MSME: Micro, Small and Medium Enterprise

 Micro, Small and Medium Enterprise

The Micro, Small, and Medium Enterprise (MSME) sector play a prominent role in the economic growth of a developing country like India. This sector has been established with an underlying aim of nurturing the micro, small, and medium enterprises in India. MSME sector in India also provides a significant contribution towards manufacturing, exports, employment, and industrial units in India. In short, the economic growth of India also relies on MSME sector development. MSME sector is also popularly known as the Small Scale Industry (SSI) in India.

Small Company Definition Changes

The ministry of corporate affairs stated that the small company definition is bound to change with the proposal by finance minister Nirmala Sitharaman as per the union budget 2021. In the proposal, there was paid-up capital increase to 2Cr while there is turnover increase to 20Cr. It is going to come into effect from 1st April 2021

Two distinct categories of MSME exist in India, whose eligibility depends upon the investment in machinery and plant by the businesses. These two categories include:

Manufacturing Enterprises

• The micro-enterprises having income less than INR 25 lakh, small enterprises having income below INR 5 crore, and medium enterprises having total income less than INR 10 crore fall in this category

Service Enterprises:

• The micro business with income less than INR 10 lakh, small enterprises with revenue less than INR 2 crores and lastly the medium enterprises with income less than INR 5 crore are considered as service enterprises in MSME sector

The enterprises of both categories can register themselves as the MSME under the MSME act.

Necessary Documents Required for MSME Registration in India

The important documents that are mandatory for MSME registration are given below:

• Address Proof (of Business)
• Rented Property: NOC from the landlord, Rent receipt, and a utility bill or its equivalent are mandatory as a proof of landlord’s ownership
• Self-owned Office: For self-owned offices, one must have allotment letter, possession letter, property tax receipt, or lease deed. If a municipal license exists against the business name or its proprietor, director or partner, then no need of a possession document
• Receipts/copies of every sale and purchase bills
• Bills of machinery purchased and the copy of important licences
• Articles of Association (AoA) and Memorandum of Association (MoA)/Partnership Deed along with the copy of board resolution and incorporation certificate

How to Register as an MSME (Udyam)?

In this fast-moving phase of the economy and technology-driven processes, things are getting more organized and are paving ways to ease of doing business. The Indian Government too is taking various initiatives to encourage small-sized enterprises to exist and grow efficiently.

To register as an MSME (Udyam) all it takes is to file a web-based online form wherein the applicant is required to have an Aadhaar card along with a linked mobile number to get it certified. The process has been so simplified that the certificate is generated while making an application itself and the fields of the e-form for MSME registration are listed out below:

• Aadhaar Number: Fill 12-digit Aadhaar number issued to the applicant.
• Name of Applicant: Fill in the name of the applicant strictly as mentioned on the Aadhaar Card issued by UIDAI.
• Social Category: Fill the Social Category (General, Scheduled Caste, Scheduled Tribe or Other Backward Castes (OBC)
• Gender: Fill in the gender of the applicant
• Physically Handicapped: Select the status from provided options
• Name of Enterprise / Business: Fill in the name of Business / Enterprise which will get printed on the MSME Certificate
• Type of Organization: Select the type of organization from the given options which will get printed on the MSME Certificate.
• PAN: Fill 10 Digit PAN Number in case of Co-Operative, Private Limited, Public Limited, and Limited Liability Partnership It. Will be optional in the remaining type of Organization.
• Location of Plant: Fill in the address of the plant. In the case of multiple plant locations, the applicant can click on the add plant button.
• Office Address: Fill in the office address, if the office address is different from the plant address.
• Date of Commencement of Business: Fill in the date of Commencement of Business, the same shall be mentioned in the MSME Certificate.
• Previous Registration Details(if any): If Applicant’s enterprise, for which the Udyog Aadhaar is being applied, is already issued a valid EM-I/II by the concerned GM (DIC) as per the MSMED Act 2006 or the SSI registration prevailing prior to the said Act, such number may be mentioned in the appropriate place.
• Bank Details: Fill in the applicant’s bank account number and bank IFSC Code.
• Major Activity: The major activity i.e. either “Manufacturing” or “Service” may be chosen by the enterprise for Udyog Aadhaar.
• National Industry Classification Code (NIC Code): Fill in the NIC Code of the business activity.
• The person employed: Fill in the total number of persons employed who are directly been paid salary/ wages by the enterprise.
• Investment in Plant & Machinery / Equipment: Fill in the total investment made in the plant & Machinery/Equipment.
• DIC: The Applicant, based on the location of the Enterprise, has to fill in the location of DIC. This Column will be active and show the option only when there is more than one DIC in the district.
• Submit: Click on the submit button and enter the OTP that will be shared on the registered/linked mobile number

Any changes in the investment: If there are any changes in the investment in plant & Machinery or the equipment and the enterprises have already filed Udyog Aadhaar Memorandum (UAM) shall inform the District Industries Centre of the same in writing within three months of the change.

Benefits of MSME Registration for Businesses in India

• Businesses can avail cheaper bank loans with lower interest rates (around 1 to 1.5 per cent) in comparison to regular loans
• Tax rebate availability
• Unlike the regular Minimum Alternate Tax (MAT) duration of 10 years for credit, MSMEs are allowed to carry forward this limit to 15 years for credit against MAT
• Special government tenders catering MSMEs mainly
• Easy credit accessibility Low-cost for industry set-up, patents, and so no due to special tax rebates and other concessions
• High preference from the government  in terms of licencing and certification
• One time settlement option for the unpaid amount.

Indian Government Schemes Catering MSMEs

A variety of MSME schemes have been launched by the Indian government for MSME businesses, such as:

Zero Defect Scheme

• MSMEs are required to manufacture the export category goods as per the prescribed standards to be a part of this scheme. Compliance with such standards ensures export goods acceptance in foreign nations. The entities, who are a part of this scheme are also given varied tax rebates and concessions for the export goods.

Udyog Aadhaar Memorandum Scheme

• To be a part of this scheme, having an Aadhaar number is mandatory for the MSMEs to enjoy easily available loans, credit, and government subsidies offered under the scheme.

Incubation Scheme

• Under this scheme, the government promotes and encourages the innovative MSMEs to come up with new ideas, design, and products as well as launch them in the market. The government manages approximately 75% to 80% of the costs of innovative projects developed by MSMEs.

Quality Management Standards and Quality Technology Tools

• Enrollment under this scheme allows the MSMEs to maintain the required quality standards along with the new technology. Under this scheme, the government conduct a number of seminars and expert sessions with the new MSMEs to increase awareness among them about new technology available in the market.

Grievance Monitoring System Scheme

• MSMEs registered under this scheme can make complaints about their business to the government as well as check the status of their complaints, and keep them open if they feel the outcomes are not praiseworthy.

Women Entrepreneurship Scheme

• Women entrepreneurs are encouraged and supported by the government under this scheme by offering capital, training, counselling, and teaching of delivery techniques to women. This makes women capable of running their own MSMEs. It also aims to encourage women to expand and manage their business successfully.

Credit-linked Capital Subsidy Scheme

• MSMEs are offered with the latest technology as a replacement to their old and obsolete technology by the government under this scheme. To achieve this capability, the MSMEs are also offered with the capital subsidy in order to upgrade their business. MSMEs enrolled under this scheme can knock the bank doors directly to avail such services.

The Indian government has also launched a variety of other schemes to provide support to these MSMEs. However, MSME registration is not yet mandatory in India. Despite this, it is beneficial for emerging MSMEs to get registered as it helps them enjoy tax rebates, credit facilities, loans, business set-up, and so on.

Key Challenges faced by the MSME Sector:

• Lack of availability of adequate and timely credit
  
• High cost of credit
  
• Collateral requirements
  
• Limited access to equity capital
  
• Procurement of raw material at a competitive cost 
• Problems of storage, designing, packaging and product display
• Lack of access to global markets
  
• Inadequate infrastructure facilities, including power, water, roads
• Low technology levels and lack of access to modern technology
• Lack of skilled manpower for manufacturing, services, marketing, etc
• Multiplicity of labour laws and complicated procedures associated with compliance of such laws.

Despite the various challenges it has been facing, the MSME sector has shown admirable innovativeness, adaptability and resilience to survive the recent economic downturn and contribute significantly to India’s industrial growth. Considering the importance of the MSMEs in supporting the Indian economy’s growth, the MSME sector needs to have timely, adequate and affordable funds to upgrade its technological competencies and plug financial gaps, so as to move up the value chain.

The Importance and role of MSMEs in Indian Economy

1. To generate large scale employment In India, capital is scarce and labour abundant. MSMEs are thought to have lower capital-output and capital-labour ratios than large-scale industries, and therefore, better serve growth and employment objectives. The MSME sector in India has grown significantly since 1960 – with an average annual growth rate of 4.4% in the number of units and 4.62% in employment (currently employing 30 million). Not only do MSMEs generate the highest employment per capita investment, they also go a long way in checking rural-urban migration by providing people living in isolated areas with a sustainable source of employment.

2. To sustain economic growth and increase exports Non- traditional products account for more than 95% of the MSME exports (dominating in the export of sports goods, readymade garments, plastic products etc.). Since these products are mostly handcrafted and hence eco-friendly, there exists a tremendous potential to expand the quantum of MSME led exports. Also, MSMEs act as ancillary industries for Large Scale Industries providing them with raw materials, vital components and backward linkages e.g. large scale cycle manufacturers of Ludhiana rely heavily on the MSMEs of Malerkotla which produce cycle parts.

3. Making Growth Inclusive The inclusive growth is at the top of the agenda of Ministry for Medium, and small and Medium- sized enterprises for several years. On the other hand, poverty and deprivation are a deterrent to the development of India. Besides, it includes marginalized sections of a society which is a key challenge lying before the Ministry of MSME.MSMEs are instruments of inclusive growth which touch upon the lives of the most vulnerable and marginalized. For many families, it is the only source of livelihood. Thus, instead of taking a welfare approach, this sector seeks to empower people to break the cycle of poverty and deprivation. It focuses on people’s skills and agency. However, different segments of the MSME sector are dominated by different social groups. The Twelfth Plan has listed the following as the objectives for the MSME sector 

• Promoting competitiveness and productivity in the MSME space. 

• Making the MSME sector innovative, improving technology and depth. 

• Enabling environment for promotion and development of MSMEs. 

• Strong presence in exports. 

• Improved managerial processes in MSMEs.

4. Economic stability in terms of Growth and leverage Exports: It is the most significant driver in India contributing to the tune of 8% to GDP. Considering the contribution of MSME to manufacturing, exports, and employment, other sectors are also benefitting from it. Nowadays, MNCs are buying semi- finished, and auxiliary products from small enterprises, for example, buying of clutches and brakes by automobile companies. It is helpful in creating a linkage between MSME and big companies even after the implementation of the GST 40% MSME sector also applied GST Registration that plays an important role to increase the government revenue by 11%.

5. Cheap Labour and minimum overhead: While in the large-scale organizations, one of the main challenge is to retain the human resource through an effective human resource management professional manager. But, when it comes to MSME, the requirement of labour is less and it does not need a highly skilled labourer. Therefore, the indirect expenses incurred by the owner is also low.

6. Simple Management Structure for Enterprises: MSME can start with limited resources within the control of the owner. From this decision making gets easy and efficient. On the contrary, a large corporation requires a specialist for every departmental functioning as it has a complex organizational structure. Whereas a small enterprise does not need to hire an external specialist for its management. The owner can manage himself. Hence, it could run single-handedly.

7. The main role in the mission of “Make in India”: The signature initiative by the Prime Minister of India “Make in India” has been made easy with MSME. It is taken as a backbone in making this dream a possibility. In addition, the government has directed the financial institution to lend more credit to enterprises in the MSME sector.