What is MSME (Micro, Small and Medium Enterprises)?
MSME (Micro, Small and Medium Enterprises) has always been the backbone of Indian Economy. They have played a great role in achieving the socialistic goals like employment generation, income equality, poverty eradication and balanced regional development. It has the potential for wide reaching impacts on the Sustainable Development Goals (SDGs) globally including SDG1 (end poverty), SDG 2 (zero hunger), SGD 3 (good health and well-being), SDG 5 (gender equality), SDG 8 (improve inclusive and sustainable economic growth, employment and decent work) and SDG 9 (improve sustainable industrialization and fostering innovation).
The MSME sector comprises of manufacturing, service industry, logistic, infrastructure, food processing, packaging, chemicals and IT.
Contribution of MSME in Indian Economy
- It produces about 45% of manufacturing output
- It contributes to 40% of total export of the country
- About 80 million people are engaged in over 29 million units throughout the country
- The contribution of MSME in India’s GDP is 8%
- Out of total registered MSMEs, around 54.27% of them are located in urban areas and 45.35% in rural areas
- Employment creation is next to agriculture
- It has created about 11.10 crore jobs in the country
Benefits of MSME
- They have lower capital-output and capital-labour ratios as compared to large scale industries
- They provide employment opportunities at low cost
- They are engaged in the manufacturing of over 6000 products ranging from traditional to hi-tech items
Micro, Small and Medium Enterprises Development (MSMED) Act, 2006
According to MSMED Act, 2006, an Enterprise means an industrial undertaking or a business concern or any other establishment:
- Engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951; or
- Engaged in providing or rendering of any service or services
According to MSMED Act, 2006, the micro, small and medium enterprises (MSME) is defined as:
- Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
- A micro enterprise is an enterprise where investment in plant and machinery does not exceed 25 lakh
- A small enterprise is an enterprise where the investment in plant and machinery is more than 25 lakh but does not exceed Rs. 5 crore
- A medium enterprise is an enterprise where the investment in plant and machinery is more than 5 crore but does not exceed Rs.10 crore
- Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered):
- A micro enterprise is an enterprise where the investment in equipment does not exceed 10 lakh
- A small enterprise is an enterprise where the investment in equipment is more than 10 lakh but does not exceed Rs. 2 crore
- A medium enterprise is an enterprise where the investment in equipment is more than 2 crore but does not exceed Rs. 5 crore
The investment in plant and machinery is the original cost excluding land and building
However, in February 2018 the government has approved the basis of classifying Micro, Small and Medium enterprises from ‘investment in plant and machinery’ to ‘annual turnover’. Accordingly, MSME will be defined as:
- A micro enterprise will be defined as a unit where the annual turnover does not exceed Rs 5 crore
- A small enterprise will be defined as a unit where the annual turnover is more than Rs 5 crore but does not exceed Rs 75 crore
- A medium enterprise will be defined as a unit where the annual turnover is more than Rs 75 crore but does not exceed Rs 250 crore
MSME Scheme for entrepreneurs
The government of India has launched many schemes and initiatives to cater the growing needs of MSMEs in India. These schemes are devised from time to time keeping in view the latest trends and contemporary problems of this vibrant sector of Indian Economy. Some of these schemes are:
It is a web based application to submit and track online applications under various schemes of the ministry.
It empowers MSMEs to resolve the issues of delayed payments.
It disseminated information on procurement by CPSEs / Government departments.
Udyog Aadhaar is a mobile friendly application for registration of MSMEs on certification basis. The benefits of registering in this scheme are ease in availing credit, loans and subsidies from the government. Registration can be done in online as well as offline mode.
Micro Unit Development and Refinance Agency (MUDRA) was proposed in Union Budget 2015-16 to fund the unfunded entrepreneur. The MUDRA bank has corpus of Rs. 20,000 crore and credit guarantee corpus of Rs. 3000 crore. The beneficiaries can get assistance from Rs. 50,000 to Rs. 10 lakh. According to the stage of growth/development, the funding needs of entrepreneur are classified into three categories: Shishu, Kishor and Tarun.
The Ministry of MSME, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) with a view to facilitate flow of credit to the MSE sector without the need for collaterals / third party guarantees. The main objective of the scheme is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed. The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of a MSE unit, which availed collateral – free credit facilities, failing to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 85 per cent of the outstanding amount in default.
The CGTMSE would provide cover for credit facility up to Rs. 200 lakh which have been extended by lending institutions without any collateral security and /or third party guarantees. A guarantee and annual service fee is charged by the CGTMSE to avail of the guarantee cover
Scheme of Fund for up-gradation and Regeneration of Traditional Industries (SFURTI)
It is a cluster development scheme launched by government. It aims at organisation of traditional industries and artisans into clusters to provide support for:
- Their long term sustainability and sustainable employment
- To enhance marketability of products of such clusters
- To make provisions for common facilities and improved tools and equipment for artisans
- To build up innovative and traditional skills, improved technologies and advances processes
National Scheduled Caste / Schedules Tribe Hub
It is an initiative of government of India targeted towards developing a supporting eco-system for SC and ST entrepreneurs. It has resulted in registration of 13211 SC and 2704 ST enterprises on MSMEs databank by end of April, 2018. Public procurement order has made it mandatory from April, 2015 Central Ministries and Central Public Sector Enterprises (CPSEs) to procure 20% of goods and services from MSMEs. 4% out of the 20% are reserved for SC and ST owned MSMEs.
Zero Defect Zero Effect (ZeD) Scheme
ZeD scheme envisages the promotion of Zero Defect and Zero Effect (ZeD) manufacturing amongst MSMEs to promote adaptation of quality tools/systems and energy efficient manufacturing. Under this model, goods that are manufactured for export have to adhere to certain standards, so that they are not rejected or sent back to India.
Make in India
The government of India launched the ‘Make in India’ campaign to facilitate investment, foster innovation, enhance skill development, protect intellectual property & build best in class manufacturing infrastructure. The primary objective of this initiative is to attract investments from across the globe and strengthen India’s manufacturing sector. It is being led by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India.
KVIC was formed by government of India in 1956 as a statutory body with the purpose of promotion of Khadi and village cottage industries. The KVIC is charged with the planning, promotion, organisation and implementation of programs for the development of Khadi and other village industries in the rural areas in coordination with other agencies engaged in rural development wherever necessary. The total of 391344 Village industries is functioning under KVIC as per official data available for year 2016.
Prime Minister Employment Generation Programme (PMEGP)
Prime Minister Employment Generation Program (PMEGP) is the flagship scheme of government of India in non-farm sector to be set up every year creating employment opportunities across the country. The KVIC is the nodal agency of the scheme. The objective of the scheme is generation of employment opportunities through establishment of micro enterprises in rural as well as urban areas. The maximum cost of the project/unit admissible under manufacturing sector is Rs. 25 lakh and minimum cost is Rs 10 lakh. The maximum cost of the project/unit admissible under business/service sector is Rs. 10 lakh and minimum cost is Rs 5 lakh. The scheme is implemented by KVIC as nodal agency at national level. It has record utilization of margin money of Rs 1312.40 crore in FY 2017-18.
Credit Linked Capital Subsidy Scheme (CLCSS)
Government of India, Ministry of Micro, Small and Medium Enterprises had launched Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Upgradation of Micro and Small Enterprises subject to the following terms and conditions:
- Ceiling on the loan under the scheme is Rs.1 crore.
- The rate of subsidy is 15% for all units of micro and small enterprises up to loan ceiling
- SIDBI and NABARD will continue to be implementing agencies of the scheme.
Stand Up India
The Stand Up India scheme was launched to provide bank loans between Rs 10 lakh to Rs 1 crore to at least one Scheduled Caste (SC) and Schedules Tribe (ST) borrower and at least one women borrower per bank branch of all scheduled commercial banks for setting up a Greenfield enterprise.
Trade Related Entrepreneurship Assistance and Development (TREAD)
The scheme envisages economic empowerment of women through the development of their entrepreneurial skills in non-farm activities. There are three major components of the scheme:
- Government of India grant up to 30% of the total project cost to the NGOs for promoting entrepreneurship among women. The remaining 70% of the project cost is financed by lending agency
- Government of India grant up to Rs 1 lakh per programme to training institutions/NGOs for imparting training to women
- Government of India grants up to Rs 5 lakh to National Entrepreneurship Development
Honey Mission was launched in July, 2017 to distribute bee-boxes across the nation. The scheme is managed by KVIC. Till date, the KVIC has distributed 29000 bee-boxes to the farmers, adivasis, SC/ST and unemployed youth. It has created a world record of highest bee-box distribution in a single day by distributing 2300 bee-boxes at Kupwara in J&K in association with Indian Army. World Honey Bee Day is observed annually on 20th May. The scheme is expected to generate addition income of upto Rs 50000 per annum per person to rural and tribal families.
Trade Receivables Discounting System (TReDS)
The objective of TReDS is to create Electronic Bill Factoring Exchanges which could electronically accept and settle bills so that MSMEs could encash their receivables without delay.
PM Support and Outreach Initiative for MSME Sector
The Prime Minister has launched the historic support and outreach programme for Micro, Small and Medium Enterprises Sector. The 12 key initiatives have been launched to help the growth, expansion and facilitation of MSME across the country. These initiatives are:
- Access to Credit
- Launched 59 minutes loan portal to provide easy access to credit (https://www.psbloansin59minutes.com/).
- 2 Percent interest subvention for all GST registered MSMEs on fresh or incremental loans.
- All companies with a turnover of more than Rs 500 crore must be brought on the TReDS. It will enable entrepreneurs to access credit from banks based on their upcoming receivables.
- Access to Markets
- Public sector companies to procure compulsory 25% of their purchases from MSMEs.
- Out of 25% procurement reserved for MSMEs, 3% must now be reserved for women entrepreneurs.
- All the public sector undertakings of the Union Government must now be compulsorily be part of Government e-Marketplace (GeM)
- Technology Upgradation
- 20 hubs will be formed across the country
- 100 spokes in the form of tool rooms will be established
- Ease of Doing Business
- The clusters to be formed for pharma MSMEs. 70% of cost of establishing these clusters will be borne by government of India.
- The return under 8 labour laws and 10 Union regulations must now be filed only once a year.
- Establishment to be visited by inspector will be decided through a computerised random allotment.
- The returns under air pollution and water pollution laws will be accepted through self-certification.
- For minor violations under Companies Act, the entrepreneurs need not to approach the court.
- Social Security for MSME Sector Employees
- A mission to be launched to ensure that employees of MSMEs have Jan Dhan Accounts, provident fund and insurances
The implementation of this outreach programme will be intensively monitored for next 100 days.
Banking Codes and Standards Board of India (BCSBI)
Banks are expected to dispose of MSE loan application for a credit limit or enhancement in the existing credit limit:
- up to Rs.5 lakh within two weeks
- for credit limit above Rs.5 lakh and up to Rs.25 lakh within 3 weeks
- for credit limit above Rs.25 lakh within 6 weeks from the date of receipt, provided the application is complete in all respects and is accompanied by documents as per ‘check list’ provided.
Committees related to MSME
- Kapur Committee: High Level Committee on Credit to SSI (now MSE)
- Nayak Committee: Committee to Examine the Adequacy of Institutional Credit to SSI Sector (now MSE) and Related Aspects
- Ganguly Committee: Working Group on Flow of Credit to SSI (now MSE) Sector
- K.C. Chakrabarty: Working Group on Rehabilitation of Sick SMEs
Recommendation of Prime Minister’s Task Force on MSME
The banks are advised to achieve:
- 20 per cent year-on-year growth in credit to micro and small enterprises,
- 10 per cent annual growth in the number of micro enterprise accounts
- 60 per cent of total lending to MSE sector as on corresponding quarter of the previous year to Micro enterprises.
Challenges faced by MSME
- This sector is generally fund starved. The banks are reluctant to finance them because of inherent risk associated with it. Even if they do finance, it comes at far higher interest cost
- The long receivable cycle makes working capital management difficult for them
- Other problems faced by them are availability of technology, infrastructure and managerial competence, market uncertainty and imperfect competition
Recent Initiatives for MSME
- RBI has decided to permit a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on January 1, 2019. To be eligible for the scheme, the aggregate exposure, including non-fund based facilities of banks and NBFCs, to a borrower should not exceed Rs 25 crore as on January 1, 2019. The restructuring has to be implemented by March 31, 2020. A provision of 5% in addition to the provisions already held, shall be made in respect of accounts restructured under this scheme.
- With effect from 1.11.2018, the government has given its approval on increasing the interest equalization rate from 3% to 5% for exports being made by MSME sector under the ongoing Interest Equalization Scheme on pre and post Shipment Rupee Export Credit along with providing operational flexibility to carry out modifications in the scheme from time to time without changing its basic character
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