“MSME BENEFITS, AND STIMULUS RELIEF PACKAGE AMIDST COVID-19: PAVING WAY TOWARDS GROWTH & OPPORTUNITIES”

MSME stands for Micro, Small and Medium Enterprises[1], which is playing a vital role in the economic growth with minimal investment, not only in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. The MSME sector has emerged as a highly vibrant & dynamic sector of the Indian economy over the last five decades.

The Ministry of MSMEs is the apex body for formulation and administration of rules, regulations, and laws relating to MSMEs in India. Therefore, the government of India with an intent to support and promote MSMEs in India, has enacted the Micro, Small and Medium Enterprises Development Act (“MSMED Act”) in the year 2006. The primary responsibility of the promotion and development of MSME lies in the hands of the state governments, however, the government of India promotes MSMEs through various initiatives, subsidies, schemes, and incentives.

CLASSIFICATION OF MSMEs

In India, the enterprises are broadly classified into two categories in accordance with MSMED Act:

1.     Manufacturing enterprise; and

2.     Those engaged in providing/ rendering of services

Both the above categories of enterprises are further classified into MSMEs, basis their investment in the-

ü plant & machinery, in case of manufacturing enterprises

ü equipment, in case of services enterprises

The PREVIOUS ceiling limit on investment to be classified as MSMEs is as under:

Classification-Investment ceiling for plant, machinery or equipment

Micro

Manufacturing enterprise-Up to INR 25 lakhs

Service enterprise-Up to INR 10 lakhs

Small

Manufacturing enterprise-Above INR 25 lakhs & up to INR 5 crores

Service enterprise-Above INR 10 lakhs & up to INR 2 crores

Medium

Manufacturing enterprise-Above INR 5 crores & up to INR 10 crores

Service enterprise-Above INR 2 crores & up to INR 5 crores

MSMEs STIMULUS PACKAGE AND RECLASSIFICATION AMIDST COVID-19 PANDEMIC

The finance minister on 13th day of May, 2020 has announced the stimulus package relief measures for sectors which are majorly affected amid COVID-19, including MSMEs, workers, businesses, etc., to implement the label “Atma Nirbhar Bharat Abhiyan” or “Self-reliant Indian Movement”, as announced by the Hon’ble Prime Minister on 12th May, 2020.

The major steps taken for revival of the MSME sector are herein below:

ü Revisions of MSME classification: The distinction between the manufacturing sector and the services sector under the MSME definition has been eliminated and additional criteria of annual turnover being introduced along with investment limit upward revision. The revised classification of MSME is as follows:

Classification

Composite criteria: investment & annual turnover-Manufacturing & Service enterprise

Micro

Investment < INR 1 crore and turnover < INR 5 crores

Small

Investment < INR 10 crores and turnover < INR 50 crores

Medium

Investment < INR 20 crores and turnover < INR 100 crores 

ü INR 3 lakh crores collateral-free automatic loans: The emergency credit line to businesses/ MSMEs from banks & NBFCs is increased up to 20% of the entire outstanding credit as on 29th February, 2020. The borrowers with up to INR 25 crores outstanding and INR 100 crores turnover are eligible for this scheme. The tenure will be of 4 years with a moratorium of 12 months on principal repayment & interest to be capped. This could benefit 45 lakh units so that they can resume business activities & safeguard their jobs. This scheme can be availed till 31st October, 2020.

ü Debt for stressed MSMEs: The government will facilitate the provision of INR 20,000 crores as subordinate debt for the benefit of 2 lakh MSMEs. The functioning MSMEs with NPAs or are stressed will be eligible for this scheme. The government will provide a support of INR 4,000 crores to Credit Guarantee Funds Trust for Micro & Small Enterprises (‘CGTMSE’) and CGTMSE will provide a partial credit guarantee support to banks. The promoters of MSMEs will be given debt by banks, which will then be infused by the promoter as equity in the unit.

ü Equity infusion for MSMEs through Fund of Funds (‘FoF’): FoF with a corpus of INR 10,000 crores will be set up, which will provide equity funding for MSMEs with growth potential & viability. The FoF will be operated through a mother fund & few daughter funds. The fund structure will help leverage INR 50,000 crores of funds at the daughter funds level. The government will help to expand MSME size as well as capacity and this scheme will encourage MSMEs to get listed on the main board of stock exchange(s).

ü Limiting global tenders up to INR 200 crores to benefit domestic firms: Indian MSMEs & other companies have often faced unfair competition from foreign companies; therefore, global tenders will be disallowed in the government procurement tenders up to INR 200 crores and accordingly, necessary amendments to general financial rules will be affected. This will enable a ‘Self-Reliant India’ or Atma Nirbhar Bharat’ and support Make in India. Also, this will help MSMEs to increase their business.

ü Other interventions: E-market linkage for MSMEs to be promoted to act as a replacement for trade fairs & exhibitions as MSMEs currently facing problems of marketing & liquidity due to the impact of COVID-19. Fintech will be used to enhance transaction-based lending using data generated by the e-marketplace. The government has been continuously monitoring the settlement of dues to MSME vendors from the government and Central Public Sector Undertakings (CPSEs) and ensure that the said MSME receivables to be released within 45 days period.

MSME/ UDYOG AADHAR REGISTRATION AND EXISTING BENEFITS

Though MSME/ Udyog Aadhar registration is optional under the MSMED Act, however, to avail the wide range of benefits, such as-

ü collateral-free loans from banks & NBFCs;

ü waiver of stamp duty & registration fees;

ü udyog aadhar memorandum;

ü Trade Receivables e-Discounting Systems (‘TReDs’);

ü grievance monitoring system;

ü eligibility for lower rate of interest from banks;

ü tax subsidies;

ü ease in getting licenses, approvals & registrations;

ü exemption under direct tax laws;

ü bar code registration subsidy;

ü protection against delay in payment;

ü concession in electricity bills;

ü subsidy on National Small Industries Corporation (‘NSIC’) performance & credit ratings;

ü excise exemption scheme;

ü 50% subsidy on patent/ trademark registration;

ü waiver in security deposit to the government;

ü reimbursement of ISO certification, etc.

as provided by the central or state government of India, MSME registration is required.

The registration process is quite simple, followed with the filing of a single online form on the national portal, i.e. udyogaadhaar.gov.in for registration of MSMEs in India, along with the following information/ documents:

ü aadhar number;

ü valid mobile number & e-mail id;

ü name of owner;

ü name of enterprise;

ü official address of enterprise;

ü date of commencement of operations;

ü bank account details;

ü major activity, i.e. either ‘manufacturing’ or ‘service’;

ü National Industry Classification Code (‘NIC code’);

ü person employed;

ü investment in plant & machinery/ equipment

SLEW OF REFORMS FOR MSME SECTOR

Recognizing the immense potential of the MSME sector in providing growth, development and employment to the economy and society, several initiatives & schemes are continuously been brought up by the government of India & concerned regulatory authorities to boost the MSME sector, the glance of which is as follows:

ü development of khadi, village and coir industries;

ü entrepreneurship and skill development programs;

ü technology up-gradation & quality certification;

ü schemes of NSIC;

ü reduction in corporate tax rate;

ü relaxation by the Reserve Bank of India (‘RBI’) to banks & NBFCs with respect to asset classification norms form the MSME sector;

ü credit linked capital subsidy scheme;

ü Micro & Small Enterprises Cluster Development Programme (MSE-CDP);

ü credit linked capital subsidy scheme for technology up-gradation;

ü credit guarantee scheme;

ü promotion of MSMEs in NE region & Sikkim;

ü scheme of microfinance programme;

ü MSME-MDA;

ü 59 minutes loan facility portal to enable easy access to credit for MSMEs;

ü relief for MSME borrowers registered under Goods & Services Tax (‘GST’) Act;

ü export market promotion to improve the export performance;

ü credit guarantee trust fund for MSMEs

OTHER RELIEFS TO MSMEs AMIDST COVID-19 PANDEMIC

During the national lockdown period, the MSMEs are also suffering because of the sudden outbreak in operations, thereby creating a situation of panic. However, various relief measures have been provided by the government of India & regulatory authorities to facilitate the MSMEs in India in view of the COVID-19 outbreak:

ü Extension of time limits with respect to compliance under various taxation laws, viz. the Income Tax Act, 1961; the Central Excise Act, 1944; the Customs Act, 1962, etc. Further, various notifications & circulars were also issued for the compliance relaxation under the GST regime;

ü The Ministry of Home Affairs or ‘MHA’ has issued its order[2] dated 24th March, 2020 to allow the movement of essential goods & services. Further on 15th April, 2020, the MHA vide its order[3] has also issued a COVID-19 Standard Operating Procedure (‘SOP’) for MSMEs at workplace to prevent transmission of coronavirus amongst the employees & workers of MSMEs while ensuring continuity of businesses so that livelihoods are not impacted;

ü The Ministry of Corporate Affairs vide its general circular[4] dated 30th March, 2020 introduced the Companies Fresh Start Scheme, 2020 and revised the LLP Settlement Scheme, providing a waiver of additional filing fees for delayed filings by the companies or LLPs including MSMEs;

ü The Department of Promotion of Industry and Internal trade (‘DPIIT’), under the Ministry of Commerce & Industry, has set-up a control room to oversee the difficulties being faced by various stakeholders including MSMEs during the lockdown period;

ü The Ministry of Labour & Employment has also granted a relief to the employee provident fund account holders to withdraw certain prescribed amount from their provident fund accounts during the pandemic;

ü The RBI vide its circular[5] dated 27th March, 2020, announced a regulatory package for all the borrowers, including MSMEs, which includes rescheduling of the payment of term loan instalments, reduction in Cash Reserve Ratio (‘CRR’) of all the banks, ease of working capital financing, classification as Special Mention Account (‘SPA’) and Non-Performing Asset (‘NPA’) and extension of the realization period of export proceeds. Later, the RBI again came forward with a second set of relief measures, which are set out as follows: Targeted Long-Term Repo Operations (TLTRO 2.0.), refinancing facilities for All India Financial Institutions (AIFIs) and liquidity adjustment facility: fixed-rate reverse repo rate;

ü The MHA vide its order[6] dated 24th April, 2020 issued modifications & inclusions to its order dated 15th April, 2020 and allowed certain shops, which are registered with the Shops & Establishment Act & standalone shops to open with 50% strength of workers, subject to certain conditions to follow;

Authors: I Abhishek Bansal, Partner ([email protected]) I Iram Naaz, Senior Associate ([email protected]) I ACUMEN JURIS I

Practice Areas: I Corporate & Commercial I Acquisitions and Investments I I Security Laws & Capital Markets I

Disclaimer- This Article is for information purposes only, and the views stated herein are personal to the author, and shall not be rendered as any legal advice or opinion to any person, and accordingly, no legal opinion shall be rendered by implication.

The Article does not intend to induce any person to omit, commit or act in any particular manner, and that you should seek legal advise before you act on any information or view expressed herein. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this Article.

[1] “enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services.

[2] Order No. 40- 3/2020-DM-I(A) dated 24th March, 2020

[3] Order No. 40- 3/2020-DM-I(A) dated 15th April, 2020

[4] Circular No. 12/2020 dated 30th March, 2020

[5] Circular No. RBI/2019-20/186 dated 27th March, 2020

[6] Order No. 40- 3/2020-DM-I(A) dated 24th April, 2020