The Micro, Small, and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over quite a few years. The sector has played a crucial role in providing large employment opportunities at comparatively lower capital costs. It has also helped in the industrialization of rural & backward areas. This has reduced regional imbalances, assured more equitable distribution of national income and wealth. MSMEs are complementary to large industries as ancillary units. MSMEs contribute enormously to India’s socio-economic development.
The Ministry of MSME envisions a vibrant MSME sector by promoting the growth and development of the MSME Sector, including Khadi, Village, and Coir Industries, in cooperation with concerned Ministries/Departments, State Governments and other Stakeholders, through providing support to existing enterprises and encouraging the creation of new enterprises.
Introduction to the Act: 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 it also enhances their competitiveness. It provides the first-ever legal framework for recognition of the concept of ‘enterprise’ which comprises both manufacturing and service entities. It defines ‘medium enterprises’ for the first time and seeks to integrate the 3-tiers of these enterprises, namely, micro, small, and medium. MSMED Act also provides for a statutory consultative mechanism at the national level with a balanced representation of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range of advisory functions. Establishment of specific funds for the promotion, development and enhancing the competitiveness of these enterprises, notification of schemes/programs for this purpose, progressive credit policies, and practices, preference in Government procurements to products and services of the micro and small enterprises, more effective mechanisms for mitigating the problems of delayed payments to micro and small enterprises and assurance of a scheme for easing the closure of business by these enterprises are some of the other features of the MSMED Act.
Classification &Definitions of ‘Micro’, ‘Small’ & ‘Medium’ Enterprises: Pursuant to the extant provision of MSMED Act, 2006, MSMEs are classified in 2 classes:
Under the extant provisions, w.r.t the ‘manufacturing sector’, micro-enterprise means an entity wherein the investment in plant & machinery does not exceed Rs. 25 lacs. Small enterprise means an entity wherein the investment in plant & machinery is more than Rs. 25 lacs but does not exceed more than Rs. 5 crores. Medium enterprise means an entity wherein the investment in plant & machinery exceeds more than Rs. 5 crores but does not exceed more than Rs. 10 crores.
Under the extant provisions, w.r.t the ‘sector sector’, micro-enterprise means an entity wherein the investment in equipment does not exceed Rs. 10 lacs. Small enterprise means an entity wherein the investment in equipment is more than Rs. 10 lacs but does not exceed more than Rs. 2 crores. Medium enterprise means an entity wherein the investment in equipment exceeds more than Rs. 2 crores but does not exceed more than Rs. 5 crores.
Scheme of MSME Ministry: The primary responsibility of the promotion and development of MSMEs is of the State Governments. However, the Central Government supplements the efforts of State Governments through various initiatives. The role of the Ministry of MSME and its organizations is to assist the States in their efforts to encourage entrepreneurship, employment, and livelihood opportunities and enhance the competitiveness of MSMEs in the changed economic scenario. The schemes/programs undertaken by the Ministry and its organizations seek to facilitate/provide:
PM Modi announcements on May 12, 2020:Prime Minister Narendra Modi addressed the nation and recalled those who have died battling the pandemic. He said that “The crisis that has emerged due to COVID-19 is unprecedented, but in this battle, we not only need to protect ourselves but also have to keep moving forward.” He announced a special economic package and gave a clarion call for Atmanirbhar Bharat. He noted that this package, taken together with earlier announcements by the government during COVID crisis and decisions taken by RBI, is to the tune of Rs 20 lakh crore, which is equivalent to almost 10% of India’s GDP. He said that the package will provide a much-needed boost towards achieving Atmanirbhar Bharat. He observed that the package will also focus on land, labor, liquidity, and laws. It will cater to various sections including the cottage industry, MSMEs, laborers, middle class, industries, among others. He informed us that the details of the contours of the package will be provided by the Finance Minister from May 13, 2020.
FM announcements on May 13, 2020:Smt. Nirmala Sitharaman announced measures focused on Getting back to work i.e., enabling employees and employers, businesses, especially MSMEs, to get back to production and workers back to gainful employment. Some of the important announcements are summarised as follows:
|Composite Criteria: Investment and Annual Turnover|
|Manufacturing and Service sector||Investment < Rs. 1 Crore|
Turnover < Rs. 5 Crores
|Investment < Rs. 10 Crores|
Turnover < Rs. 50 Crores
|Investment < Rs. 20 Crores|
Turnover < Rs. 100 Crores
The announcement by the Finance Minister w.r.t. change in the definition of MSMEs was a pleasant surprise, as the proposal was pending with the Parliamentary Standing Committee since July 2018. Apart from raising the investment limits for classifying MSMEs, the Finance Minister as an introduced an annual turnover feature for defining MSMEs. As per extant provisions, the existing definition relies on self-declared investment on Plant & Machinery and has wide variations based on the type of business (i.e. manufacturing and service). Since the investment limit for MSMEs has been revised upwards, the companies with more capital still avail of the benefits under the MSMED Act. With an objective to introduce the amendment, the Govt. will require the Parliament approval for the amendingMSMED Act, 2006. As the Parliament not in session, the Government may introduce an Ordinance for implementing the announcement.
Union Finance Minister Nirmala Sitharaman announced an action plan for the 3 months, as well, i.e. post-lockdown plan, which includes:
From the perspective of the long-term sustainability of MSMEs, the FM announced several measures which include Smart Industrial Village Policy, Promoting Swadeshi Ideology via Policy & Strategy Drafting, Access to Information Technology Enabled Services at an affordable cost would bring the MSME sector on a level playing field with bigger players, to promote innovation and upscale MSMEs to withstand global competitions, Technological up-gradation of the MSMEs to minimize external risks to tolerable levels, encouraging corporatization of the MSME sector, encouraging innovations through setting up of a large number of business incubators in educational institutions, formulation of long term policies for the timely receipt of payments by MSMEs.W.r.t. the financial assistance to MSMEs, the measures include prioritizing lending to MSMEs from banks by including small enterprises in the earmarked priority sector and raising the sub-target limit to 10% from 7.5%, collateral-free & MUDRA small loans to encourage self-employment, relaxing ceiling on working capital by banks.