Govt Reforms & Incentives for MSME Sector

MSMEs have always been the priority sector for the government as these are the backbone of the economy. In the past few years, India has witnessed many reforms in MSME sector. From time to time govt has provided many incentives for MSME Sector. Some of these are explained below-

Meaning of MSME (Micro, Small and Medium Enterprises)

Definition of MSME has been revised recently, which is explained in the table bellow-

MSME Definition before amendment

Criteria: Investment in Plant and Machinery & Equipment’s

ClassificationMicroSmallMedium
Manufacturing EnterprisesInvestment < 25 lacsInvestment < 5 croreInvestment < 10 crore
Service EnterprisesInvestment < 10 lacsInvestment < 2 croreInvestment < 5 crore

Revised MSME Definition

Criteria: Investment and Annual Turnover

ClassificationMicroSmallMedium
Manufacturing & Service EnterprisesInvestment < 1 Crore & Turnover < 5 CroreInvestment < 10 crore & Turnover < 50 croreInvestment < 20 crore & Turnover < 100 crore

Government Reforms & Incentives for MSME Sector

1. Collateral free Bank loans to facilitate the flow of credit to the MSME sector. This is major incentives for MSME sector. Recently govt has announced Rs 3 lakh crore for collateral free Bank loans to MSMEs.

2. Lower Interest Rates along with availability of excess credit facilities– MSMEs can easily avail loans and that too at cheaper rates. However all banks are specifically instructed to offer loans at interest rates lower than the usual and to avail this benefit from several banking institutions for their financing needs.

3. Preference in Procuring Tenders – Propensity of procuring Government Tenders increases, relinquishment of security deposits for procuring tenders and prices preference is given too.

4. Subsidies-Subsidies are granted in patent and trademark registration, ISO Certifications etc.

5. Protection against delayed Payment– If buyer fails to make payment within 45 days then buyer shall be liable for compound interest at a rate of three times of the RBI rate. This incentives for MSME sector secures MSMEs from delay payements.

6. Technology Up gradation-Government has introduced Credit Linked Capacity Subsidy Scheme (CLCSS), under this scheme eligible MSME’s are provided 15% subsidy to upgrade their technology (replacing their old and obsolete technology).

Some of the Schemes & Incentives for MSME are as under-

  • Udyog Aadhar Memorandum SchemeThis scheme provides small enterprises to register themselves on the user-friendly online portal and the process of registration hassle-free. On successful registration MSME issues 12 digit registration no. to these enterprises and allowing sanctioning of easy loan facilities without collateral of security at a lower rate of interest.
  • Incubation- This scheme provides an opportunity for developing and nurturing new ideas and to support and promote the untapped creativity of an individual for the production and adoption of newest technology and products. The aim is to provide economic development of all folks.
  • Women Entrepreneurship- With an aim to promote entrepreneurship for women, MSME promoted various schemes to provide strength to unmatched power of women and to make them economically independent by financing their ideas and innovations.
  • Zero Defect Zero Effect Scheme-This Schemes Calls to the manufacturing units to produce Superior quality product with zero defects and to produce environmental friendly products which have zero effect on the environment.
  • Quality Management Standards (QMS)/Quality Technology Tools (QTT)- The aim of this scheme is to encourage MSME’s to adopt and to assimilate themselves to the latest technology in order to produce better Quality Products at Competitive Prices. Thereby helping in efficient use of resources, improvement in product qualities, Reduction in rejection and rework of manufacturing and to understand the foreign products that are penetrating in Indian markets.
  • Grievance Monitoring System- This is an Internet Grievance Monitoring system allowing public to lodge their suggestions, Complaints, Reviews and Queries relating to the MSME Ministry. This Portal allowing user to register their grievance and to monitor their status along with the actions taken. This also allows fixing an appointment with Concerned Officer regarding the grievance with the same portal.

Major Stimulus Package for MSME’s under Aatma-Nirbhar Bharat Abhiyan (Self-reliant India)

1. Rs 3 lakh Crore collateral free loan scheme for businesses, especially MSME’s

Decision to provide Loan to Business / MSME from Banks and NBFC up to 20% of entire outstanding credit as on 29.02.2020. This is most popular incentives for MSME sector provided to tackle the difficulty faced due to COVID-19.

  • Eligibility: Borrowers up to 25 Crores outstanding and Rs. 100 Crores Turnover
  • Tenure: Loans to have 4 Year tenor with 12 months on Principle Repayment
  • Interest: To be Capped
  • Guarantee: 100 % Credit Guarantee cover to Banks and NBFC on Principle and Interest. No guarantee fees.
  • In Force: Scheme shall be effective till 31.10.2020

2.  To Provide Equity Support

  • Eligibility: NPA or Stressed MSME’s
  • Guarantee: INR 4000 crores has been provided to credit guarantee fund trust that will provide partial guarantee support to Banks lending to MSME’s. A subordinate debt provision of Rs 20,000 crore.

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

  • Eligibility: MSME with Potential and Viability
  • Fund of Fund: Corpus of 10,000 Crores will be set up.

4. Revision of the Definition of MSME

  • Object: The revised definition of MSME’s enabling them to grow in size and get benefits.
  • Criteria: Investment and Turnover Size.
  • Micro : Investment less than 1 Crore or Turnover less than 5 Crores
  • Small : Investment less than 10 Crore or Turnover less than 50 Crores
  • Medium: Investment less than 20 Crore or Turnover less than 100 Crores

5. Protection from unfair Competition

  • Object: To ban the unfair competition faced by MSME’s from Foreign Companies. To increase the size of Businesses of MSME’s and to make India Self Sufficient and Self Reliant.

Champions portal for MSME (https://champions.gov.in/)

Major Initiative by the Ministry of Micro, Small and Medium Enterprises is the Launch of Champions Portal.

Conclusion Thus it may be Concluded as spur attempt is made to boost the economy in order to fight with the pandemic Covid-19 and get back the economy on track by making India Aatmanirbhar by Promoting and providing Incentives for MSME Sector. MSME’s and making them self sufficient and Self Reliant thereby accelerating growth in the Economy.

For daily updates please visit indiataxlaws.com regularly.

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