Micro, small and medium sized industries form the backbone of a developing economy. They are the engine of economic growth and pave the way for the development of the nation. Over the past few decades, gates of Indian economy were opened to procure investments from multinational companies in the Indian market. As a result small and medium sized industries, being unable to keep up with the competition,were either compelled to shut down or forced to merge with these conglomerates. Generally, these industries are far more labor intensive and therefore also provide employment opportunities at low capital cost. A need, therefore was felt for the enactment of a comprehensive central legislation to protect these small scale industries and help them thrive in such competitive environment. The Micro, Small and Medium Enterprise Development Act, 2006 was introduced with the objective of preserving these small scale industries and to enable them to adopt such technological methods to successfully adapt to the changing global environment.
Staying true to its objective, registration procedure under MSMED Act was conceptualized to provide optimal benefits to all types of enterprises. Registration is not mandatory. However after registrationthe enterprises can enjoy the host of benefits provided under this Act.
Some of the benefits provided are stated below:
- The major benefit under this Act provided to small and medium sized units is the reservation policy which indicates that certain items have been reserved exclusively to be produced by these enterprises thus not only protecting their interests but also generating employment opportunities in the society. The Government has reserved 350 items for purchase from MSMEs under the Government Store Purchase Programme.
- Special Economic Zones(SEZs) are required to allocate 10% space for small scale units.
- The MSMED Act protects Micro and Small Enterprises from delayed payments. As per its provisions, where a Micro and Small Enterprise supplies any goods or renders any services to a buyer, the buyer is required to make the payment on or before the date agreed upon by them and in no case, the period can exceed 45 days from the date of acceptance. Under MSMED Act, protection is offered to relation to regular payment by buyers to MSMEs.
- In case of delayed payment by the buyer, the units shall retain rights to payment of interests. Liability to pay compound interests with monthly shall arise for the buyer on the principal amount from date starting after the due date at a interest rate which is thrice the bank rate prescribed by the Reserve Bank of India.
- By making Priority sector lending available to SSIs, easy sanction of bank loans are also available to units registered under this Act. In order to ensure that sufficient credit is available to micro enterprises within the MSE sector, banks should ensure that: 40 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises having investment in plant and machinery up to Rs. 10 lakh and micro (service) enterprises having investment in equipment up to Rs. 4 lakh ; 20 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs. 10 lakh and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment above Rs. 4 lakh and up to Rs. 10 lakh. Thus, 60 per cent of MSE advances should go to the micro enterprises. Moreover, Public sector banks have been advised to open at least one specialized branch in each district. The banks have been permitted to categorize their MSME general banking branches having 60% or more of their advances to MSME sector, as specialized MSME branches for providing better service to this sector as a whole.
- The Ministry of MSME, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) with a view to facilitate flow of credit to the MSE sector without the need for collaterals/ third party guarantees. The main objective of the scheme is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed.
- State government and Union territories have also compiled their own package of facilities and incentives for MSMEs. Some of the benefits include power tariff subsidies, capital investment subsidies, tax subsidies, development of specialized industrial estates and other support.
- Banking laws and excise laws have included MSMEs within their exemption notification. Therefore registration is seen as a proof for availing these benefits.