RISE OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) IN INDIA- ATMANIRBHAR BHARAT ABHIYAN 2020

-

BACKGROUND

The micro and small businesses in India are characterised by heterogeneity and fragmentation, and several them are informal. Much before the term, Micro, Small and Medium Enterprises (MSME) caught on and within the broad contours of the ‘export substitution’ policy paradigm, India had defined Small Scale Industry (SSI) in order to target resources towards this segment of industries, rightly considering it to be the engine of growth. An SSI in the 1950s was defined as an industry with investment of up to Rs. 5 lakh in fixed assets and employment of 50/100 people with or without power. By the 1960s, the employment criteria was dropped and the investment ceiling thereafter was constantly increased. The MSMED Act in 2006 used ‘micro and small’ instead of ‘small scale industries’ and added a definition of ‘medium’. Further, the definitions are based on the investment criteria and differentiated on the basis of manufacturing and services.


DEFINITIONS

MSME Definition Earlier  

 

MSME Definition after Amendment

There has been long pending demand for the revision in the definition of MSME to make it harmony with other Law. The earlier threshold in MSME definition have created a distress and demotivate MSMEs of advancing out of the benefits and hence killing the urge to grow. Hence the definition has been revised to make the threshold up by increasing the Investment Limit and introducing the additional parameter of turnover and also distinction between the manufacture and service sector have been eliminated.

Revised Definition of MSME


MARKET SHARE OF MSMEs IN INDIA

According to the MSME Ministry’s FY19 annual report, the MSME sector is dominated by micro-enterprises. India has 6.33 crore MSMEs out of which 6.30 crore -99.4 per cent are micro-enterprises and while 0.52 per cent — 3.31 lakh are small and 0.007 per cent — 5,000 are medium enterprises.

The number of registered MSMEs in FY20 has increased by 18.49 per cent to 25.13 lakh units from 21.21 lakh in FY19, according to government data. The growth rate, however, declined from 39.7 per cent in the last financial year that had increased from 15.17 lakh MSMEs registered in FY18, as per the data shared by the MSME Minister Nitin Gadkari in the Rajya Sabha. 

ROLE OF MSMEs IN INDIAN ECONOMY

The Micro, Small & Medium Enterprises (MSMEs) have been contributing significantly to the expansion of entrepreneurial endeavours through business innovations. The MSMEs are widening their domain across sectors of the economy, producing diverse range of products and services to meet demands of domestic as well as global markets.

EMPLOYMENT

As per the National Sample Survey (NSS) 73rd round conducted during the period 2015- 16, MSME sector has been creating 11.10 crore jobs (360.41 lakh in Manufacturing, 387.18 lakh in Trade and 362.22 lakh in Other Services and 0.07 lakh in Non-captive Electricity Generation and Transmission) in the rural and the urban areas across the country.

ESTIMATED EMPLOYMENT IN SECTORS

Broad Activity Category

                        Employment (in lakh)

     Share (%)

Rural

Urban

Total

Manufacturing

186.56

173.86

36.41

32

Trade

16.64

226.54

387.18

35

Other Services

150.53

211.69

362.22

33

Electricity

0.06

0.02

0.07

0

All

497.78

612.10

1109.89

100
  *Source- MSME Annual Report 2018-19

BENEFITS FOR MSME IN AATMANIRBHAR BHARAT ABHIYAN (SELF-RELIANT INDIA MOVEMENT)

As a measure of Economic relief in this Covid -19 pandemic, Government came with the Special Package called as Aatmanirbhar Bharat Abhiyan (Self-Reliant India Movement). Our Hon’ble Prime Minister showed his vision by segregating this relief into five pillars of this movement- Economy, Infrastructure, System, Vibrant Demography and Demand. This Package covers various sections including cottage industry, MSMEs, labourers, middle class, industries, among others.

As MSME sector has a vast market share and the backbone of the Indian Economy, this Relief package brought various benefits for this Sector. The various benefits for MSME sector are –

1.     Rs 3 lakh crores Collateral free Automatic Loans for Business, including MSME 

Conditions

·         Borrowers with up to Rs. 25 crores outstanding and Rs. 100 crores turnover eligible.

·         Loans to have 4-year tenor with moratorium of 12 months on Principal repayment.

·         Interest to be capped.

·         100% credit guarantee cover to Banks and NBFCs on principal and interest.

·         Scheme can be availed till 31st Oct 2020.

·         No guarantee fee, no fresh collateral.

2.     Rs 20,000 crore Subordinate Debt for MSMEs

Conditions

·         This loan shall strictly focus on the Stressed MSME.

·         Functioning MSMEs which are NPA or are stressed will be eligible.

·     Promoters of the MSME will be given debt by banks, which will then be infused by promoter as equity in the Unit.

3.     Rs 50,000 crore equity infusion through MSME Fund of Funds 

Conditions

·         Provide funding in the form of Equity for MSME with growth potential and viability

·         Fund of Funds will be operated through a Mother Fund and few daughter funds.

·    Mother Fund means that Government provide 10,000 Crore of funding through Equity infusion through which the Private Funds (VC) or Daughter funds would attract and can Invest upto 40,000 Crores in these MSMEs.

4.     Global tender to be disallowed upto Rs 200 crores

Conditions

·         Global tenders will be disallowed in Government procurement tenders upto Rs 200 crores.

·         This amendment would protect MSME and other Companies from unfair trade Practices.

5.  No fresh Insolvency Proceedings against MSME for One Year

·  The government has raised the minimum threshold to initiate insolvency proceedings to Rs 1 crore from Rs 1 lakh.

·   The second important measure announced is a special insolvency resolution framework under Section 240A of the IBC which will be notified soon.

6. E-Market Linkage

·       MSMEs currently face problems of marketing and liquidity due to COVID

·       e-market linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.

CONCLUSION

The government and financial institutions need to work in harmony for all players in the MSME lending ecosystem to thrive and address the current challenges plaguing them. Institutions such as the SEBI, which helped establish an MSME exchange on both the BSE and the NSE, need to ensure that the listing norms require minimal disclosure without hampering the interest of investors, have relaxed public shareholding requirements, make sure paperless processes take effect and provide an opportunity for anchor investors to invest in MSME stocks on the exchange.

Regulations and frameworks must be developed to manage short-term and long-term crisis. As the MSME sector suffers from closure very often, the process of closure or rehabilitation must be smooth and cost-effective.

It has been a long-standing demand from industry to hike the investment limits, as with inflation, units often cross the threshold that will bring them benefits. The decision to add turnover criteria to investment is seen as a good decision as there are units that leverage a small capital to post large revenues.

In the end, It would come in the near future that how all these efforts, whether pre and post this Covid-19 package would be beneficial for the MSME Sector.

RELATED LINKS

https://msme.gov.in/sites/default/files/AtmanirbharPresentationPart-1BusinessincludingMSMEs13-5-2020_0.pdf

https://msme.gov.in/


Regards

CS Shubham Kapoor

Ph- 9711244345, 7017667034

Email- kapoor.shubhamm@gmail.com










Comments

Post a Comment

Popular posts from this blog

Corporate Social Responsibility - Current Scenario and Reforms

-
Image
Corporate Social Responsibility (CSR) is well accepted among shareholders as well as with various other stakeholders of society in India. The term CSR is new normal for Indian organisations. CSR tends to focus on what is done with profits after they are made . Larger corporations understand that CSR is an integral part of business framework for sustainable development. Companies also consider that CSR is an approach towards sustainable development and focus on the triple bottom line of Economic, Environmental and Social performance. CSR Shall be Considered as a Responsibility of Corporate towards Society and shall not be taken as Charity. In India, the term Corporate Social Responsibility (CSR) is widely being used even though related concepts and terms, such as business responsibility, sustainable development, philanthropy, sustainability, corporate citizenship, responsible business, triple bottom line, shared value, value creation, business ethics, socio-economic responsibility, bo
Read more

Consumer Protection Act, 2019- Key Highlights

-
Image
The Digital Age has directed in a new era of commerce and digital branding, as well as a new set of customer expectations. Digitization  has provided easy access, a large variety of choice, convenient payment mechanisms, improved services and shopping as per convenience. However, along the growth path it also brought in challenges related to consumer protection. Keeping this in mind and to address the new set of challenges faced by consumers in the digital age, the Indian Parliament, on 6 August 2019, passed the landmark Consumer Protection Bill, 2019 which aims to provide the timely and effective administration and settlement of consumer disputes. The Consumer Protection Act, 2019 (New Act) received the assent of the President of India and was published in the official gazette on 9 August 2019. The  New  Consumer Protection Act, 2019  came into force on 20th July 2020 and it will empower consumers and help them in protecting their rights through its various notified rules and provis
Read more

Section 8 Micro Finance Company- Features & Benifits

-
Image
  INTRODUCTION OF SECTION-8 MICRO – FINANCE COMPANY The Micro finance Company is basically the financial institutions that provide small-scale financial services in the form of loan, credit or savings. These companies are introduced to ease the credit system for small businesses as they don’t get a loan from banks due to their complex process. Therefore it is commonly named as a Micro-credit, Micro-benefit organization. They offer small loans to various small businesses or households that do not have access to formal banking channels or eligibility for loans. They provide small loans that are less than Rs.50,000 for rural areas and for urban it is Rs.1,25,000. The simplest way to register a Microfinance Company in India is to register the Section-8 Company with MCA (Ministry of Corporate Affairs). Without charging any marginal money or guarantee security. It can give loans at inexpensive rates directed by the RBI and central government. They are a huge support to all rural and agri
Read more