Contributed by: Huzefa Mala, Partner JHS & Associates along with Vishnu Murugan, Sanket Bhalbar and Karuna Kapadi
There are roughly about 6.3 crore MSMEs in India which are currently reeling under tremendous stress due to unprecedented situations that’s currently in play. The nationwide lockdown that has lasted over 45 days has made it difficult to carry out business in India. Especially, the not so big scale entities which are facing financial crunches leading to a more significant doubt on the business continuity of such enterprises.
A fortunate consequence being the Government of India coming up with various measures starting with:
Revision of Definition of MSME:
The government of India has recently revised the definition of Micro Small and Medium enterprises to give the necessary boost to sustain and expand. The new definition eliminates the differentiation between Manufacturing and Service enterprises and adding on; GoI has also revised the investment criteria and included a turnover criterion.
Existing and Revised Definition of MSME:
| Existing MSME Definition | |||
| Criteria – Investment in Plant and Machinery or Equipment | |||
| Classification | Micro | Small | Medium |
| Manufacturing enterprise | Investment < ₹25 lac | Investment < ₹5 cr | Investment < ₹10 cr |
| Service enterprise | Investment < ₹10 lac | Investment < ₹2 cr | Investment < ₹5 cr |
| Revised MSME Definition | |||
| Criteria – Investment in Plant and Machinery or Equipment and Annual Turnover | |||
| Classification | Micro | Small | Medium |
| Manufacturing & Service enterprise |
Investment < ₹1 cr and Turnover < ₹5 cr |
Investment < ₹10 cr and Turnover < ₹50 cr |
Investment < ₹50 cr and Turnover < ₹250 cr |
An upward revision in the investment limit in the definition of MSMEs, will not only boost the existing business enterprises financially but also encourage upcoming entrepreneurs to invest in a start-up and to build the enterprise from there-on.
Primarily, one question you may be having is, Why should you get registered as MSME?
Here’s some compelling justification that might interest you:
- Collateral free loans from banks:
One of the major problem faced by such growing enterprises is availing credit from financial institutions or banks at a reasonable rate of interest. Banks/Financial institutions were also not keenly giving away financial credit as collaterals were a significant hindrance.
The Government of India has launched Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE to make available collateral-free financial credit to MSE units. Under this scheme, both new enterprises, as well as existing enterprises, would be benefitted.
- Eligible Credit Facility:
Both long term loans and working capital facility up to Rs. 100 lakh per borrowing unit to a New or Existing Micro and Small Enterprise are eligible to be covered under the scheme. In case of working capital, the guarantee cover is of 5 years, whereas for term loan the same can be agreed upon. A composite all-in guarantee fee of 1% p.a. of the credit facility sanctioned is charged.
Further, details regarding the extent of Guarantee cover are summarized as under:
| Category | Maximum extent of Guarantee where credit facility is | ||
| Up to 5 lakh | Above 5 lakh up to 50 lakh |
Above 50
lakh up to 200 lakh | |
| Micro Enterprises | 85% of the amount in default subject to a maximum of 4.25 lakh | 75% of the amount in default subject to a maximum of 37.50 lakh | 75% of the amount in default subject to a maximum of 150 lakh |
| Women entrepreneurs/ Units located in North East Region (Incl. Sikkim) ( other than credit facility up to 5 lakh to micro-enterprises) | 80% of the amount in default subject to a maximum of 40 lakh | ||
| All other categories of borrowers | 75% of the amount in default subject to a maximum of 37.50 lakh | ||
| Activity | From 10 lakh up to 100 lakh | ||
| MSE Retail Trade | 50% of the amount in default subject to a maximum of 50 lakh |
- Reimbursement of ISO 9000/ISO 14001 Certification:
ISO certification complies with international standards; MSMEs availing such certification can compete in national as well as global markets. The cost of availing such certification is considerably high as a result of which DC-MSME offers funding schemes to apply for this certification.
Key features of the scheme are as follows:
- The cost incurred for availing such certification is reimbursed, the limit being 75% of the total cost incurred is subject to a maximum of Rs.75,000/-
- Such reimbursement is only one time when the enterprise provides an Entrepreneurship memorandum number.
- Subsidy for Technology Upgradation:
Eligible MSMEs units are offered with the Credit Linked Capital Subsidy Scheme (CLCSS) to provide 15% capital subsidy upto a maximum amount of ₹15 lakhs incurring additional investment for upgrading their technology.
- International Co-operation:
This scheme for MSMEs offers financial assistance of up to 95% of Airfare and space rent for Entrepreneurs for organising or co-sponsoring of exhibitions abroad and marketing promotion activities. Such marketing assistance is provided based on the size of the enterprise. It also assists with common expenses such as Freight and Insurance, local transport, the printing of common catalogues.
Similarly, financial assistance for co-sponsoring would be 40% of the net expenditure subject to a maximum of Rs. 5,00,000.
- Concession on electricity bill:
On providing the electricity bill along with an application and copy of MSME registration certificate, businesses can avail concession on electricity bills, thus helping enterprises to curb their expenditure.
- Overdraft facility along with Interest rate exemption:
MSMEs, under this scheme, are eligible to avail a benefit of 1% exemption on the interest rate on the overdraft as part of Credit Guarantee Trust Fund scheme. (However, the same may differ across banks).
- Delayed payment’s protection:
Under the MSME registration benefits, a buyer is expected to make payment for the goods/services within 15 Days of purchase. If the delay in payment, by the buyer, is more than 45 days the enterprise is eligible to charge compound interest which is three times the rate notified by RBI, this provides the much-needed assistance and layer of protection against delayed payments. As MSMEs are considered the “engine of growth”, they are offered every possible benefit to make them sustain devoid of any economic conditions. India is rapidly growing on global frontiers and the “Make in India” programme, making India a well-deserved potential manufacturing hub. Such pro-active measures will give the much-needed push through for businesses and entrepreneurs who have the potential of being one of the major driving forces of the Self-Reliant and Developed India. The benefits offered to them, especially in India are huge in terms of support systems given to them by both the central and state government.
