What is the MSME Act 2015?

The MSME amendment bill was introduced in the Lok Sabha on April 20, 2015, by the Minister of Micro, Medium and Small Enterprises, Mr Kalraj Mishra. The amendments proposed in this bill are aimed at the following:

Enhancing the limit of investment in plant and machinery by the enterprises, based on the changes in the cost of input and the price index.

Inclusion of medium enterprises in section 7(9), so these sectors may also benefit from the provisions of the MSME Act.

The investment limits amended by the MSME Amendment Bill are as follows:

• For Manufacturing Enterprises

  • Micro Enterprise: The investment amount in plant and machinery will not exceed fifty lakh rupees (₹50 lakh).

  • Small Enterprise: Such enterprises may invest between fifty lakh and ten crore rupees in plant and machinery (₹50 lakhs-₹10 crores).

  • Medium Enterprise: A medium enterprise is allowed to invest between 10 crore to 30 crore rupees in plant and machinery (₹10 crores - ₹30 crores).

• For Service Enterprises

  • Micro Enterprise: Micro enterprises may invest twenty lakh rupees in equipment (₹20 lakhs).

  • Small Enterprise: A small enterprise’s investment in equipment may be more than twenty lakh rupees but not more than five crore rupees (₹20 lakhs- ₹5 crores).

  • Medium Enterprise: As per the bill, medium enterprises can invest more than five crore rupees but not exceed fifteen crore rupees (₹5 crores-₹15 crores).

Prior to the amendment bill 2015, manufacturing businesses with an investment of less than ₹10 crores in plant and machinery and service enterprises with an investment of less than ₹5 crores in equipment were eligible for obtaining the MSME registration.

However, the amendment bill has increased this investment limit up to 3 times, bringing more MSME enterprises under the scope of the Act.

The Micro and Small Enterprises (MSME) Scheme is an Act introduced by the government in October 2006 to boost the development and regulate small enterprises in India. Since these enterprises play a crucial role in the country’s economy, job creation and innovation, especially in the rural areas, promoting their welfare and growth is imperative.

As per the provisions of the Act, enterprises such as Hindu undivided families, sole proprietorships, co-operative societies, partnership firms, companies, etc., are entitled to be included under MSME, provided they meet the following criteria:

• Enterprises engaged in goods manufacture and production are classified as micro, medium, or small based on the amount of investment. However, while calculating the cost of investment in plant and machinery for manufacturing enterprises, the act excludes costs associated with pollution control, research and development, industrial safety measures, devices and so on.

• Enterprises that render services are also categorised as micro, small and medium as per their investment amounts.

• What is the MSME Scheme Benefit in India?

The primary purpose of establishing the MSME Act is to support micro, small and medium enterprises and help them achieve growth and success. For this purpose, the government offers the following benefits mentioned under Chapter IV of the MSME Act 2006.

• Beneficial Measures- The Act specifies that the government may introduce various measures, programs or guidelines to promote and develop the MSME by facilitating employee skill development, provision for technological upgradation in such enterprises, infrastructure facilities, cluster development facilities and so on.

• Credit Facilities- The government may also provide MSMEs with credit facilities as per the guidelines of the RBI to ensure that the enterprises have a smooth credit flow at all times. For example, the MSMEs are a part of the banks’ priority sector quotas when it comes to lending.

• Procurement Policies- The Central and State governments may also roll out policies for purchasing goods and services provided by the MSME enterprises to facilitate their promotion and development from time to time.

For example, all central ministry departments and PSUs must procure a minimum of 25% of their annual purchase requirements from micro and small enterprises as per the Public Procurement Policy for MSMEs..

• Grants- The Central Government also provides the MSMEs with funds under different grant names to support their ventures. An example of a grant includes the Prime Minister’s Employment Generation Program, which offers subsidised bank loans to MSMEs for their project requirements.

• Important Points Related to the MSME Act

  • The MSME Act has simplified the process for getting the Udyog Aadhar Certificate, which is the primary process through which enterprises can register for MSME.

  • A National Board has also been formed under the Act to oversee and manage the development of SSI in India. It includes a chairperson, members of the Central Government, representatives of the State Governments and representatives of the association of micro, small and medium enterprises.

  • The Act also imposes penalties on the buyer in the form of interest for making late payments to the supplier of goods.

  • Under the Act, there is a provision for future policy, known as the “Closure of Business or Exit Policy”. The policy aims to regulate the closure of sick or loss-making units.

  • It also provides an online registration portal, enabling the MSMEs to register conveniently. By registering online, the MSMEs can obtain the SSI certificate for their enterprise.

Below is a tabulated representation of the investment limits for manufacturing and service enterprises based on the MSME Act 2006 and the amendment bill 2015.

Investment Limit for Manufacturing Enterprises

Investment Limit for Service Enterprises

Initiatives to Support MSMEs in India

The government has taken several initiatives to support the MSMEs and provide them with maximum benefits under the MSME Act.

• Pradhan Mantri Mudra Yojana (PMMY)- Under this initiative scheme, the government provides loans of up to ₹10 lakhs to the MSMEs without any collateral. Besides, these loans are available to new and existing MSMEs. There are three categories of loans available under this initiative: Sishu (up to ₹50,000), Kishore (up to ₹5 lakhs) and Tarun (up to ₹10 lakhs).

• Stand-Up India- Under the Stand-Up India scheme, SC/ST and women entrepreneurs can get a loan of up to ₹1 crore for starting new ventures in the trading, manufacturing and service sectors. Through this scheme, budding entrepreneurs receive encouragement and support throughout the loan process.

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)- MSMEs can avail of collateral-free credit under the CGTMSE scheme. Small businesses can get up to 85% of the loan amount, which enables them to get secure finances and it also reduces the risk load for the lenders.

• Online Lending Portals- MSME owners can also obtain loans through online platforms rather than relying on the traditional banking route. Such platforms use technological methods to assess the creditworthiness of the applicant and disburse loans smoothly.

• Government and Private Sector Collaboration- We also see the collaboration of the private sector with government initiatives, such as the CGTMSE, in providing financial assistance to the MSME owners. The merger of the private sector with government schemes has led to an increase in the awareness of such schemes, enabling small business owners to make the most of these schemes.

Registering an MSME under the MSME Act is a free and simple process. All you need to do is carry out a self-declaration, submit some basic documents and information and complete the procedure. Here are the steps involved.

• Navigate to the Udhyam portal on your system.

• Scroll down the page and locate the MSME/Udhyam registration heading.

• Next, click on the New Registration option.

• On the next page, provide your Aadhar number and the name of the entrepreneur.

• Tick the box to give consent to the Ministry of MSME. Then click on Validate and Generate OTP.

• Next, provide the PAN card details and verify the same.

• Fill out the registration form with all the required information, such as the name of the entrepreneur, location of the business, address of the enterprise, bank details, activity of the unit, mobile number, etc., in an accurate manner.

• Review and submit the form. Get the final OTP.

• Submit the final OPT along with the form.

• After the registration is complete, you will receive a unique number and Udhyam certificate.

The MSME Amendment Bill 2015 enhanced the investment limits of MSMEs to bring more businesses under its scope. Thus, more manufacturing and service enterprises can reap the benefits of government grants, credit facilities, procurement policies and so on.

While these initiatives play a crucial role in the success and development of the MSMEs, they may not be sufficient to protect these businesses from uncertain calamities and losses occurring due to fire outbreaks, workplace accidents, etc. The best solution to protect the business from such losses is to invest in a small business insurance plan.

You can rely on TATA AIG’s experience and expertise to get the best SME insurance for your business. With customised and affordable insurance plans, you can rest assured that your business and assets receive the best protection from unexpected losses.

Moreover, you can also opt for workmen's compensation insurance to protect your employees, who are the pillars of your small business. It protects them against workplace accidents, injuries and illnesses, ensuring they get coverage for lost wages, medical expenses, disability coverage and much more.

Thus, besides reaping the benefits of the MSME Act, as an MSME, you may also consider investing in a small business insurance policy to safeguard the business that you have built with a lot of hard work. TATA AIG assists you with comprehensive coverage tailored to meet your specific business needs.