HOW TO ESTABLISH AN MSME IN INDIA
INTRODUCTION
MSME stands for Micro, Small, and Medium Enterprises. It was introduced through
the MSMED (Micro, Small, and Medium Enterprises Development) Act of 2006. This
Act defines enterprise as “an industrial undertaking or business concern or any
other establishment, by whatever name called, engaged in the manufacture or
production of goods.” MSMEs are classified into two classes: Manufacturing
Enterprises and Service Enterprises. These enterprises are then further
classified based on their annual turnover and investment in equipment. The
Micro, Small, and Medium Enterprises (MSME) sector has been growing
significantly for a few years. Its development is essentially linked to the
social and economic development of the nation as a whole. Majorly, this sector
is labour-intensive as the workers engaging in this sector are usually
semi-skilled. This helps in reducing the present economic imbalance between
skilled and unskilled or semi-skilled workers. This is also the reason why this
sector is the second largest employer after agriculture. In emerging nations
like India, MSMEs are seen as the foundation of the economy. MSMEs significantly
contribute to the socioeconomic growth of the nation and this sector acts as an
accessory unit to other major industries. This sector plays a significant role
in providing job opportunities on a large scale at lower costs. It aids in the
industrial growth of rural and underdeveloped areas and lessens regional
disparities, ensuring a more equal distribution of wealth and national
income. By offering employment, access to loans, and other facilities to
the artisan class, they have also gradually and gradually revived the craftsman
class in India's remote regions.
CHALLENGES TO MSMEs
• FINANCIAL ISSUES- In the Indian economy,
smaller industries and businesses have difficulty in obtaining financing so this
is a significant barrier for both enterprises and the MSME Sector. Just 16% of
MSMEs have access to financing is what is most concerning, as this forces small
and medium-sized businesses to rely on their own resources.
This problem impacts not only small enterprises but also larger ones because
even larger enterprises have difficulty acquiring more inexpensive financing
from traditional banks. People may make poor financial decisions that could
affect the firm unless they seek outside guidance. A solid understanding of
money is essential because one must rely on an MSME loans to get through any
difficulties that may arise. MSMEs face difficulty in accessing capital loans
from banks. They are unable to get the required finances to kickstart their
business. As the availability of cheap foreign imports is also increasing, the
development of these industries has further stooped down. This makes it
necessary for the government to intervene in this sector to ensure its continued
growth.
Even the All India Management Association has also identified ‘lack of finance’
as one of the major hurdles in the growth of MSMEs. One of the major reasons why
investors are not willing to invest in MSMEs is the risk factor involved. As
they are still in a nascent stage, they might not be as credit worthy.
Therefore, before obtaining a loan it is important to comprehend everything
linked to MSMEs loans.
• REGULATORY ISSUE- Several regulatory
challenges have been found throughout time, including issues like as business
taxes and changes to labour legislation, which have resulted in significant
costs for the MSME sector. Certain labour reforms were made a few years ago in
an effort to make this industry more competitive among others. Despite making
MSMEs more competitive, they struggled to make a difference in changing
circumstances for them. As a result, it has become extremely difficult for many
Small and medium enterprises to comply with these requirements and register for
business taxes.
• DURING
COVID-19- COVID-19 has changed the economic scene for MSMEs. The most
severe lockdown to prevent the spread of the COVID-19 issue caused the greatest
impact to the MSMEs sector, particularly the smallest enterprises. The sudden
announcement to follow all protocols of the COVID-19 emergency in the production
process caused supply chain problems such as raw material import, movement of
people, unemployment, reduced profit, etc. The sector got even more importance
with the manufacturing policy wherein the manufacturing sector’s share in GDP is
targeted to be from 16% to 25% by the end of 2022. The COVID-19 outbreak
reversed the economic progress that had been done through the years. The low
demand, lack of funds, and shrinking manpower are all factors that combined to
result in many MSMEs going out of business.
CRITERIA TO ESTABLISH MSME IN THE LAW
The eligible categories for MSME registration are proprietorships, Hindu
undivided families, partnership firms, one-person company, private limited
company, limited company, any association of persons, co-operative societies, or
any other undertaking. According to the Micro, Small & Medium Enterprises
Development Act, 2006, MSMEs can be recognized under the manufacturing sectors
if:
• The investment doesn’t exceed INR
25,00,000 in the case of Micro Enterprises.
• The investment exceeds INR 25,00,000 but
doesn’t exceed INR 5,00,00,000 in the case of Small Enterprises.
• The investment exceeds INR 5,00,00,000
but doesn’t exceed INR 10,00,00,000 in the case of Medium Enterprises.
MSME can be recognized for the service sectors if:
• The investment doesn’t exceed INR
10,00,000 in the case of Micro Enterprises.
• The investment exceeds INR 10,00,000 but
doesn’t exceed INR 2,00,00,000 in the case of Small Enterprises.
• The investment exceeds INR 2,00,00,000
but doesn’t exceed INR 5,00,00,000 in the case of Medium Enterprises.
The reason for the revised criteria of the MSME is to strengthen this sector
and make it grow. It has excluded the exports from the counting of turnover to
encourage the MSMEs to export more and more without fearing the loss of benefits
granted to an MSME unit. Enhancing the export side will ultimately lead to the
creation of jobs in India.
CONCLUSION
MSMEs are a budding area in India. They are primarily growing as necessarily
skilled labour is not necessary for this sector as the work majorly involves
manufacturing. However, they face challenges like technological advancement,
financial constraints, and the recent pandemic. These challenges need to be
overcome to give rural areas a chance at advancement. Presently, the country
imports foreign goods that are cheaper in comparison. This option makes people
reluctant to spend more money, even if it is for the advancement of their own
nation.
To be eligible to establish an MSME, there are certain conditions that need to
be met. They are recognized under the Micro, Small & Medium Enterprise
Development Act, 2006 providing the conditions therein. After meeting these
conditions, it should be a priority to enhance the export side. Only this can
lead to the realization of the 5 trillion economy model by 2025 proposed by our
Prime Minister, Mr. Narendra Modi
REFERENCES
• Khan T ‘Pre-Packs for MSMEs: A Positive
Step with Implementation Hurdles’, 2021 SCC Online Blog Exp 59
• Dasewicz, A., Simon, J., &
Ramanujam, S. R. (2020) ‘Financing Small Business Is Critical for a Strong
Post-Covid Recovery’. Center for Strategic and International Studies (CSIS).
http://www.jstor.org/stable/resrep26410
• 10.2 RGNUL L Rev (2020) 64 Indian MSME
Development Post-2014
• Ministry of Micro, Small, and Medium
Enterprises Notification, The Gazette of India: Extraordinary [Part II—Sec.
3(ii)]. https://msme.gov.in/sites/default/files/MSME_gazette_of_india.pdf
• Ali A., , & Husain F. (2014). MSMEs
in India: Problems, solutions, and prospectus in the present scenario.
International Journal of Engineering and Management Sciences, 5(2), 109–115.
• Banu S., & Suresh B. (2020).
COVID-19 and its impact on micro, small, and medium enterprises in India. Mukt
Shabd Journal, IX(X), 606–61
Written by:
Ms. Kashish Shah
and Navya Bassi
(Intern’s)
M/s Aura &
Co.
Date:
05.01.2023