Get familiar with Micro, Small and Medium Enterprises (MSMEs)

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What’s MSME ?

MSME stands for Micro, small and medium enterprises.

Roughly speaking the MSME sector contributes to 45% of India’s Total Industrial Employment, 50% of India’s Total Exports and 95% of all industrial units of the country and more than 6000 types of products are manufactured in these industries (As per msme.gov.in). When these industries grow, the economy of the country grows as a whole and flourishes. These industries are also known as small-scale industries or SSI’s.

The MSME became operational on October 02, 2006. It was established to promote, facilitate and develop the competitiveness of the micro, small and medium enterprises.

Important Definitions Under MSME (Meaning of Micro & Small Enterprises)

From time to time, the MSME sector has been raising demand for revision/amendment in the MSME definition. The demands for change in definition primarily emerge from the changing times and inflation. At the same time, there were some difficulties in the existing definition. The criterion of investment entails physical verification, bringing with it transaction costs. It also incentivizes promoters to keep the investment size small to retain the MSME tag.

As per latest announcement made on 13th may 2020 by finance ministry following major changes were incorporated:-

  1. Investment limit has been revised upwards.
  2. Additional criteria of turnover also being introduced.
  3. Distinction between manufacturing and service sector to be eliminated.

For better understanding of the changes you can refer the table drawn below, which will help you draw clear cut distinction between the old and revised limits:-

How to Obtain MSME Certificate:-

The Government of India have specifically made an Act for Micro, Small & Medium Enterprises. The Micro, Small & Medium Enterprises Development Act, 2006 is only applicable on those enterprises which deals in Manufacturing and Service sector.

Details and Documents required:

  • Business Address Proof:

If the premise is self-owned– Allotment letter, possession letter, lease deed or property tax receipt. If there is a municipal license in the business name or in the name of the proprietor, partner or director of the business, no other possession document is required to be submitted.

If the premise is rented– Rent receipt and a no objection certificate from the landlord is required. Also, any utility bill or document evidencing the landlord’s ownership is to be submitted.

  • Partnership Deed/ MoA and AoA:

If the business is a partnership firm, it has to submit its partnership deed. If the partnership firm is registered, it has to submit registration certificate also.

In case of a company, a copy of Memorandum of Association and Articles of Association, and certificate of incorporation has to be submitted. With it, a copy of the resolution passed in general meeting, and the copy of board resolution authorizing a director to sign the MSME application is also to be submitted.

  • Pan Card of applicant in case of proprietor Or Company/firm Pan Card in Case of Company/firm.
  • Bank Account Details.

What are the benefits of MSME registration:-

  • Collateral Free loans from Banks.
  • There are many government tenders which are only open to the MSME Industries.
  • Once registered the cost of getting a patent done, or the cost of setting up the industry reduces as many rebates and concessions are available.
  • Protection against delayed payments.
  • Businesses registered under MSME are given higher preference for government license and certification.

MSME schemes launched by the Government are:-

  • Zero Defect Zero Effect
  • Incubation
  • Credit linked capital subsidy scheme
  • Grievance monitoring system
  • Women Entrepreneurship

           We will discuss these schemes in detail in our next post.

Some Frequently Asked Questions:-

Can existing and new businesses both apply?
Yes, an existing and new business can apply for MSME/Udyog Aadhar registration. Provided the existing unit is functioning and meets the threshold limits for registration.

What is the validity of the certificate?
There is no expiry of the Udyog Aadhar Certificate. As long as the entity is ethical and financially healthy there will be no expiry of the certificate.

Can trading companies register under MSME?
No. MSME covers only manufacturing and service industries. Trading companies are not covered by the scheme. MSME is to support startups with subsidies and benefits, trading companies are just like middlemen, a link between manufacturer and customer. Hence not covered under the scheme.

Do I need multiple registrations for manufacturing plants in different cities?
No. The MSME/Udyog Aadhar certificate is for a single entity irrespective of multiple branches or plants. However, information about multiple branches or plants must be furnished.

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One Response

  1. Informative yet very crisp writing sir. It was a booster article that made me clear lots of things wrt MSME. Hope to see more articles like this from you.

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