MSME Schemes under the Ministry of MSME, Govt. of India
India has been a nurturing ground for entrepreneurs since ancient times, with active involvement from all segments of society forming the cornerstone of its golden era before external forces disrupted its cultural fabric. Individuals were primarily inclined towards self-employment, establishing and managing their own small businesses. This approach not only fostered financial independence but also facilitated job creation, thereby bolstering the economy.
Post-independence, India has persistently endeavored to revive entrepreneurial culture, encouraging self-employment on a national scale. The government has placed small and medium enterprises (SMEs) at the forefront, implementing various schemes and incentives to support and promote their growth.
Building upon this trajectory, the government has shifted its focus towards Micro, Small, and Medium Enterprises (MSMEs), unveiling a myriad of schemes and incentives aimed at fostering their development. 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. MSMEs not only play a crucial role in providing large employment opportunities at comparatively lower capital costs than large industries but also help in the industrialization of rural & backward areas. These opportunities in rural and backward areas play a crucial role in mitigating regional imbalances, ensuring a more equitable distribution of national income and wealth. MSMEs serve as complementary entities to large industries, functioning as ancillary units, and this sector significantly contributes to the socio-economic advancement of the nation.
Legislative Framework: The MSMED Act, 2006
To offer contemporary solutions and incorporate provisions pertinent to the current landscape, the “Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993” has been superseded by The Micro, Small, and Medium Enterprises Act, 2006 (MSMED Act), enacted on 2nd October 2006. The MSME Act aims to facilitate the promotion, development, and bolstering of competitiveness within these industries, along with addressing related matters or incidental concerns.
The MSME Act encompasses a comprehensive set of provisions aimed at fostering the growth and sustenance of micro, small, and medium enterprises (MSMEs). Among its key objectives are the clear definition and classification of these enterprises, establishing a high-level board and advisory committee to oversee their development, and ensuring prompt payments to MSMEs. Moreover, the Act facilitates the smooth flow of funds to prevent financial distress and provides for the procurement of goods and services. It also focuses on formulating policies such as reservation policies and guidelines to enhance the competitiveness of MSMEs, while also incorporating an Alternate Dispute Resolution System. Additionally, it introduces a simplified exit scheme for entities other than companies and facilitates the creation of funds through grants from the central government. These measures collectively aim to bolster the MSME sector and promote its sustained growth and competitiveness in the broader economic landscape.
Revised MSME Classification Criteria
The MSME sector has undergone further subdivision into three distinct categories, each tailored to address specific challenges and requirements unique to its members covering manufacturing unit, Service Sector and Traders *(w.e.f. 02-07-2021 for Limited Benefits). These categories are determined by the composite criteria of Investment in Plant and Machinery and Annual Turnover:
| Category | Investment in Plant and Machinery / Equipment | Annual Turnover |
|---|---|---|
| Micro | Investment in P&M < ₹ 1 Crore | Turnover < ₹ 5 Crore |
| Small | Investment in P&M < ₹ 10 Crore | Turnover < ₹ 50 Crore |
| Medium | Investment in P&M < ₹ 50 Crore | Turnover < ₹ 250 Crore |
Key Benefits Available to Registered MSMEs
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Position of Traders in the MSME Sector
Traders within the MSME sector may find themselves excluded from certain benefits that are available to other categories like manufacturing units and service sector enterprises. These benefits include subsidies on patent registration, tax exemptions, safeguards against delayed payments, concessions on electricity bills, reimbursement for ISO certification costs, as well as government assistance in marketing and promotion, and support for technology upgrades, among others. This discrepancy underscores the need for a nuanced approach to policymaking, recognizing the distinct challenges and contributions of traders within the MSME landscape. Efforts to address these disparities could involve tailored initiatives and support mechanisms that cater specifically to the needs and circumstances of traders, ensuring a more equitable and inclusive environment for all segments of the MSME sector.
Major Financial Support Schemes
The government has introduced several schemes aimed at providing financial support and assistance to different categories within the MSME sector:
1. Prime Minister Employment Generation Programme (PMEGP): One such initiative is the PMEGP, which endeavors to generate employment opportunities for MSMEs across the nation. Implemented by the Khadi and Village Industries Commission (KVIC) at the national level, the PMEGP extends its reach through state KVIC directorates, State Khadi and Village Industries Boards (KVIBs), District Industries Centers (DICs), and banks at the state and district levels.
2. Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE): Another significant scheme is the CGTMSE, established jointly by the Ministry of MSME and the Small Industries Development Bank of India (SIDBI). This initiative provides collateral-free loans, with amounts of up to INR 1 crore, to individual Micro and Small Enterprises (MSEs), thereby easing financial constraints and facilitating business growth.
3. Interest Subsidy Eligibility Certificate (ISEC) Scheme: Additionally, the ISEC scheme plays a crucial role in supporting the Khadi program undertaken by Khadi institutions across the country. By mobilizing funds from banking institutions, the ISEC scheme bridges the gap between the funds available from budgetary sources and the actual financial requirements, ensuring the sustained development and promotion of Khadi enterprises.
These schemes collectively reflect the government’s commitment to fostering the growth and development of the MSME sector by providing accessible financial resources and support services tailored to the diverse needs of MSMEs, thereby facilitating entrepreneurship, employment generation, and economic empowerment.
Recent Development: Section 43B(h) of the Income-tax Act, 1961
Statutory Mandate of Section 43B(h)
The recent amendment aimed at bolstering the MSME sector is set to exert a substantial influence, especially on businesses operating within this ecosystem. This amendment, emphasizing the enhancement of regulatory frameworks and provision of supplementary support mechanisms, is expected to usher in widespread positive transformations in the MSME domain. Introduced under the Finance Act 2023, Section 43B(h) mandates that any dues owed to Micro, Small, and Medium Enterprises (MSMEs) for supplied goods or rendered services may be deducted in the same fiscal year if settled within the stipulated deadline as per the Micro, Small, and Medium Enterprises Act.
Section 43B(h) presents several key provisions relevant to transactions involving procurement of goods or services from entities registered under the MSMED Act, 2006:
- Effective Timeline: Firstly, it is set to be effective for the assessment year 2024–2025, commencing from the Financial Year 2023-24. Specifically, Clause (h) of Section 43B is slated to become operational from April 1, 2024.
- Applicability to Buyers: This clause applies when an enterprise engages in procurement activities without necessitating the buyer’s registration under the MSMED Act, 2006, with exemptions for transactions occurring before March 31, 2023.
- Exclusion of Medium Enterprises & Traders: Notably, this provision does not apply to medium enterprises, unregistered MSMEs, or traders, as their portal registration primarily serves priority sector lending purposes.
- Scope of Payments: Regarding its scope, Section 43B(h) is concerned with payable amounts linked to the purchase of goods and services. However, it explicitly excludes actionable claims of money, interest on loans, salary payments, and capital goods from its purview.
- Prescribed Payment Due Dates: Moreover, the provision outlines specific due dates for payment, stipulating that:
- With a written agreement: Payment must occur within 45 days from the date of acceptance or deemed acceptance.
- In the absence of a written agreement: Payment is required to be made within 15 days from the date of acceptance or deemed acceptance.
- Presumptive Taxation Exception: Furthermore, exceptions exist for buyers filing income tax returns under Sections 44AD, 44ADA, or 44AE (presumptive income), as these sections supersede Sections 28 to 43C of the Income-tax Act. This exception serves to clarify the applicability of Section 43B(h) within the context of income tax regulations.
Role of ICAI in Fostering the MSME Ecosystem
The Institute of Chartered Accountants of India is actively contributing to fostering a conducive environment for the growth of MSMEs. The Institute, in its pursuit of enhancing the capacity of MSMEs & Start-ups, acknowledges the evolving challenges they face and has established the Committee on MSME & Start-ups. This committee is tasked with addressing issues and obstacles encountered by MSMEs & Start-ups, proposing necessary measures to fortify and cultivate their capabilities, thereby bolstering their standing within the business community. Moreover, it aims to facilitate collaboration among professionals and experts in relevant domains, bridging the gap between regulatory authorities and MSMEs/Start-ups through various capacity-building initiatives.
Conclusion
In conclusion, the MSME sector in India stands as a vital contributor to the nation’s economic growth, fostering entrepreneurship, generating employment, and promoting socio-economic development. With the government’s steadfast commitment and a robust framework of schemes and incentives, the MSME sector has flourished, serving as a cornerstone of India’s industrial landscape. The recent amendments, including Section 43B(h) of the Finance Act 2023, underscore the government’s proactive approach in addressing challenges faced by MSMEs, facilitating prompt payments, and enhancing regulatory frameworks. Moreover, collaborative efforts by institutions like the Institute of Chartered Accountants of India further strengthen the ecosystem, providing crucial support and resources for MSMEs and startups to thrive. Moving forward, continued focus on tailored policies, capacity-building initiatives, and inclusive growth strategies will be essential to sustain the momentum and unleash the full potential of India’s vibrant MSME sector, thereby driving equitable economic prosperity across the nation.
In addition to the government’s initiatives and institutional support, the MSME sector’s resilience and adaptability have been key drivers of its success. Despite facing challenges such as access to finance, technological adoption, and global competition, MSMEs have demonstrated remarkable innovation and perseverance. Furthermore, their role in fostering inclusive growth by promoting entrepreneurship in rural and backward areas cannot be overstated. As India continues on its path of economic development, nurturing the MSME sector will remain paramount, ensuring that it continues to thrive as a vibrant engine of growth, job creation, and socio-economic empowerment for millions across the country.