Aatmanirbhar Bharat - 6 MSME Benefits For Businesses

India has been resiliently battling COVID-19 pandemic for a few months now. The impact of the pandemic on the economic horizon of India is quite appalling. However, a key aim given by the prime minister himself revealed the government's plan to deal with this economic havoc. The objective of 'Atmanirbhar Bharat' or self-reliant India became the government's first step in restabilising the economy. This was accompanied by a relief package of Rs 20 lakh crore to bring the industries back on the track.Under the package, 6 relief measures out of the 15 measures declared, were dedicated to the empowerment of the Micro, Small and Medium Enterprises (MSMEs) sector. Let's check out these MSME benefits announced and how they can push them to the path of self-reliance:

The definition of MSME is changed to accommodate manufacturing and service units in the same metric. Earlier, the aforementioned used to be two different categories acquiring their status through their amount of investment. This metric has also changed, and now the 'turnover' of the units will also be considered as an active metric in defining MSMEs units.Based on the new definition, a unit having investment up to Rs 1 crore and turnover of Rs 5 crores will be identified as a micro-unit. A unit with investment up to Rs 10 crores and turnover of Rs 50 crore will be called a small unit. An enterprise will be classified as a medium unit if it has an investment up to Rs. 20 crores and a turnover of Rs 100 crore.

The government has dedicated a sum of Rs. 3 lakh crore to offer collateral-free loans to MSMEs . Under this, MSMEs with an outstanding credit up to Rs. 25 crores and turnover up to Rs. 100 crores can borrow 20% of their total pending credit till 29th February 2020. The principal repayment moratorium for these loans is set to 12 months and a tenure of 4 years accompanies the loan. Here, the government will act as the guarantor, and no guarantee fee will be charged.

The representation of MSMEs on stock exchanges can sustain them through the involvement of equities. The government aims to achieve this by infusing equities in MSMEs through a fund of funds. Here, the government will set up the main fund with Rs. 10,000 crore that will be further expanded to a corpus of Rs. 50,000. This main fund will be further linked to other funds named daughter funds. Promising MSMEs can then generate equities through these daughter funds.

There are about 2 lakh MSMEs possessing non-performing assets (NPAs) that are hard hit by the economic downturn. The government has allotted Rs. 2000 crores in the form of subordinated debt to aid these entities. The MSME units can infuse the money delivered in the form of equities in their business. The lending institutions will receive a sum of Rs. 4000 crores by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) as a partial guarantee for the sum lent.

The government has planned to release pending payments of the MSMEs. This will help them to sustain since the entities are already facing nearly 92% drop in their domestic sales and a 100% drop in the exports, as compared to last year. Here, the plans of setting a fund of Rs. 1 trillion are on the way. The pending payment to MSMEs will be facilitated through this fund.

While India never had a shortage of tenders to file, most MSMEs faced competition from big foreign companies that led to an unfair disadvantage for the local MSMEs. To curb this, the government has banned global tenders for government projects up to Rs. 200 crores. The resounding impact of this move will be on the increased representation of domestic companies in the mainstream economy. This is also seen as a boost to the earlier 'Make in India' initiative that was focused on increasing the number of Indian products in the market.

The empowering of the MSME sector will surely propel India's aim towards a self-reliant country since the sector is a prominent contributor to the country's GDP. Exclusion of the foreign entities will further strengthen the representation of MSME units in the domestic landscape. However, the first task is to ensure that these units survive the ongoing economic chaos.

The classification in the current circumstances was determined by a set of investment criteria, machinery, as well as equipment.
It must set a lower upper limit on its investment criterion to receive the advantage. For instance, micro-enterprise investments in the manufacturing sector must not exceed Rs. 25 Lakhs.The maximum investment for small businesses is Rs. 5 crore and the maximum investment for medium-sized companies is Rs. 10 crore.
Recently, the government updated the MSME classification notification to include composite investment and yearly turnover criteria.
The distinction between the service and manufacturing industries under the MSME definition clause has also been eliminated as part of the new adjustment.

The following are some advantages of MSME:

No-collateral loans

The government has introduced better options for MSMEs to access credit without collateral securities through the new scheme's numerous measures.
The Government of India's Small Industries Development Bank of India's initiative to offer loans without collateral under the framework of The Credit Guarantee Fund Trust is the main benefit of registration for MSME .
This is a tip-off for the owner of a new or small business to register an MSME.

Intellectual property subsidies, such as those for industrial designs and patent registration

Businesses registered under the MSME Act are awarded a significant subsidy of up to 50% for the registration of patents.
You can take advantage of this benefit by submitting a written application to the relevant Ministry.
For greater growth, the government also offers subsidies for industrial design as well as promotion.

Exemption from interest rates as well as an overdraft facility

Businesses or companies are also eligible to use this to receive 1% back on overdrafts if they participate in the Credit Guarantee Fund Trust Scheme. Additionally, this could change and rely on the bank.

Electricity consumption discount

Additionally, the government offers an electricity bill discount to registered MSME businesses.
A printout of the electricity bill, an application, and a registered MSME certificate must be submitted in order to take advantage of this benefit.

Security against debt

While bearing in mind that the danger is in the business earnings, the government has provided assistance by ensuring protection against the payment.
The MSME has given permission to add interest to customer late payments.
Consider a scenario in which the buyer doesn't make a payment within 15 days or at least 45 days after obtaining the products and services. Regulations set down by the Reserve Bank of India allow the corporation to charge a compound interest rate that is three times greater in that case.

Costs associated with ISO certification are repaid

An organisation that has been registered may request reimbursement for costs associated with ISO certification.

Preference for the MSME in the tender

MSME has recently received precedence in tenders reserved just for such businesses.
The Finance Minister stated that cases of unfair competition from foreign enterprises in the procurement of Government tenders in terms of size and strength were included in the most recent COVID-19 MSME relief package .

The following are some disadvantages of MSME:

Although there aren't any downsides to being an MSME, such businesses occasionally run into problems with MSME Loans since they have less negotiating leverage, less access to experienced workers, and more trouble getting funding than big businesses. Therefore, the following are some drawbacks of MSME loans:

Accumulation of Interest

The issue of loans is one of the drawbacks of MSME registration. The MSME loan has low-interest rates relative to other loans. However, the interest builds up quickly. In contrast, bootstrapping or angel investing does not include this kind of liability.

Prolonged Loan Process

Since numerous documents must be submitted when qualifying for an MSME loan, sanctioning a loan is time-consuming. But when it comes to loans for MSMEs, the approval rate is high. The lender's legitimacy is demonstrated by all specific documents, including P&L statements, the company's ITR, bank account details, bills of sale and receipts, and numerous other documents.

No Need For Collateral

Lenders gain from not requiring collateral, although banks occasionally find it challenging. Since no collateral is required for MSME loans , this renders them unsecured as well as unreliable for the banks as they occasionally fail to recoup their losses.

Processing Fees Payments

Business owners incur an additional cost known as processing costs when applying for MSME loans , which the borrower must pay.

Memorandum for Udyog Aadhaar

An Aadhaar card is a 12-digit number that the government issues to every person. Possessing an Aadhaar card is a requirement. The benefit of signing up for this programme is the simplicity of obtaining government credit, loans, and subsidies. Online and offline registration options are available.

System for Monitoring Complaints

In order to address the grievances of business owners, registering under this programme is advantageous. The owners of the businesses can use this to see the progress of their grievances and to open new ones if they are dissatisfied with the resolution.

No Defects Zero Impact

According to this concept, export-ready items must meet specific criteria to avoid rejection and being sent back to India. The government has started this programme to achieve this. In this case, the export of the items makes them eligible for specific discounts and breaks.

Standards for Good Management Practices and Good Technology Tools

Participating in this programme will assist micro, small, and medium-sized businesses to understand and implement the quality standards that must be upheld in conjunction with new technologies. Through numerous seminars, campaigns, activities, etc., this plan conducts initiatives to educate businesses about the technological advances accessible.

Scheme for Credit-Linked Capital Subsidies

This programme gives business owners access to modern technology to replace outdated equipment. Businesses receive capital subsidies to help them modernise and acquire more effective tools for conducting business. These small, micro, and medium-sized businesses can apply for these incentives directly with the banks.

Incubation

This programme aids innovators in putting their fresh designs, concepts, or goods into action. According to this, the government may fund 75–80 per cent of the project's costs. This programme supports innovative concepts, styles, and goods.

Women Entrepreneurship

This programme was created specifically for women who aspire to launch their businesses. The government helps these women manage and grow their businesses by giving them funding, counselling, training, and delivery methods.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.