Further to our Part I, this Part seeks to outline the various fiscal and supportive measures and schemes to unshackle Indian MSMEs from the rigours of the `Inspector Raj’ and to promote ease of doing business in the MSME sector by the Government of India.
MSME package announced by the Prime Minister in his speech on the eve of New Year:
- Increase of existing limit of credit guarantee for MSMEs from INR 1 crore to INR 2 crores.
- Credit guarantee to also be extended to Non-Banking Financial Companies (“NBFCs”) which provides loans to Micro Small Enterprises. It has been envisaged that banks and NBFCs would now be charging lower interest rate on these loans because the government would be bearing a substantial part of guarantee cost.
- Increase of credit limit from 20% of project annual turnover to 25% as this would substantially increase available credit to small industry by 25%.
- Working capital loans for MSMEs to be increased from 20% of the project annual turnover to 30% on the digital component of the turnover. This would incentivize business to shift to digital payments systems.
- Reserve Bank of India has extended the period of the system 60 (sixty) days to 90 (ninety) days beyond what is applicable for the banks and financial institutions for recognition of a loan account of MSMEs as not being NPA or substandard for loans smaller than INR 1 crore. This measure would provide relief to MSMEs in repayment of interest on working capital loans.
- RBI has on 29 December 2016 advised banks to provide additional working capital limit to MSME borrowers to overcome temporary difficulties consequent upon withdrawal of legal tender status of INR 500/- and INR 1000/- denomination notes.
- Income tax for small business up to turnover of INR 2 crores would be calculated at 6% on income from digital transaction in place of 8% otherwise. This would reduce income tax liability on such transaction by 25%.
MSME Databank Portal
Key objectives are to gather information about MSMEs and to be a one-stop source of information of MSMEs. Further, the focus will be to make use of the portal for public procurement and to also enable MSMEs to furnish data online.
This follows the notification issued by the Ministry dated 29 July 2016, in supersession of the Micro, Small and Medium Enterprises Development (Furnishing of Information) Rules, 2009 and notifying the Micro, Small and Medium Enterprises Development (Furnishing of Information) Rules, 2016.
Online Finance Facilitation Web Portal
NSIC, which provides suitable credit support to various MSMEs for purchase of raw material, has started an online Finance Facilitation Centre on http://www.nsicffconline.in and the portal will allow MSMEs to apply for loans from the various banks on the NSIC portal itself.
Relaxation of norms
Vide policy circular dated 10 March 2016 notified by the Ministry of Finance vide its office memorandum dated 25 July 2016, the Ministry had clarified that in exercise of the provisions of the Public Procurement Policy, all central ministries or departments or central public sector undertakings may relax condition of prior turnover and prior experience with respect to micro and small enterprises in all public procurements subject to meeting of quality and technical specifications in accordance with the relevant provisions of General Finance Rules, 2005.
However, vide its office memorandum dated 20 September 2016, the Ministry has clarified that while procuring items related to public safety, health, etc., procuring entities, may not relax the criteria of prior experience or turnover for the start-ups.
Udyog Aadhaar Memorandum (“UAM”)
Vide notification dated 18 September 2015, the Ministry has notified a simple one-page registration form, UAM. The UAM shall be filed online at http://udyogaadhaar.gov.in/, the Udyog Aadhaar Portal maintained by the Ministry.
It replaces the cumbersome process of MSMEs having to file Entrepreneurs’ Memorandum with the respective States/UTs. The information sought in UAM is on self-certification basis and no supporting documents shall be required. Further, no fees is required for UAM registration.
Framework for revival and rehabilitation of MSMEs
The framework provides a mechanism for revival and rehabilitation of MSMEs and is expected to balance the interest of debtors and creditors. The framework enables banks/creditors to identify MSMEs which are in the stage of initial stress and take corrective action to prevent them from becoming non-performing assets. MSMEs can seek revival and rehabilitation benefit through a committee constituted by banks with representative from state governments, experts and others.
Further, vide notification dated 17 March 2016, the Reserve Bank of India issued the Framework for Revival and Rehabilitation of Medium, Small and Micro Enterprises (MSMEs). This framework supersedes RBI’s earlier Guidelines on Rehabilitation of Sick Micro and Small Enterprises issued on 1 November 2012.
Insolvency and bankruptcy
The MSME Act does not provide for resolution of insolvency and bankruptcy of MSMEs registered under the MSME Act. Further the framework for resolution of insolvency and bankruptcy in individuals and entities in India were earlier scattered under multiple laws like the Sick Industrial Companies (Special Provisions) Act, 1985 (which has now been repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (also known as the SARFAESI Act), Recovery of Debts Due to Banks and Financial Institutions Act, 1993, winding up provisions under the Companies Act, 1956 etc.
However, The Insolvency and Bankruptcy Code, 2016 (“Code”) which received the assent of the President and was notified on 28 May 2016, consolidates laws relating to insolvency resolution and bankruptcy applicable to all corporate persons, partnership firms and individuals as well and governs the rights and liabilities of all secured as well as unsecured creditors. Since the Code does not provide for a specific carve out for the MSMEs, many concerns have been raised that the provisions with regards to recovery actions may be very stringent and that MSMEs should be excluded from its purview. However, it has also been opined that the mechanisms provided under the Code shall facilitate easier and faster exit to the entrepreneurs from an unsuccessful venture, thereby paving the way for a fresh start. One shall have to wait and watch whether the Code shall be beneficial to the MSME sector or not.
In the pipeline
The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015 (“Bill”) was introduced in the Lok Sabha by the Minister for Micro, Small and Medium Enterprises, Mr. Kalraj Mishra on April 20, 2015. The Bill seeks to amend the MSMED Act by achieving the following objectives:
- Enhancing the existing limit for investment in plant and machinery considering changes in price index and cost of inputs consistent with the emerging role of the MSMEs in various Global Value Chains as mentioned in the footnote.
- Medium enterprises to be set apart from small enterprises in Section 7(9) of MSMED Act to enable the aforesaid category of enterprises to avail the benefits and become competitive. As provided under Section 7(9) of the MSMED Act, 2006, the government, while classifying any class or classes of enterprises under sub-section 7(1) of this Act, may adopt any criteria e.g. investment, employment or turnover of the enterprises and include in such classification the micro or tiny enterprises or village enterprises, as part of small enterprises.
- Empower the central government to revise the existing limit for investment, by notification, considering the inflation and dynamic market situation.
By facilitating investment, fostering innovation, enhancing skill development and building a sustainable eco-system for the manufacturing infrastructure in the country, the Make in India initiative aims at turning India into a globally competitive manufacturing hub powered by skill, scale and speed. To achieve complete success through this initiative, the government will have to identify further bottlenecks in the MSME sector and formulate proposals/schemes to overcome them and facilitate overall growth of the sector.
– Megha Manjunatha