Micro, Small and Medium Enterprises (MSMEs)


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:
(a) Manufacturing Enterprises- The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.
(b) Service Enterprises:  The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.
The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified are as follows.
Manufacturing Sector
(i) Micro Enterprises- Does not exceed twenty five lakh rupees
(ii) Small Enterprises- More than twenty five lakh rupees but does not exceed five crore rupees
(iii) Medium Enterprises- More than five crore rupees but does not exceed ten  crore rupees
Service Sector
(i) Micro Enterprises- Does not exceed ten lakh rupees:
(ii) Small Enterprises - More than  ten lakh rupees but does not exceed two crore rupees
(iii) Medium Enterprises - More than two crore rupees but does not exceed five core rupees
Micro, Small and Medium Enterprises Development Act, 2006
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 seeks to facilitate the development of these enterprises as also enhance their competitiveness. It provides the first-ever legal framework for recognition of the concept of “enterprise” which comprises both manufacturing and service entities. It defines medium enterprises for the first time and seeks to integrate the three tiers of these enterprises, namely, micro, small and medium.
The Act also provides for a statutory consultative mechanism at the national level with balanced representation of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range of advisory functions. Establishment of specific Funds for the promotion, development and enhancing competitiveness of these enterprises, notification of schemes/programmes for this purpose, progressive credit policies and practices, preference in
Government procurement to products and services of the micro and small enterprises, more effective mechanisms for mitigating the problems of delayed payments to micro and small enterprises and assurance of a scheme for easing the closure of business by these enterprises are some of the other features of the Act.
Ways to Improve Business Climate for SMSEs
There are several regulatory changes that can be made to improve the business climate for MSMEs.
Formulate a common policy on business development and regulation: There are a vast number of business regulations that often overlap and sometimes contradict each other. A common policy and an institutional architecture overseeing all business regulations will help consolidate and enact changes.
Help business facilitation: Establish independent facilitation and coordination agencies as PPP service companies with mandate from the state government, staffed with specialists and responsible for getting work done through various departments for starting up and running of businesses. These agencies will also help arrange services such as financing, finding raw
material suppliers, and marketing products. They will charge a fee for some of the services provided, and be financially self-sufficient.
Simplify registrations for starting up: Create a one-stop online registration system for time-bound registrations for starting a business. The applicant will need to file a single application on the website, with the required information being picked up by each government department. Over time, this process can be extended to other activities such as trading across borders and paying taxes. This will require detailed mapping exercises and setting up of a ‘best practices’ framework.
Ease burden of compliance as the firm grows: Enable compliance ratings of MSMEs (through ISO-like common standards) and allow easier compliance norms to firms with higher ratings. Easier norms can take the form of simpler procedures (such as self-certification) across government departments. For instance, a company with a good history of tax compliance should
be treated as a good citizen when it deals with the pollution control board. Over time, high compliance ratings could also act as a signal to financiers and enable easier access to credit.
Allow for easy exits: The arduous process of exit for unsuccessful companies needs to be made simpler, faster, and cheaper.
Transform employment exchanges to enable effective job matching: Transform the 1,000-odd employment exchanges across states into career centres offering counselling, assessments, apprenticeships, training, and jobs.
Improve value/benefits from statutory pre-emptions: Currently for low wage workers in formal employment, the plethora of statutory pre-emptions, especially for provident fund and health insurance, can lead to very low net salary and act as disincentive to formal employment. The value and benefits received from these pre-emptions can be improved by encouraging
competition between different pension and health schemes.
Reduce attractiveness of staying small: Growing bigger is unattractive because some of the benefits targeted at MSMEs are withdrawn even while new regulations and obligations kick in. Innovative approaches are needed for giving MSMEs the incentive to grow. For instance, new regulations could be kept in abeyance for a period after the MSME crosses the size threshold that would require it to meet the regulation.

Friday, 14th Mar 2014, 09:52:07 AM

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