Finance Minister Nirmala Sitharaman on 13th May, 2020 announces the new definition by amending to change the criteria to classify MSMEs
NEW DEFINITION OF MSME
Finance Minister Nirmala Sitharaman on 13th May, 2020 announces the new definition by amending to change the criteria to classify MSMEs (Micro, Small and Medium Enterprises) from “investment in plant and machinery” to “annual turnover.” This is because to remove the difference between the definition of manufacturing-based MSMEs and service-based MSMEs.
The other change that has been introduced is to add turnover as another measure to define an MSME. So far, MSMEs were defined based on their scale of investments.
A robust MSME sector is key to improving the economic strength and resilience of the country and making it highly self-reliant and globally competitive
The new definition will bring about many benefits that will aid MSMEs to grow in size.
This was made under Atma-nirbhar Bharat Abhiyaan Economic Package to assuage India’s economic predicament amidst the pandemic.
What MSME IS?
MSME stand for MICRO- SMALL AND MEDIUM ENTERPRISES and it is governed by Micro, Small & Medium Enterprises Development (MSMED) Act, 2006. It is also known as Small Scale Industry (SSI). They are contributing significantly and perform a critical role in the economy by providing employment to a large number of unskilled and semi-skilled people, contributing to exports, raising manufacturing sector production and extending support to bigger industries for this type of contribution MSME’s also called as “ENGINE OF GROWTH” and “UDYOG AADHAR REGISTRATION”.
In accordance with the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, the enterprises are classified into two divisions.
- Manufacturing enterprises – engaged in the manufacturing or production of goods in any industry
- Service enterprises – engaged in providing or rendering services
Old MSME definition based on investment, MSMED Act, 2006
The following criteria is required to be fulfilled for Micro, Small and Medium Enterprises for manufacturing sector:-
MICRO – Investment is less than or equal to Rs. 25 lakhs
SMALL – Investment is to be more than 25 lakhs but limited to Rs. 5 crore
MEDIUM – Investment is more than 5 crore but less than 10 crores.
The following criteria is required to be fulfilled for Micro, Small and Medium Enterprises for service sector:-
MICRO – Investment in equipment does not exceed Rs. 10 Lakhs
SMALL – Investment in equipment is more than 10 Lakhs but limited to Rs. 2 Crore
MEDIUM – Investment in equipment is more than 2 Crore but less than 5 Crore.
BENEFITS OF MSME REGSIETRATION
- 50% subsidy for patent & trademark registration
Enterprises that have MSME Certificate can avail 50% subsidy for patent & trademark registration.
- Reservation Policy:
Under this policy the government has provided vital benefits to enterprises in the form of policy under this sector. To ensure that the MSME sector is not affected by the stiff competition in the market, the central government has given exclusive rights to manufacture certain products only to this sector.
- Collateral-free loans for Micro and Small sized Enterprises:
Micro and Small Sized enterprise can avail a loan of up to 50 lakh collateral free loan under this scheme. Since the micro and small companies are run by the poor, and the deprived, the RBI has directed banks to sanction collateral-free loans to such enterprises.
- Exemption on interest rate on over draft (OD)
Enterprises that have MSME Registration can avail benefit of 1% exemption on interest rate on over draft (OD).
- Low rate loan form Banks
The government under the Capital Aid for technological up gradation scheme, help MSME to upgrade their equipment through latest technology by helping them get low-interest loan from banks.
- Help in market development for MSME
Apart from the reserved products that government has promised to buy from theses MSMEs, they are given marketing assistance even to those products, manufactured by them, which do not fall under the purview of Reservation Policy.
- Concession in Electricity bills
Enterprises that have MSME Registration Certificate can avail Concession on electricity bill by making application to electricity department.
- Women Entrepreneurship Scheme
This scheme is especially started for women who want to start their own business. The government provides capital, counseling, training and delivery techniques to these women so that they manage their business and expand it.
- Incubation Scheme
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.
- Zero Defect Zero Effect
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.
The change of definition is likely to improve the ease of doing business for MSMEs, and in the process, make it easier for them to pay taxes, attract investments and create more jobs. The mission for five years is that we need to create more than five crore jobs in five years, particularly in tribal, rural and agricultural areas”.
The clear and unambiguous definition – that is also in consonance with global norms and learns from the best practices across countries – is the starting point to reforming this crucial sector of the economy.