MSME Registration and its Benefits
The true mark of a growing and developing society lies in the way it protects its weak. In any industry, the weakest but the most vital are the smallest establishments that carry out, quite often, essential businesses that are the source of most of the primary production in the country. These businesses are indigenous and generate employment bringing prosperity to the people and the economy. They are termed as Micro, Small and Medium Enterprises or MSMEs as they are better known. It is no wonder that the Government wishes to boost this sector and encourage home-grown entrepreneurs by providing incentives.
The MSME sector has grown at a steady rate of 6.43% from 2006 to 2016. This can be attributed largely to the financial incentives the Government of India provides them with under the MSME Act of 2006. These schemes range from providing collateral free loans, to subsidies on technological upgradation and to skill development and entrepreneurial training. However, all these schemes are only available to MSMEs which are registered with the Ministry of Small Enterprises.
What is an MSME?
The Micro, Small and Medium Enterprises Development (MSMED) Act passed in 2006 classifies MSMEs into two sectors. However, this definition has been amended by the Aatma Nirbhar Bharat Abhiyan, a revised scheme which grants an economic package in the wake of Covid-19. This scheme provides the following definition for MSMEs:
|Manufacturing and Service Sectors||Investment less than 1 crore and Turnover less than 5 crore||Investment less than 10 crore and Turnover less than 50 crore||Investment less than 20 crore and Turnover less than 100 crore|
Who can register as an MSME?
Any type of business entity, whether they are partnerships, LLPs, public or private companies or sole proprietors, can register themselves as MSMEs with the Ministry of Micro, Small and Medium Enterprises as long as they’re investment and turnover limits match the above mentioned definition.
What are the benefits of registration?
MSME’s drive the market forward requiring little investment but creating jobs and uplifting the economy. Every business starts out small and adequate investment is what keeps the wheels of momentum going. All the schemes offered by the Government to boost the MSME sector can only be availed if a MSME is registered with the Ministry. The following are a few benefits that come along with registration:
- A Flexible Credit System – One of the major hurdles in starting a business is of getting financing. Small businesses have little to offer in the name of collateral against which banks may be inclined to give them loans. To this end, the Government has introduced the Credit Guarantee Trust Fund Scheme which provides collateral free credit to MSMEs to encourage smooth and uninterrupted business operations. The loans are given on the basis of project viability and the primary security of the assets financed. Interest rates for MSMEs are also lowered with the Government stepping forward to provide subsidies for technology upgradation through the Credit Linked Capital Subsidy Scheme (CLCSS) which gives a 15% capital subsidy up to a maximum limit of Rs 15 lakh. This ensures that MSMEs maintain the edge needed to compete with international players.
- Priority Lending – A registered MSME does not have to suffer too much through the red-tapism of lending formalities as banks have been directed by the RBI to set aside funds just for the MSME sector. A registration certificate speeds along this process and helps avoid unnecessary hassles that come along with availing credit.
- Training Initiatives – The Government encourages small entrepreneurs by various schemes like the Micro and Small Enterprises – Cluster Development Programme (MSE-CDP) where activities for creating general awareness and counselling, motivation and trust building exercise are held. The Government provides young entrepreneurs with opportunities to better their skills through market development programmes including exports, participation in seminars, workshops and training programmes on technology upgradation. The Ministry conducts training programmes to encourage self-employment.
- Operational Subsidies – Many state governments also provide subsidies for day to day operations of MSMEs. These include capital subsidy on plant and machinery, subsidy on electricity charges, stamp duty exemptions on organization documents, extra subsidies for MSMEs run by SC/ST, transgender, differently and/or women entrepreneurs.
- International Push – To encourage competitiveness, the Government reimburses MSME delegations that explore new areas of MSMEs in other countries. Similarly, Indian MSMEs that participate in international exhibitions, trade fairs, conferences and seminars are also reimbursed. The programmes are organised by the government for international cooperation in trade related aspects. The government also grants exemptions and concessions for MSMEs that export goods.
- Public Procurement – To give the Indian MSMEs an edge over their international competition, the Government at all levels including PSUs have an annual target set for 20% procurement from MSMEs. This means that 20% of their supplies are necessarily bought from Indian MSMEs. MSMEs will be provided tender sets free of cost by the government as well as an exemption from payment of earnest money. This will reduce transaction cost of doing business.
- IPR Reimbursement – The Government has also taken an initiative to educate and support MSMEs in raising awareness on IPR rights as well as assisting them get their goods or processes registered under the specific IP Acts like the Trademark Act, the Patent Act and the Geographical Identification of Goods Act. One-time financial grant is provided for getting domestic or foreign patents or for registering under the GI Act. This is in form of reimbursement of application amounts restricted to the maximum ceiling mentioned in the scheme.
These are the few benefits that registration bestows upon an MSME. The process of registration has also been simplified to encourage entrepreneurs to register their businesses. Registration provides the business a legitimised safe space to grow and is an advised undertaking for any new and existing business.
Disclaimer- Do consult your professionals before taking any decision.