs and MSMEs.
  3. The report has also recommended the mainstreaming the restructuring of stressed loans.
  4. It has also suggested various long-term solutions for the economic and financial sustainability of MSMEs.
• Ministry of MSMEs implementing International Cooperation (IC) Scheme with the objective of enhancing the competency of MSMEs, capturing new markets for their products, exploring new technologies for improving manufacturing capacity, etc. It is a demand driven scheme under which financial assistance is provided on a reimbursement basis to the eligible State/Central Government Organisations.

Trade Receivables Discounting System (TReDS)

• It is for facilitating the financing of trade receivables of MSMEs from corporate buyers through multiple financers is called TReDS.
• It includes discounting of both invoices as well as Bills of Exchange.
• MSME sellers, Corporate Buyers and Financiers - both banks and Non banks will be direct participants in TReDS.
• It would be governed by regulatory framework put by RBI under Payment and Settlement Systems Act, 2007.
• Who can participate? Whoever has the Capital of Rs. 100 crores out of which at least 40% must belong to promoters themselves for 5 years. Then it is to be reduced to 30% within 10 years and 26% within 12 years.

Financial assistance towards MSMEs in COVID

Government has taken a number initiatives for providing financial assistance to the Micro, Small and Medium Enterprises (MSMEs) to cope with the financial impact of the COVID-19 pandemic which inter-alia include measures such as:

• Rs. 20,000 crore Subordinate Debt for MSMEs,
• Rs. 4.5 lakh crore Collateral free Automatic Loans under Emergency Credit Line Guarantee Scheme (ECLGS) for businesses, including MSMEs.
• Rs. 50,000 crore equity infusion through MSME Fund of Funds
• Rs.15,000 crore Special Refinancing Facility for Small Industries Development Bank of India (SIDBI) from RBI as a specific response to COVID-19 for on lending/refinancing purposes
• Credit Guarantee Scheme to facilitate loans to 25 lakh persons through Micro Finance Institutions,
• Rs 30,000 crore Special Liquidity Scheme for NBFCs/HFC/MFIs,
• Rs. 90,000 crore partial Credit Guarantee Scheme 2.0 for Liabilities of NBFCs/MFIs.

In view of the challenges faced by taxpayers due to the outbreak of Novel Corona Virus (COVID-19), the Government of India has taken several taxation related measures for the industries including MSMEs which inter-alia include measures such as :-

• extension of various time limits for compliances and statutory actions under the taxation laws
• extension of date for filing declaration under the Direct Tax Vivad se Vishwas Act
• issuance of corporate tax refunds,
• extension of the date of incorporation of eligible start up for claiming deduction under the relevant provisions of income tax act,
• extending the date for making various investment/payment for claiming deduction under Chapter VIA-B of the Income Tax
• Concessional rates of interest in lieu of the normal rate of interest of 18% per annum for delayed tax payments.