- MSME IN INDIA
Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the Indian economy. They play a pivotal role in driving economic growth, creating employment, and fostering innovation. With over 63 million enterprises, the MSME sector contributes approximately 30% to India’s GDP and 45% to its manufacturing output. Despite their significant contribution, MSMEs face numerous challenges that hinder their growth and sustainability.
MSMEs are a vital component of India’s economic landscape. Strengthening this sector requires a multifaceted approach that addresses their financial, technological, infrastructural, and regulatory needs. By creating an enabling environment, fostering innovation, and providing targeted support, India can unlock the full potential of its MSMEs, driving economic growth and generating employment.
Our newsletter is an attemppt to provide brief about the developments in MSME Sector on weekly basis.
- OUR SPECIAL CORNER
- “Apex Court Mandates Adherence To 2015 Framework Before Declaring MSME Loans As NPAs”
The Supreme Court ruled on Thursday that banks and non-banking financial companies must follow the procedures outlined in the Centre’s 2015 notification before classifying loan accounts of Micro, Small, and Medium Enterprises as non-performing assets.
Key Points:
- Mandatory Framework: Banks and financial institutions must strictly follow the 2015 framework for the revival and rehabilitation of MSMEs before classifying their loans as Non-Performing Assets (NPAs).
- Early Identification: The framework emphasizes identifying ‘incipient stress’ in MSME accounts through specific sub-categories under ‘Special Mention Account’ before declaring them as NPAs.
- Documentation Verification: Banks must have authenticated documents from MSMEs to verify their status under the Micro, Small, and Medium Enterprises Development Act, 2006.
- Overturning High Court Decision: The Supreme Court overturned a Bombay High Court ruling that had incorrectly stated banks were not obligated to follow the 2015 framework restructuring process.
Impact:
This ruling is a significant win for MSMEs as it provides them with a protective shield against premature loan classification as NPAs. It ensures that banks adopt a more cautious and structured approach before taking drastic measures, giving MSMEs more time and opportunity to recover from financial difficulties. (Source: Click Here)
- MSME SCHEMES:
The government has introduced many schemes to encourage the micro and small industries. Through many schemes, the Central government is boosting the credit availability for the MSMEs. MSME (Micro, Small and Medium Enterprises) schemes are initiatives launched by the Government of India to support and promote the growth and development of small businesses in the country.
- “MSME DAY 2024: GOVT LAUNCHES RS 277 CR SCHEME TO HELP MSMES GET ON ONDC; YASHASVINI CAMPAIGN FOR WOMEN-LED UNITS”
Commemorating the MSME Day 2024 on Thursday, MSME Minister Jitan Ram Manjhi launched a new Trade Enablement & Marketing (TEAM) scheme with an outlay of Rs 277.35 crore for three years (2024-27) to boost e-commerce access for MSEs (micro and small enterprises) via the government’s open e-commerce network Open Network for Digital Commerce (ONDC).
With challenges faced by MSEs in accessing e-commerce such as limited digital access, financial constraints and lack of confidence in operating via digital platforms, the TEAM scheme aims to support Udyam-registered MSEs with catalogue development and onboarding on ONDC along with account management support.
The ministry said it expects 5 lakh MSEs to benefit from the scheme in three years, 50 per cent of which would be women-owned enterprises.
Moreover, to create awareness about the scheme among MSEs and onboarding onto ONDC, the ministry said it would organise 150 e-commerce workshops in tier 2, 3 cities and MSME Clusters.
The scheme has been launched under the World Bank-supported RAMP programme and will be implemented by NSIC (National Small Industries Corporation).
In his launch address, Manjhi said the ministry has identified six pillars based on which the MSME-related initatives are built — first, formalization and access to credit; second, increased access to market and e-commerce adoption; third, increased productivity through modern technology; fourth, enhanced skill levels and digitalization in the service sector; fifth, support to khadi, village, and coir industry to globalize them; sixth, empowerment of women, artisans, through enterprise creation. Source: Click Here
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- Trade Receivables Discounting System (TReDS) – Part 45
Trade Receivables electronic Discounting System (TReDS) is an online electronic platform and an institutional mechanism for factoring of trade receivables of MSME sellers. It enables discounting of invoices through an auction mechanism to ensure prompt realization of trade receivables.
The Trade Receivables electronic Discounting System (TReDS) was released by the Reserve Bank of India in 2018 to help small businesses resolve cash flow issues.
“WIDER TREDS PLATFORM TO BOOST MSME CASH FLOWS”
Trade Receivables Discounting System (TreDS), the electronic platform designed to boost cash inflows of Micro, Small and Medium Enterprises (MSMEs), is anticipating an 80-100% increase in invoice financing volumes this fiscal year. This growth is driven by higher corporate participation following the Union Budget’s reduction of the turnover threshold for on-boarding buyers.
“In FY 2023-24, we processed over Rs 43,000 crore in invoice discounting on our platform. For the current fiscal year, we expect this to increase to Rs 80,000-90,000 crore. The number of corporates on the platform should double to 2,600,” said Sundeep Mohindru, Promoter & Director of M1xchange.
Introduced by the RBI, TReDS is an online discounting platform designed to help MSMEs with their working capital by converting their trade receivables into cash. It is a three-player ecosystem including sellers (MSMEs), buyers (corporates, State & Central PSUs, government departments), and multiple financiers (banks & NBFCs).
The push to double transaction volumes comes in the wake of the recent Union Budget, where the finance minister reduced the turnover threshold for mandatory onboarding of corporates from ₹500 crore to ₹250 crore. Until now, only corporates with over ₹500 crore turnover were required to participate in the TReDS platform.
“MSMEs get their invoices discounted at rates between 7-11% per annum, which is significantly lower than a bank loan,” Mohindru said, adding that the rate of default on M1xchange is 0.3%, compared to the average default rate of 4-5% on MSME loan books across various banks.
- Source: Click Here
- MSME Corporate News:
- IIT-I to expand MSME vendor base, promote e-marketplace
In a bid to bolster the government e-marketplace and enhance the procurement system from Micro, Small and Medium Enterprises (MSME), Indian Institute of Technology (IIT), Indore is looking to expand the vendor base by onboarding new and additional players from the sector.
“With the implementation of General Financial Rules 2017 and government e-marketplace, IIT Indore has been executing the procurement procedure in compliance with this policy. While we possess a robust vendor database, we aspire to further expand it by incorporating new vendors to collaborate with us in providing superior goods and services at economical rates, thereby optimizing taxpayers’ funds,” stated IIT-I public relations officer, Commander Sunil Kumar (Retd).
The Ministry of Finance, through General Financial Rules 2017, mandated the procurement of goods and services from GeM by government users. To foster the network of vendors, IIT Indore is organizing a Vendor’s Meet on August 5 in the campus.
“This meet aims to amplify its vendor database, facilitate supplier registration on the GeM, and address queries pertaining to MSME registration. As per the directive of the Government of India, procurement by government institutes should be executed through GeM. The meet is anticipated to persuade and guide the vendors to come under the purview of GeM, which offers a more transparent and expeditious procurement service,” said Kumar.
- (To read more – Click Here)
- Post-Budget analysis: A deep dive into initiatives announced for MSMEs
Following Finance Minister, Ms Nirmala Sitharaman’s Budget announcement, micro, small, and medium enterprises (MSMEs) are now breathing a sigh of relief as it has introduced several measures aimed at bolstering this sector, a cornerstone of the Indian economy. While the intent and strategy is commendable, a comprehensive analysis is essential to assess the effectiveness of these initiatives and their potential impact on the ground in the coming year.
Key Budgetary Announcements: Opportunities and Challenges
Financing: The 2024 Union budget introduced a comprehensive package that includes financing, regulatory changes and technological support. To address credit access, a new scheme will provide guarantees of up to Rs 100 crore for MSMEs in manufacturing to acquire machinery and equipment. This will ease access to larger loans for modernization, expansion, and improved efficiency. For micro units, the enhancement of the Mudra loan limit from Rs 10 lakh to Rs 20 lakh is a welcome step towards helping larger manufacturing micro units to be set up.
This can also help grassroots-level entrepreneurs expand their business reach by investing more in social media marketing and promotion. However, access to affordable credit remains a major hurdle for MSMEs, particularly in the informal sector and for grassroots entrepreneurs. A critical aspect lies in increasing the average loan size from Rs 40,000 to Rs 4 lakh to ensure that micro units are adequately capitalised for sustainable growth.
Ease of Doing Business: Simplifying regulatory processes and reducing compliance burden for MSMEs is essential to create a conducive business environment. While the Union Budget 2024 did not specifically announce any amendments to GST for the MSME sector, the focus was more on broader economic reforms and initiatives. Key highlights included significant reforms in customs duties to simplify rates and enhance trade facilitation. One expectation from micro enterprises with turnover up to Rs. 100 lakhs is to be exempted from GST tax and compliances.
Job Creation: Employment Linked Incentive (ELI) programme is designed to support new entrants to the workforce and incentivise job creation in the manufacturing sector, including MSMEs. Additionally, targeted efforts to increase women’s participation in the workforce and a new skilling programme in collaboration with state governments and industry underscore a multifaceted approach to addressing employment challenges. ELI scheme should not be confined to large or medium industry only but to micro enterprises employing more than five workers.
Technology: The budget allocation for sunrise sectors such as solar, green fuel, green farming and green mobility includes a corpus of Rs 1 trillion to provide long-term financing through 50-year interest-free loans. The “Pradhan Mantri Suryodaya Yojna” is a significant policy initiative that aims to decentralize solar energy use.
To capitalize on the opportunities proposed in the budget, the government should start prioritizing the micro enterprises, which constitute 98.35% of MSMEs. Therefore, specific measures should be targeted towards them. Nurturing a supportive ecosystem through incubation centers, mentorship programs and access to markets is equally crucial for MSME growth. Regular monitoring and evaluation of the budget’s impact on MSMEs is essential to identify bottlenecks and make necessary adjustments. (Read more – Click Here)
- Banks, NBFCs can’t classify MSMEs loan account as NPA without following 2015 framework: SC
A bench of Justices Bela M Trivedi and R Mahadevan said the ‘Framework for Revival and Rehabilitation of MSME’, as notified by the Centre by its May 29, 2015 notification and subsequent directions issued by the Reserve Bank of India in 2016, have statutory force and are binding on all scheduled commercial banks licensed to operate in India by the RBI.
It said the instructions issued by the central government under the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 and by the RBI under the provisions of the Banking Regulation Act have statutory force and are binding on all banking companies.
The bench said the 2015 instructions issued by the Centre as part of measures taken for facilitating promotion and development of MSMEs followed by the directions issued by the RBI need to be followed by the banking companies though they may be ‘secured creditors’ as per the definition contained under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act , 2002 before classifying the loan account of MSMEs as NPA.
“…However, while creating such sub-categories, the Banks must have some authenticated and verifiable material with them as produced by the concerned MSME to show that the loan account is of a Micro, Small and Medium Enterprise, classified and registered as such under the MSMED Act,” the bench said, while allowing a batch of appeals of MSMEs challenging a Bombay High Court’s January 11 order.
“Therefore, the stage of identification of incipient stress in the loan account of MSMEs and categorization under the Special Mention Account category, before the loan account of MSME turns into NPA is a very crucial stage, and therefore it would be incumbent on the part of the concerned MSME also to produce authenticated and verifiable documents/material for substantiating its claim of being MSME, before its account is classified as NPA,” it said.
The top court added, if that is not done, and once the account has been classified as NPA, the banks that are secured creditors would be entitled to take recourse to the SARFAESI Act for enforcement of the security interest.
The bench, however, said if at the stage of classification of the loan account of the borrower as NPA, the borrower does not bring to the notice of the concerned bank/creditor that it is an MSME and if the enterprise allows the entire process of classification to get over, such an enterprise could not be permitted to misuse the process of law for thwarting the actions taken under the SARFAESI Act by raising the plea of being an MSME at a belated stage.
- (To read more – Click Here)
- MoD, NSE sign agreement to help MSMEs, emerging firms in defence sector
The Defence Ministry and the National Stock Exchange on Monday signed an agreement that seeks to help Micro, Small and Medium Enterprises and emerging companies in the defence sector to scale up their business operations, explore new markets and fund their research and development activities.
The Memorandum of Understanding has been signed to facilitate capital market access to the MSMEs.
It intends to facilitate MSMEs in the defence sector to raise productive capital for their growth plan efficiently and transparently through the NSE platform ‘NSE Emerge’, the defence ministry said in a statement.
The platform offers new and viable options for raising equity capital from a diversified set of investors, it said.
The MoU was signed by the additional secretary the Department of Defence Production (DDP) and managing director, NSE in the presence of Defence Secretary Giridhar Aramane.
“The MoU will be in force for a period of five years, during which, DDP and NSE would conduct an extensive awareness drive through seminars, MSME camps, knowledge sessions, roadshows and workshops to guide corporate (firms) engaged with the Ministry of Defence for fundraising on ‘NSE Emerge’ platform,” it said.
The NSE will also assist MSMEs in connecting with intermediaries like merchant bankers, registrars, transfer agents, depositories etc and guide them regarding the capital markets, capital raising mechanism and regulatory compliance and requirements, the statement said.
“This MoU will help MSMEs and emerging companies in the defence sector to scale up their business operations, explore new markets and fund their R&D activities,” it said.
