23 April 2008
The new MSMED Act can do more by providing SMEs with the most powerful tool: Regional information, data and value-added knowledge. After hanging fire in Parliament for over a year, the SMED Bill morphed into the Micro, Small and Medium Enterprises Development (MSMED) Act on June 16, 2006. Its passing raised quite a cheer from industry; it is, after all, a piece of legislation that will impact the future of more than 12 million small units, employing about 30 million people. According to a recent notification, the Act will come into force from October 2.The most relevant feature of the Act is that the definition of Micro, Small and Medium Enterprises has been changed. The Government classifies industries based on the investment in plant and machinery and not on turnover or employment, as is the case elsewhere. For example, a manufacturing unit with a total investment in plant and machinery of less than Rs 1 crore but more than Rs 25 lakh is now classified as a Small Scale Industry (SSI); the new Act increases the upper limit to Rs 5 crore. This ensures that the definitions are time-relevant and also enables slightly bigger industries to reap the benefits that only smaller units used to enjoy. SSI benefits The new limits will apply from the date the Act comes into force. While the industries are obviously eyeing the potential benefits, the move is also going to cause some bureaucratic hassles. For example, a unit with investment in plant and machinery of Rs 1-5 crore will no longer be classified a medium-scale unit but as a small-scale one. It will have to re-register itself as an SSI. This is to be done within 180 days of the commencement of the Act voluntarily "at its discretion", as per the new MSMED Act notification. However, many of the benefits or incentives available to the SSI units depend on the SSI registration certificate being produced. For example, to be eligible for some of SIDBI's schemes, such as the Credit Linked Capital Subsidy Scheme, or to get membership of the National Small Industries Corporation (NSIC), registration is a must. Further, many of the State-level incentive schemes are SSI-sensitive. Under the erstwhile Package Scheme of Incentives in Maharashtra, for instance, SSI units set up in less industrialised zones were given special stamp and octroi benefits, concessions on electricity billing, and so on. It is not yet clear if the medium-scale units under the new Act are also to be given preferential treatment for credit, tax and other purposes, though the very need for an "SME" Bill rather than an "SSI" one was that the medium-scale units too needed as much policy space as the SSI units. Thus, all units with investment of Rs 1-5 crore will now be re-registering as SSI units, while those with investment of Rs 5-10 crore will re-register themselves as medium-scale units. The SSI Ministry-controlled District Industries Centres (DIC) will be flooded with registration formalities between October and March. This is an excellent opportunity for the Ministry to build a current, usable database. Database creation Data on Indian industrial units are hard to come by, especially at the regional level. That is because such databases are usually created when there is need for a study or a policy change. Instead, systems should be so designed that databases become an automatic output of the day-to-day running of the various ministries. Currently, most DICs have heaps of files of dusty local SSI registrations and there has been little effort to computerise the systems; thus, much of the data collected is useless. Second, the registrations are of two types — "provisional" and "permanent". When the unit initially applies for registration, a provisional SSI status is granted it, against which it is possible to raise finances, get pollution control NoCs, and so on. The permanent certificate is given on the unit becoming functional. These two registrations should actually convey accurate information on how many registered units get around to commencing operations. This rate is normally low and would be 10-20 per cent of the total provisional registrations. This is an important signal of the `early death' syndrome in SSIs. However, there is again no formal calculation of this rate and certainly no case study analysis available with the DICs. Useful data While some statistics are available at the national level, they are of little use to actual entrepreneurs wanting to start new activities in a particular region or those looking at expansion plans. Business networks could be national or global, but on-ground issues are mainly local. While setting up a unit, entrepreneurs want to know which suppliers and clients are immediately available locally. They want data on employment by certain suppliers to gauge the scalability; they want to know the benefits available at the State-level and the Municipal Corporation to local industries. For these small entrepreneurs, the business confidence index or the all-India inflation rate is not as relevant as the local data. The new MSMED Act seems to have made provisions to safeguard the interests of the SMEs by putting penalty clauses on non-paying buyers, instituting arbitration councils, etc. However, it can do more by providing these SMEs with the most powerful tool: Regional information, data and value-added knowledge. The DICs should be provided necessary funds and training so that they are equipped to handle the new registrations in a way that computerised databases are created even at the initial stage. The new Act coming into being is a wonderful opportunity that the Ministry can cash in on to create a region-wise database of micro, small and medium enterprises. Used well, this is a powerful tool that can be used for analysis and betterment of these industries five years down the line. Letting go the chance to do this, however, will mean just another Act that has changed definitions and created no internal systems for empowering the very industries it purports to serve. MSMED Act, 2006 MSMED Act, 2006 The Act is operational from October 2,2006 The Act is operational from October 2,2006 Salliientt Proviisiions of MSMED Actt,, 2006 Websiitte: www.. Laghu-udyog..com Smalllliindusttryiindiia..com 1.. Cllassiifiicatiion of Enterpriises (Chapter III – 7) Conceptt of ''Entterpriises'' as agaiinstt ''Industtriies'' Enterpriises cllassiifiied broadlly iinto:: ii) Entterpriises engaged iin tthe manufactture//producttiion of goods perttaiiniing tto any iindusttry & iiii) Entterpriises engaged iin proviidiing//renderiing of serviices.. Manufacturiing Enterpriises:: Defiined iin tterms of iinvesttmentt iin pllantt and machiinery (exclludiing lland & buiilldiings) and furtther cllassiifiied iintto:: •• Miicro Enterpriises - iinvesttmentt up tto Rs..25 llakh.. •• Smallll Enterpriises - iinvesttmentt above Rs..25 llakh & up tto Rs..5 crore.. •• Mediium Enterpriises - iinvesttmentt above Rs..5 crore & up tto Rs..10 crore.. Serviice Enterpriises:: Defiined iin tterms of ttheiir iinvesttmentt iin equiipmentt and furtther cllassiifiied iintto:: •• Miicro Enterpriises - iinvesttmentt up tto Rs..10 llakh.. •• Smallll Enterpriises - iinvesttmentt above Rs..10 llakh & up tto Rs..2 crore.. •• Mediium Enterpriises - iinvesttmentt above Rs..2 crore & up tto Rs..5 crore.. 2.. Fiilliing of Memoranda by MSMEs:: (chaptter III- 8) •• Process of ttwo-sttage regiisttrattiion of Miicro & Smallll Entterpriises diispensed wiitth & repllaced by fiilllliing of memoranda.. •• Fiilliing of memorandum opttiionall for allll Miicro & Smallll Entterpriises.. •• Fiilliing of memorandum opttiionall for serviice secttor Mediium Entterpriises.. •• Fiilliing of memorandum mandattory for manufactturiing secttor Mediium Entterpriises.. •• EM has tto be fiilled wiitth Generall Manager,, DIC,, of tthe concerned diisttriictt.. •• Exiisttiing miicro &smallll entterpriises att ttheiir diiscrettiion & tthose uniitts haviing iinvesttmentt iin P&M more tthan 1crore butt nott exceediing 10crores shallll fiille EM wiitth iin 180 days.. 3.. Apex Consulltatiive Body wiith Wiide Representatiion of Stakehollders (Chapter II – 3) National Board for Micro, Small and Medium Enterprises (MSME) Ex officio Chairperson - Union Minister i/c MSME Ex officio Vice Chairperson – Minister of State or Deputy Minister MSME Members: • MPs • Ministers of State Governments • Representatives of Central Ministries • State Governments • UT Administration • RBI, SIDBI, NABARD • Chairman, Indian Banks Association, ex officio • Associations of MSMEs including women • Persons of eminence and • Central Trade Union Organisations • National Board to be now statutory, as against non-statutory SSI Board • Quarterly meetings of National Board made mandatory Wiide Representatiion of Stakehollders….. Functiions of the Natiionall Board: • Examine the factors affecting the promotion and development of MSMEs and review the policies and programmes of the Central Government in this regard. • Make recommendations on matters referred to as above or any other matter referred to it by the Central Government. • Advise the Central Government on the use of Fund or Funds constituted under section 12. 4.. Adviisory Commiittee (Chapter III – 7) Constiitutiion of Adviisory Commiittee: •• Headed by Centtrall Governmentt Secrettary ii//c of MSMEs & iinclludiing:: •• Nott more tthan fiive offiicers of tthe Centtrall Governmentt;; •• Nott more tthan tthree representtattiives of Sttatte Governmentts;; & •• One representtattiive each of tthe Associiattiions of Miicro,, Smallll and Mediium Entterpriises.. Functiions of the Adviisory Commiittee:: •• To examiine tthe matttters referred tto iitt by tthe Nattiionall Board;; •• To adviise Centtrall Governmentt on matttters speciifiied iin cllauses 7(1),, 9,, 10,, 11,, 12 or 14;; & To adviise Sttatte Governmentts on matttters speciifiied iin tthe rulles under cllause 32.. 5.. Promotiionall & Enablliing Proviisiions (Chapter IV – 9,,10) •• Centtrall Governmentt tto nottiify programmes,, guiidelliines or iinsttructtiions for faciilliittattiing tthe promottiion and devellopmentt and enhanciing tthe compettiittiiveness of MSMEs.. •• Centtrall Governmentt tto consttiittutte,, by nottiifiicattiion,, one or more Funds.. •• Centtrall Governmentt tto crediitt tto tthe Fund or Funds,, such sums as tthe Governmentt may proviide aftter due appropriiattiion made by Parlliiamentt by llaw iin tthiis behallf •• Centtrall Governmentt tto admiiniistter tthe Fund or Funds for purpose menttiioned iin secttiion 9 & coordiinatte and ensure ttiimelly uttiilliizattiion and rellease of sums wiitth such criitteriia,, as may be prescriibed.. 6.. Crediit The polliiciies and practtiices iin respectt of crediitt tto tthe MSMEs shallll be progressiive and such as may be speciifiied iin tthe guiidelliines or iinsttructtiions iissued by tthe Reserve Bank of Indiia,, wiitth tthe aiims of:: •• ensuriing smootth crediitt fllow tto tthe MSMEs •• miiniimiiziing siickness among tthem and ensuriing enhancementt of ttheiir compettiittiiveness 7.. Procurement Polliiciies (Chapter IV – 11) Centtrall Governmentt or a Sttatte Governmentt tto nottiify preference polliiciies iin respectt of procurementt of goods and serviices,, produced and proviided by MSEs,, by iitts Miiniisttriies,, Departtmentts or iitts aiided iinsttiittuttiions and publliic secttor entterpriises (non-sttattuttory ttiillll now).. 8.. Proviisiions to Check Dellayed Payments (Chapter V) •• Proviisiions rellatted tto dellayed paymentts tto miicro & smallll entterpriises (MSEs) sttrengtthened.. •• Periiod of paymentt tto MSEs by tthe buyers reduced tto fortty-fiive days.. •• Ratte of iintterestt on outtsttandiing amountt iincreased tto tthree ttiimes tthe prevaiilliing bank ratte of Reserve Bank of Indiia compounded on montthlly basiis.. •• Consttiittuttiion of MSE Faciilliittattiion Counciills mandattory for Sttatte Governmentts.. •• Proviisiion for iincllusiion of one or more representtattiives of MSE'' Associiattiions iin tthe Faciilliittattiion Counciill.. •• Juriisdiicttiion of tthe Counciill iin a Sttatte tto cover wherever tthe buyer may be llocatted.. •• MSE Faciilliittattiion Counciill may uttiilliise tthe serviices of any iinsttiittuttiion or centter for conciilliiattiion and alltternatte diisputte resolluttiion serviices.. •• Reference made tto tthe counciill tto be deciided wiitthiin niinetty days from tthe datte of reference.. •• Decllarattiion of paymentt outtsttandiing tto MSE supplliier mandattory for buyers iin ttheiir annuall sttattementt of accountts.. •• Intterestt (paiid or payablle tto buyer) diisallllowed tto supplliier for deducttiion for iincome ttax purposes.. •• No appeall agaiinstt order of Faciilliittattiion Counciill tto be entterttaiined by any Courtt wiitthoutt deposiitt of 75% of tthe decreed amountt payablle by buyer.. •• Appellllatte Courtt may order paymentt of a partt of tthe deposiitt tto tthe supplliier MSE 9..Faciilliitatiing Cllosure of Busiiness (Chapter V -25) •• Centtrall Governmentt may (wiitthiin one year of tthe commencementt of tthe Actt) nottiify a scheme for faciilliittattiing cllosure of busiiness by a miicro,, smallll or mediium entterpriise.. 10. Powers to make Rules (Chapter VI - 30) • The Central Govt. may, by notification, make rules to carryout the provision of this act. • The state Govt. may, by notification, make rules to carryout the provisions of this Act - the composition of M&SE Facilitation Council, the manner of filling vacancies, etc.
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