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Significance of MSME Sector in India

MSME is known as Micro, Small, and Medium Enterprises. Following the 2006 Micro, Small, and Medium Enterprises Development (MSMED) Act, the enterprises are classified into two segments.

1. Manufacturing Enterprises – Enterprises that are engaged in the production or manufacturing of goods in any industry 2. Service Enterprises – Enterprises that are engaged in providing or rendering services

On 13th May 2020, the Union Cabinet of India lead by Finance Minister Nirmala Sitharaman had approved the modification in MSMEs' classification criteria from “investment in plant and machinery” to “annual turnover.” She also added the additional principle of turnover along with the investment.

“Investments will no longer characterize MSMEs.”

What are the Advantages of MSME Registration in India?

MSME Sector in India

1. Loans without security

The Government of India (GoI) revealed various MSME/SSI initiatives that allow them to avail credit without security. One of the best benefits includes the business initiative without a security-based loan. These loans are undertaken by SIDBI (Small Industries Development Bank of India), GOI (Government of India), and the Ministry of MSME under the scheme name of “The Credit Guarantee Trust Fund Scheme”.

2. Discount on Industrial Promotion & Patent Registration

Enterprises can be registered under the MSME Act are given a hefty subsidy of 50% for industrial promotion & patent registration. Enterprises can avail of this benefit by sending an application to the respective ministry. Besides this, one of the great MSME registration benefits is to get a subsidy for government-suggested industrial promotion.

3. Overdraft facility along with Interest Rate Freedom

Enterprises registered under the MSME Act as MSME/SSI are primarily eligible to benefit 1% on the overdraft under the Credit Guarantee Trust Fund Scheme, but it varies from bank to bank.

4. Concession on Electricity

One of the most superficial MSME registration benefits, businesses registered under the MSME Act, can avail of a concession on high or small electricity bills. They have to submit the electricity bills invoices, an appropriate application, and a copy of the MSME registered certificate.

5. Safety against Delayed/Late Payments

The GoI understands the uncertainty lying with business profits/revenues; therefore, the government has extended and offer a layer of protection against the enterprise’s payment scenarios. As of now, the Ministry of Micro, Small, and Medium Enterprise has given business owners and enterprises to collect interest on payments delayed by the buyer. Under the MSME registration benefits, a buyer is expected to pay the goods/services within 15 days of the purchase. If the buyer delays the payment for more than 45 days, the enterprise is eligible to charge compound interest, which is three times the RBI rate.

6. Compensation of ISO Certification Charges

MSME registered enterprises can claim the compensation for the money spend on ISO certification procedures and related registration.

Ground Reality of MSME Sector

According to the MSME Ministry official website, the FY2019 annual report stated that micro-enterprises lead in terms of the highest registration in the MSME sector. Moreover, over 6.33 crore MSMEs are registered in India, in which 99.4% are micro-enterprises.

According to government data, the number of registered MSMEs in FY2020 has increased by 18.49% to 25.13 lakh units, compared from 21.21 lakh in FY2019. However, the growth rate declined from 39.7% in the last financial year that had augmented from 15.17 lakh MSMEs registered in FY2018, the data shared in the Rajya Sabha. In the previous five years, the count of registered MSMEs in India raised at 90.19 lakh. According to the FY19 annual report of the MSME Ministry, the micro-enterprises are dominated by the MSME sector. Moreover, India has 6.33 crore MSMEs, out of which around 6.30 crore are micro-enterprises, while nearly 3.31 lakh are medium, and almost 5,000 are medium enterprises.

Growth in the number of small businesses registration is primarily expected to help the Indian government measure its contribution share to the sector’s share in the overall country’s GDP. Also, this identifies the actual coronavirus impact scenario to the MSMEs and in their supply chain, warehousing, and export credit, among others. However, the recovery of these MSMEs already proceeds the revenue is making its comeback with the export percentage growth.

Considering, MSME segment-wise, the micro-enterprises have been registered the most from 18.70 lakh in FY2019 to 22.06 lakh in FY2020, while small units went up 2.41 lakh in FY2019 to 2.95 lakh in FY2020. Medium-size registration witness a slight growth from 9,403 units in FY2019 to 10,981 units in FY2020.

In conclusion, deprived of strong fiscal stimulus, Indian industries are likely to follow a slowdown cycle in the coming months, which will harm India’s export capabilities and foreign operations in the medium to long term. This is the key reason for the drastic down of India's GDP growth in the Q2 2020. Officials need to interfere immediately to keep micro, small, and medium enterprise businesses growth and reserve an optimistic attitude, not only for pandemic but also for the Indian market's predictable future.

Courtesy - Industrial Automation

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