MSMEs are considered to be the backbone and an integral part of the economic growth in India. The MSME sector contributes approximately 30% of the nation’s GDP, nearly 45% of the gross manufacturing output and 50% of the total exports.
The Indian Prime Ministers Vision of India becoming Atma-Nirbhar is very much dependent on the Micro, Small and Medium Enterprise sector which after agriculture, is the second largest employment provider in India. MSME can play a crucial role in India becoming a Developed Country
Three critical aspects for the success of MSMEs are
Ease of Finances (Capital and Credits)
Availability of Skilled Labour and Technology
Standard Quality and Competitive Pricing of goods and Services
Micro Small and Medium Enterprises Development Act, 2006
The Micro Small and Medium Enterprises Development Act, 2006 which provides legal framework for MSMEs in India was notified by the Government of India in 2006 for facilitating the promotion, development and enhancing the competitiveness of Micro, Small and Medium enterprises and for matters connected therewith or incidental thereto.
The MSMED Act, 2006 allows all types of enterprises whether Proprietorship, HUF, Partnership Firm, Limited Liability Partnership, Company, Association of Persons, Co-operative Society or undertaking by whatever name called to be classified and registered as a Micro, Small or Medium Enterprise. Currently only Manufacturing Enterprises and Enterprises rendering Services can be classified and registered as MSME. As per the latest notification, Retail and Wholesale Traders have also been included under the definition of an MSME and they are allowed to be registered on Udyam Registration Portal. However, benefits to Retail and Wholesale trade MSMEs are to be restricted to Priority Sector Lending only.
The Central Government vide Notification S.O. 2119(E) dated 26th June, 2020 notified the criteria for Classifying an Enterprise as MSME. The same is mentioned Below
Enterprise with an Investment in Plant and Machinery or Equipment of Not more than Rs. 1 crore and Annual Turnover of not more than Rs. 5 crore
Enterprise with an Investment in Plant and Machinery or Equipment of Not more than Rs. 10 crore and Annual Turnover of not more than Rs. 50 crore
Enterprise with an Investment in Plant and Machinery or Equipment of Not more than
Rs. 50 crore and Annual Turnover of not more than Rs. 250 crore
More Insights on MSME Classification
Composite criteria of investment and turnover for classification
If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
All units with GSTIN listed against the same PAN shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.
Calculation of investment in plant and machinery or equipment
The calculation of investment in plant and machinery or equipment will be linked to the ITR of the previous years filed under the Income Tax Act, 1961
In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
The expression ‘’plant and machinery or equipment’’ of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings).
The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR
The cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded while calculating amount of investment in plant and machinery
Calculation of turnover
Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification.
Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.
The turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory
Change in Classification
In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration.
In case of reverse-graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place.
Is there any Registration for MSMEs?
All MSMEs are required to Obtain Udyam Registration Certificate for their enterprise
This process is fully online, paperless and based on self-declaration and no documents or proof are required to be uploaded for registering an MSME
Considering the Strategic Importance of MSME Sector, On 9th May 2007, subsequent to an amendment of the Government of India (Allocation of Business) Rules, 1961, erstwhile Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries were merged to form the Ministry of Micro, Small and Medium Enterprises This Ministry designs policies and promotes/ facilitates programmes, projects and schemes. It also monitors their implementation with a view to assisting MSMEs and help them to scale up.
Vision of the Ministry :
Sustainable development of globally competitive micro, small and medium enterprises as an engine of growth for the Indian economy.
Mission of the Ministry :
Promote growth and development of micro, small and medium enterprises, including khadi, village and coir industries so as to create new enterprises and more employment opportunities. The long term goal of the ministry is to enhance manufacturing base in the country by improving performance of MSMEs through skill and entrepreneurship development.
Organisational structure of Ministry of Micro, Small and Medium Enterprises
The Ministry of MSME consists of
Small & Medium Enterprises (SME) Division
Agro & Rural Industry (ARI) Division
Administration & Financial Institutions (AFI)
Integrated Finance (IF) Wing
Data Analytics and Technical Co-ordination (DATC) Wing
Besides the Office of the Development Commissioner (DCMSME) as an attached office and other subordinate organisations
The organisational structure of the Ministry is depicted in the following organogram :
AS & FA – Additional Secretary and Financial Advisor
EA(IFW) – Integrated Finance Wing
AS & DC – Additional Secretary & Development Commissioner
O/o DC (MSME) – The Office of the Development Commissioner
DATC – Data Analysis & Technical Coordination
DBT – Direct Benefit Transfer
(JS) ARI – Joint Secretary-Agro & Rural Industry
KVIC – Khadi & Village Industries Commission
MGIR – Mahatma Gandhi Institute for Rural Industrialization
(JS) SME – Joint Secretary- SME
NSIC – National Small Industries Corporation
NIMSME – National Institute for Micro, Small and Medium Enterprises
(JS) AFI – Alternate Finance Institute
CLCS-TU Scheme – Credit Linked Capital Subsidy Scheme for Technology Upgradation
PRAGATI – Pro-Active Governance And Timely Implementation