MSME SAKSHAM: This Weekly E- Newsletter (The Friday Journal) aims to increase awareness regarding various news / updated and activities that have been taken place for the MSMEs and to provide information about the various schemes and programmes along with latest updations from time to time. It is a digital tool used to share relevant and valuable information with the Readers.
MSMEs are an important sector for the Indian economy and have contributed immensely to the country’s socio-economic development. MSMEs produce and manufacture a variety of products for both domestic as well as international markets. MSMEs have played an essential role in providing employment opportunities. MSMEs have driven India to new heights through requirements of low investment, flexible operations, and the capacity to develop appropriate native technology. This newsletter has been released with an aim to educate MSMEs on various facets of business development.
- MSME in India
MSMEs are the largest employers in India after agriculture. They provide employment to a vast segment of the population, including skilled and unskilled workers, thereby reducing unemployment and underemployment. MSMEs contribute around 30% of India’s GDP. Their diverse range of activities, from manufacturing to services, adds value to the economy.
MSMEs provide a platform for entrepreneurs to start their businesses with relatively low capital investment. They foster innovation and competitiveness in the market. MSMEs are more adaptable to changing market conditions and customer preferences.
Our newsletter is an attemppt to provide brief about the developments in MSME Sector on weekly basis.
Our Special Corner
- “45-day MSME payment rule comes into effect on April 1: What it means and what changes. Complete details here”
Income Tax rule that bars businesses from claiming tax deductions for payments beyond 45 days to MSMEs for supply of goods and services will come into effect today (April 1).
What will change as per the new rule for MSMEs?
As per the rule, if a larger company does not pay an MSME within 45 days in case of written agreements, it cannot deduct that expense from its taxable income.
The rule comes as some industry bodies urged government to postpone implementation while the Federation of Indian Micro and Small & Medium Enterprises (FISME) said that the new rue could be a game-changer for MSMEs as large buyers could cold-shoulder suppliers and buy from those MSMEs that are not registered with Udyam.
What industry body has said on MSME rule?
FISME said that ”such fears are unfounded” as “replacing dependable suppliers just because a large company does not want to pay them in time is a ridiculous conclusion to draw. In any case, in the worst eventuality, the tax thus paid over such delays can be adjusted the following year when the company pays the supplier. But it does instill discipline in commercial practice. (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 apprenticeship may become shorter, better-paid”
The government is considering a slew of measures to boost apprenticeship training through millions of micro, small and medium enterprises in India, as it seeks to create a large pool of skilled workforce in the country.
These measures include reducing the tenure of apprenticeship from six months to three months, raising stipend subsidy for MSMEs to 50% from 25%, doling out tax incentives to MSMEs for hiring apprentices and roping in the private sector for providing manpower to MSMEs that often face staff shortage, a senior government official, aware of the deliberations, told ET.
Depending on the fiscal burden on the exchequer, the government could either tweak the existing apprenticeship schemes or draft a new scheme dedicated to MSMEs, which account for 38.4% of the total manufacturing output and contribute 45.03% of the country’s total exports. The government has held several rounds of discussions with the industry and is expected to unveil the roadmap for hiring of apprentices by MSMEs by the middle of this year.
The industry chambers and staffing companies can work as third-party aggregators to deploy apprentices with MSMEs across the country,” he said, adding it will give a significant push to apprenticeship training in India, which will be in sync with the country’s economic growth and aspirations to be a developed nation by 2047.
- Source: Click Here
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- Trade Receivables Discounting System (TReDS) – Part 31
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.
Invoicemart Clocks INR 100 000 Crores of MSME Invoice Financing
Invoicemart, India’s largest Trade Receivables Discounting System (TReDS) platform, announced that it has successfully enabled MSME Invoice Financing of INR 1 lakh crores, making it the 1st TReDS platform to reach this level and establish itself as the leading supply chain portal in the fintech space.
Invoicemart has witnessed exponential growth in invoice financing volumes since FY23 and has now registered more than 28000+ MSMEs across 5000+ postal codes transacting on the platform. Currently, Invoicemart is enabling monthly financing of INR 5000+ crores and is actively supported by the participation of all the ecosystem players.
Aligning with the RBI’s announcement in June 2023, on the expansion of TReDS, Invoicemart has started Direct Settlement of MSME invoice payments via TReDS, thereby helping Corporates, CPSEs, PSUs, etc. smoothen the MSME supply chain payment process. Invoicemart has also signed MoUs with various State Governments and facilitated a leading municipal corporation to pay its MSMEs through TReDS at extremely competitive rates.
Invoicemart is the preferred TReDS platform for almost 1600+ Corporations, CPSEs, PSUs, etc. Post signing MoUs with four State Governments, Invoicemart is now gearing up to penetrate deep into the MSME space and help the states raise awareness among the MSMEs. The Digital enablement and use of digital public infrastructure also led to a surge in MSME registration, where it has now clocked 1000+ registrations over the last two months.
The ease of access to credit for MSME via invoice financing on the marketplace is indeed becoming a game changer and Invoicemart is proudly leading the way in TReDS. With more than 25 lakh of MSME invoices getting financed through the platform at an approximate value of INR 1 lakh crores, it has been proven that if anchor Buyers (Corporates, CPSEs, PSUs, etc.) actively adopt TReDS and necessary regulatory cum government support is provided many more MSMEs can benefit through this innovative tool.
- To read more: Click Here
- MSME Corporate News:
- As LS polls near, MSMEs push for resolution of long-pending issues
As polls approach, Gujarat’s MSME sector is pressing for resolution of its long-pending demands, among which double taxation remains a critical issue. Most of the units demanding action operate from GIDC estates.
State govt had promised to address the issue of double taxation before the 2022 state assembly election. Other unresolved matters include impact fee, one-time settlement scheme, and the sale of products manufactured at GIDC units.
Local industry associations are preparing to bring these issues to the attention of Lok Sabha candidates.
“Govt had previously stated that GIDC units, which are currently subject to both GIDC service charges and local property tax, would get relief. The proposed solution mirrors the Ahmedabad Municipal Corporation (AMC) system, where GIDC estate associations would be reimbursed 75% of the property tax paid. This reimbursement is eagerly anticipated, as it would alleviate the financial burden on industries that receive no municipal services in return for the property tax they pay. However, no reimbursement agreements have happened yet. Various associations in different regions will highlight the matter to their constituency candidates during election with the hope that there will be a solution to the matter after election,” said an office-bearer of a leading industry association.
Additionally, chemical units in Ahmedabad have been advocating construction of a deep-sea discharge pipeline. This request was made to authorities recently, highlighting ongoing efforts of the MSME sector to address infrastructure and policy issues that affect their operations and growth. The resolution of these issues remains top priority for the sector, especially with the upcoming elections.
- (To read more – Click Here)
- Why Indian MSMEs should see the world as their target market
India’s MSME ecosystem is vast. According to some estimates, there are around 6.4 crore MSMEs, employing around 23 percent of the Indian labour force. At the same time, these MSMEs struggle to grow over their lifecycle, with 85 percent classified as ‘dwarfs’—more than ten years old and employing fewer than 100 people. This problem is also particularly pronounced as the average 40-year-old MSME manufacturer usually employs the same number of people as the average 5-year-old manufacturer. In contrast, in the US, older companies employ eight times as many people on average. The US scenario is a symptom of a healthy economy. Most successful and productive firms should grow in size, while less efficient producers should find other areas of economic activity they are better at. This is one of the basic principles underlying economic growth.
Our regulatory glass ceiling is a big reason scaling with age does not happen in India. Formal and large firms attract greater regulatory scrutiny from a system ill-disposed to private sector activity. This regulatory cholesterol most impacts those firms that want to grow. Tiny firms escape scrutiny; huge ones can manage it, but the middle becomes a no-man’s land. Research has found that medium-size firms are missing in India compared to other countries. While government and policy reformers have to focus on reducing this regulatory cholesterol, MSME firms are one important and often overlooked factor in breaking this glass ceiling. Evidence from countries like China shows that when a groundswell of economic activity from MSMEs starts, it incentivises them to demand a more conducive business environment, and true and sustainable change occurs.
So the question then becomes: How do we get this driver of economic activity and reform to get going? One key is to orient our MSMEs towards global markets. Contrary to popular belief, at least for MSME-dominant industries, the domestic market size is tiny compared to the global market size, often less than two percent. In comparison, our working-age population is up to 20 percent of the global working-age population. This means that the effective size of the Indian market per MSME is minimal despite its large population. High competition and small market size are far from an ideal growth environment.
A mindset shift is one of the most important changes needed to take advantage of these opportunities. Indian entrepreneurs must be willing to step up and set their sights on becoming competitive in global markets. The exciting thing is that competitiveness will come from a focus on collaboration with their partners, employees, and policymakers. With the right vision and execution, India’s MSMEs can power our next wave of growth and reforms.
- (Read more – Click Here)
- Timely payment to MSMEs rule to be enforced from April 1: Finmin officials
The government will implement a rule in FY25 requiring payments to micro, small and medium enterprises (MSMEs) to be made within 45 days, failing which companies will have to pay tax on the amount due.
Any change to the rule is possible only in the Union Budget in July, two senior finance ministry officials said. The government is not looking at deferring the rule by one year, as sought by traders, they said.
“According to the Finance Act 2023, companies need to make payments to the MSME sector within 45 days, which is slated to come into effect from April 1, 2024, else the companies cannot claim deductions on it,” a senior finance ministry official told Moneycontrol.
The Finance Act, 2023, introduced Section 43B (h) in the Income Tax Act to ensure timely payments are made to MSMEs and to maintain uninterrupted cash flow. If companies fail to make payments within 45 days, the amount will be added to their profit on which tax will have to be paid.
Parliament has already approved the amendment. The new rule implies that an employer, including a company, can claim a deduction for tax, duty, cess, or fee payable to the government only when it is actually paid, regardless of when it is accrued or incurred.
No change possible
Any change to the rule can be made only in the next budget in July, the official said, adding that no change is possible before that because it has to be approved by parliament.
“Even an ordinance route is not feasible as parliament will not be in session to approve it till July,” the official added.
The Confederation of All India Traders (CAIT) had sought postponement of the rule by a year, citing lack of clarity. CAIT secretary general Praveen Khandelwal said there is a need for greater awareness among traders nationwide about this provision.
MSMEs face mounting challenges due to delayed payments from public and private entities. Small businesses often operate on tight margins and payment delays disrupt their cash flow and hinder their operational capabilities.
From manufacturers to service providers, the ripple effects of delayed payments are felt throughout the MSME ecosystem. The income tax amendment aims at addressing the issue.
As per the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the buyer is required to make payment to the MSME supplier within 45 days of the acceptance of goods or services rendered. Finance minister Nirmala Sitharaman has raised the issue several times after the pandemic and has asked businesses to make timely payments.
The TReDS platform enables discounting of invoices/bills of exchange of MSME sellers against large companies, including government departments and public sector undertakings, through an auction mechanism to ensure prompt receivables at competitive market rates.
- (To read more – Click Here)
- Digital Competition Bill could negatively impact MSMEs, study finds
The provisions regarding restriction on data usage, and tying and bundling of services by the large digital platforms as proposed by the Digital Competition Bill would adversely impact the micro, small and medium enterprises (MSMEs), a study by technology think tank Esya Centre has said.
The report, while recommending that the Ministry of Corporate Affairs withdraw the two provisions, has also suggested a wait and watch approach to learn from the experience of the European Union and its experiment with the Digital Markets Act.
The study said that because the proposed bill does not factor in the symbiotic relationship between digital platforms and MSMEs, it could possibly jeopardise efficiency gains in the sector.
“The proposed law would also lead to significant deadweight losses, as these enterprises would have to recalibrate their online commerce and advertising by diverting resources that could otherwise have been used for value creation,” ESYA centre’s report said.
The report argues that the MSME sector has been able to overcome challenges of limited advertising, market access and low budgets for technological enhancements due to access to large digital platforms such as e-marketplaces and social media networks.
The survey conducted by Esya found that 61 percent MSMEs surveyed said that limitations placed on targeted advertising of large digital platforms under the DDCB will have a negative impact on them.
It said limiting these services can become a make-or-break factor for many MSMEs, as they are predominantly young micro-enterprises.
Section 15 of the Draft Digital Competition Bill, 2024 prohibits SSDEs from requiring or incentivising business users or end users to use one or more of the Systemically Significant Digital Enterprises’ other products or services. (To read more – Click Here)
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