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Micro, Small and Medium Enterprises: A Brief Outline

May 15, 2018     by Kavita Agrawal

The Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. These enterprises power India, accounting for almost 40% of gross industrial value and 45% of total direct and indirect exports. As per the data available with Central Statistics Office (CSO), the contribution of MSME Sector in Country’s GDP was 28.77% in the year 2015-16.

The Government has introduced various schemes and aids to ensure the MSMEs lead a struggle free existence in the Country and also contribute effectively to the Indian Economy. In this Article, we have given a brief outline on MSMEs and the benefits available to them.

Definitions of Micro, Small and Medium Enterprises

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. 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.

The limit for investment in plant and machinery for manufacturing enterprises and investment in equipment for service enterprises are as under:

Manufacturing Sector

Classified As Investment in plant & machinery
Micro Enterprises Does not exceed INR 2.5 million
Small Enterprises More than INR 2.5 million but does not exceed INR 50 million
Medium Enterprises More than INR 50 million but does not exceed INR 100 million

Service Sector

Classified As Investment in equipment
Micro Enterprises Does not exceed INR 1 million
Small Enterprises More than INR 1 million but does not exceed INR 20 million
Medium Enterprises More than INR 20 million but does not exceed INR 50 million

 

Types of Enterprises Eligible to be Registered Under MSMED Act, 2006

All classes of enterprises, namely:

  • Proprietorship
  • Hindu undivided family
  • Association of persons
  • Cooperative society
  • Partnership firm
  • Company

can apply for the registration and get qualified for the benefits provided under the Act.

 

Registration under MSMED Act, 2006

Registration under MSMED Act is Voluntary and not Compulsory.

 

Benefits of Registration under MSMED Act, 2006

  • Efficient Working Capital Management for MSMEs with reduced Credit period

Any Buyer who purchased any goods or availed any services from Micro or Small enterprises which has filed a memorandum with the authority, then the buyer shall make the payment on or before the date agreed upon between him and the supplier in writing or within a period of 15 days from the day the goods are delivered or services are rendered subject to a maximum of 45 days from the date of delivering product or services.

However, this limitation on Credit Period is sometimes interpreted as a restriction by large enterprises in commercial negotiations with MSMEs and therefore, a careful evaluation of the registration requirement should be done before taking such registration under MSMED Act.

  • Various Central and State Government Schemes:
  • Benefits from State Governments- Most States offer subsidies on power and entry to state-run industrial estates and single window Grievance Redressal System (e-SAMADHAN) to organizations registered under MSMED Act. Many support services are also provided by the States to MSMEs such as Extended credit facilities, Availability of developed sites for warehouse construction, Provision of training facilities, Hire-purchase of machineries for use in MSME, Assistance in marketing (both within the country and outside), Technical consultancy etc.

 

  • Benefits from Central Government- The Central Government, from time to time, announces schemes to benefit MSMEs such as the Credit Guarantee Scheme (CGTMSE), Pradhan Mantri MUDRA Yojana (PMMY), Credit Linked Capital Subsidy Scheme It also supplies trained professional, input resources and the flow of capital through assistance from venture capitalists and through private equity funds.

 

  • Benefits from Banks: All banks and other financial institutions recognize MSMEs and have created special schemes for them. This usually includes priority sector lending, which means that the likelihood of your business being sanctioned a loan is high and lower bank interest rates. There may also be preferential treatment in case of delay in repayment.

 

Amendment to the Micro, Small and Medium Enterprises Development Act, 2006

The Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved change in the basis of classifying Micro, Small and Medium Enterprises from ‘Investment in Plant & Machinery/Equipment’ to ‘Annual Turnover’ on 07.02.2018 but the same is pending for approval in Lok Sabha.

This change will encourage ease of doing business, make the norms of classification growth oriented and align them to the new tax regime revolving around GST (Goods & Services Tax). For more information on the same, please click here.

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