MSME Definition Widened - Economic Impact !!! (A Complete Guide)

The MSME sector contributes to 45% of India’s Total Industrial Employment, 50% of India’s Total Exports and 95% of all industrial units of the country and more than 6000 types of products are manufactured in these industries (As per msme.gov.in). When these industries grow, the economy of the country grows as a whole and flourishes. These industries are also known as small-scale industries or SSI’s.

What is MSME?

MSME stands for Micro, Small and Medium Enterprises. In a developing country like India, MSME industries are the backbone of the economy.

In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:

1.     Manufacturing Enterprises-The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951 or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.

2.     Service Enterprises: -The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

Existing MSME Classification

Criteria: Investment in Plant & Machinery or Equipment's

Classification Micro Small Medium Manufacturing Enterprises Investment Criteria Less than Rs. 25 Lakh Less than Rs. 5 Crore Less than Rs. 10 Crore Service Enterprises Investment Criteria Less than Rs. 10 Lakh Less than Rs. 2 Crore Less than Rs. 5 Crore .

Need in the change of MSME classification?

·       Low threshold in MSME definition have created a fear among MSMEs of graduating out the benefits and hence killing to urge to grow.

·       There has been a long-pending of demand for revisions.

In this regard Cabinet changed the MSME classification on 13th May, 2020. Revised classification is as follows:

Revised MSME Classification (Remains in force till 30th June, 2020)

Composite Criteria: Investment and Annual Turnover

Classification Micro Small Medium Manufacturing & Service Enterprises Investment Criteria* Turnover Criteria Less than Rs. 1 Crore AND Less than Rs. 5 Crore Less than Rs. 10 Crore AND Less than Rs. 50 Crore Less than Rs. 20 Crore AND Less than Rs. 100 Crore *Investment Criteria: Investment in Plant & Machinery or Equipment's

In the revised definition, the investment limit has been revised upwards and an additional criterion of turnover has been introduced.

The government has also done away with the distinction between manufacturing and service sector as you compare old and new definition.

But after this amended definition, government receives several representations that this revised definition is not helping the industry sector at large.

Therefore, on 01^st June, 2020 government again revise the MSME definition applicable from 1^st July, 2020.

Revised MSME Classification (Applicable from 01st July, 2020)

Composite Criteria: Investment and Annual Turnover

Classification Micro Small Medium Manufacturing & Service Enterprises Investment Criteria* Turnover Criteria Less than Rs. 1 Crore AND Less than Rs. 5 Crore Less than Rs. 10 Crore AND Less than Rs. 50 Crore Less than Rs. 50 Crore AND Less than Rs. 250 Crore * Investment Criteria: Investment in Plant & Machinery or Equipment's

Note: It has been decided that the "Turnover" with respect to exports will not be counted in the limits of turnover for any category of MSME units whether Micro, Small, or Medium. This will help in bringing more units under MSME classification even if their exports are more."

Computation of Investment limit in Plants & Machinery or in Equipment's for the purpose of MSMED Act, 2006

In exercise of the powers conferred by sub-section (1) of Section 7 of the MSMED Act, 2006, the Central Government vide notification S.O. 1722(E) dated 5th October, 2006, the cost of which shall be excluded while calculating the investment in plant and machinery in the case of the enterprises mentioned in Section 7(1)(a) of the said Act, namely:

(i)             equipment such as tools, jigs, dyes, moulds and spare parts for maintenance and the cost of consumables stores;

(ii)           installation of plant and machinery;

(iii)         research and development equipment and pollution-controlled equipment

(iv)         power generation set and extra transformer installed by the enterprise as per regulations of the State Electricity Board;

(v)       procurement or installation of cables, wiring, bus bars, electrical control panels (not mounted on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures;

(vi)          gas producer plants;

(vii)        transportation charges (excluding Goods and Services Tax) for indigenous machinery from the place of their manufacture to the site of the enterprise;

(viii)       charges paid for technical know-how for erection of plant and machinery;

(ix)          such storage tanks which store raw material and finished products and are not linked with the manufacturing process; and

      (x)             firefighting equipment 

While calculating the investment in plant and machinery referred to in above paragraph, the original price thereof, irrespective of whether the plant and machinery are new or second hand, shall be taken into account provided that in the case of imported machinery, the following shall be included in calculating the value, namely;

        (i)  Import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port);

        (ii)   Shipping charges;

(iii)          Customs clearance charges; and

(iv)           Goods and Services Tax (Provided input not taken)

Registration Process

    1.   To do the registration the small and medium scale industry owner has to fill a single form which he can do online.

2.  If a person wants to do registration for more than one industry then also, he/she can do individual registration.
3. To do the registration he/she has to fill a single form which is available at the website which is listed below.
4. The document required for the registration is Personal Aadhar number, Industry name, Address, bank account details and some common information.
5. In this, the person can provide self-certified certificates.
6. There are no registration fees required for this process.
7. Once the detail-filled and upload you would be getting the registration number.

Benefits of MSME Registration

1. Due to the MSME registration, the bank loans become cheaper as the interest rate is very low around ~ 1 to 1.5%. Much lower than interest on regular loans.
2. It also allowed credit for minimum alternate tax (MAT) to be carried forward for up to 15 years instead of 10 years.
3. There are many government tenders which are only open to the MSME Industries.
4. Concession in Electricity Bills
5. Business registered under MSME are given higher preference for government license and certification.
6. Protection against delay in payment from Buyers and right of interest on delayed payment.
7. Reimbursement of ISO Certification Expenses.
8. Waiver in Earnest Money (Security Deposit) in Government tenders.
9. Special Contribution on international Trade Fairs.

Some of the MSME scheme are launched by the Government are:

·       Udyog Aadhar Memorandum

·       Zero Defect Zero effect

·       Quality Management Standards & Quality Technology Tools

·       CHAMPIONS - Grievance Mechanism System

·       Incubation

·       Credit linked Capital Subsidy Schemes

• Women Entrepreneurship 

UdyogAadhaar Memorandum:

Aadhaar card is a 12-digit number given to all individuals by the government. In this, the Aadhaar card is a mandatory requirement. The benefit of registering in this scheme is ease in availing credit, loans, and subsidies from the government. Registration can be done via online mode.

ZeroDefect Zero Effect:

In this model, goods that are manufactured for export have to adhere to a certain standard so that they are not rejected or sent back to India. To achieve this the government has launched this scheme. In this, if the goods are exported these are eligible for some rebates and concessions.

QualityManagement Standards & Quality technology Tools:

Registering in this scheme will help the micro, small and medium enterprises to understand and implement the quality standards that are required to be maintained along with the new technology. In this scheme, activities are conducted to sensitise the businesses about the new technology available through various seminars, campaigns, activities etc.

CHAMPIONS

Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength

It has been felt necessary to put up and promote a unified, empowered, robust, bundled and technology driven platform for helping and promoting the Micro, Small and Medium Enterprises (MSMEs) of the country. As the name suggests it will aim at Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength. Accordingly, the name of the system is CHAMPIONS. This is basically for making the smaller units big by helping and hand holding.

Three basic objectives of the CHAMPIONS:

1. To help the MSMEs in this difficult situation in terms of finance, raw materials, labour, permissions, etc.
2. To help the MSMEs capture new opportunities including manufacturing of medical items & accessories.
3. To identify the sparks, i.e., the bright MSMEs who can withstand at present and become national and international champions.

Incubation:

This scheme helps innovators with the implementation of their new design, ideas or products. Under this from 75% to 80% of the project cost can be financed by the government. This scheme promotes new ideas, designs, products etc.

CreditLinked Capital Subsidy Scheme:

Under this scheme, new technology is provided to the business owners to replace their old and obsolete technology. A capital subsidy is given to the business to upgrade and have better means to do their business. These small, micro and medium enterprises can directly approach the banks for these subsidies.

Women Entrepreneurship:

This scheme is especially started for women who want to start their own business. The government provides capital, counselings, training and delivery techniques to these women so that they manage their business and expand it.

The government has launched a number of more schemes and support system for these enterprises. To know more about the MSME schemes.

Different State provides different benefits to MSME to Promote/Attract Industry development in the States

A Glimpse of benefit provided by Uttar pradesh Government for MSME -

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DISCLAIMER : THE ENTIRE CONTENT OF THIS DOCUMENT HAVE BEEN PREPARED ON THE BASIS OF RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF PREPARATION. THOUGH UTMOST EFFORTS HAS MADE TO PROVIDE AUTHENTIC INFORMATION, IT IS SUGGESTED TO HAVE BETTER UNDERSTANDING. KINDLY CROSS CHECK THE RELEVANT SECTIONS AND RELATED RULES TO IT. THE OBSERVATION OF THE AUTHOR ARE THE PERSONAL VIEW AND AUTHOR DO NOT TAKE RESPONSIBILITY OF THE SAME. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.  

THE AUTHOR - CA ASHU BANSAL (ASSOCIATE PARTNER AT AMKV & ASSOCIATES) 

CAN BE REACHED AT | CAASHUBANSAL5@GMAIL.COM | M: 9034674871 |