ANALYSIS : MSME – INDIA BENEFITS FOR SMALL AND MEDIUM ENTERPRISES – BENEFITS AND REGISTRATION

MSME – BENEFITS AND REGISTRATION

I. What is MSME?
As the abbreviation suggests, MSMEs are Micro-Small & Medium Enterprises MSMEs fall under the Ministry of Micro, Small and Medium Enterprises.
It is necessary to be registered in order to take advantage of the benefits of the MSMED development law.

MSMEs are classified into two categories: manufacturing and service firms.

II. Eligibility for MSME registration ( for manufacturers and service providers, i.e. not for traders ) :

Criteria:
Investments and annual turnover
Micro Small Medium classification
Production
Services

Investment < INR 1
Crore (EUR 125,000)
and turnover < INR 5
Crore (EUR 625,000)

Investment < INR 10
Crore (EUR 1,250,000 e
Turnover < INR 50 Crore
(6,250,000 EUR)

Investment < INR 20
Crore (2,500,000) e
Turnover < INR 100
Crore (EUR 12,500,000)

Below are some of the benefits of getting registered as MSME in India:

1. Bank loans (without collateral)
   Government of India has made collateral free credit available to all small and micro
   sectors of activity.
   This initiative guarantees funds to micro and small enterprises in the sector.
   Under this scheme, both old and new businesses can claim the benefits.
   The scheme, called ''The Credit Guarantee Trust Fund Scheme'' was introduced by the Indian government as a credit guarantee system for all micro and small enterprises.
2. Grants for patent registration
   A 50% grant is awarded to businesses that have the certificate of registration issued by the MSME.
   This subsidy can be used for the registration of a patent, by submitting an application to the respective ministry offices.
3. Exemption from overdraft risk
   Firms registered under MSME are eligible for an 1% benefit on project finance as set out in a scheme that differs from bank to bank.
4. Eligibility for industrial promotion subsidy
   Enterprises registered under MSME are also eligible for an industrial promotion subsidy.
5. Protection against late payments
   Sometimes MSME customers tend to delay payments.
   The Ministry of Micro, Small and Medium Enterprises helps businesses by giving them the right to collect default interest on late payments.
   The resolution of these disputes must take place in a minimum time through conciliation and arbitration.

In the event that a company registered by MSME supplies goods or services to a buyer,
the buyer is obliged to make the payment on the agreed payment date, in advance of the same or within 15 days from the day on which the products or services have been approved if the contract does not mention the payment date.

If the buyer delays payment more than 45 days after approval,
the buyer must pay compound interest and monthly interest on the amount that has been agreed.
The applicable interest rate is three times the rate set by the Reserve Bank of India.

1. Reduction of electricity bills
   This grant is available to all MSME Registered Businesses.
   Entitlement to reduction is certified by submitting a request to the Department of Electricity together with the certificate of registration by MSME.
2. Tax refund on ISO certifications
   Registered MSME companies can request reimbursement of expenses incurred for ISO certifications.

In addition to the above, the Indian Finance Minister has announced the following liquidity measures for the MSME as of Wednesday 13 May 2020:

The unsecured auto loan worth Rs 3-lakh crore (37.5 billion) will be
supplied to companies belonging to the MSME.
Lenders with up to Rs 25 crore (3.1 million) outstanding
and a turnover of Rs 100 crore (12.5 million) are eligible.
An emergency credit line can be provided by banks to companies up to 20% of the total credit outstanding as at 29.2.2020.

These loans will have a duration of 4 years and a 12-month moratorium on repayment capital.
There will be a credit guarantee to 100% in favor of Banks and NBFC, on principal and on interest. This scheme can be used until 31 October 2020.

To provide distressed SMEs with equity support, the Government will also facilitate the provision of INR 20,000 crore (2.5 billion euro) as subordinated debt.
For subordinated debt for distressed SMEs, the SME promoters will be indebted to the banks, which will then be repaid in full by the promoter as equity capital.

There is also a Rs 50,000 crore or €6.25 billion capital injection for MSMEs through a 'Fund of Funds', to be managed through a main fund and a limited number of subordinated funds.
This will help expand the size and capacity of MSME and will also encourage small and medium-sized enterprises to go public.

III. Evaluation points :

Before applying for MSME registration, a business should keep in mind the type of its customers.
Some large companies operate with long credit periods, (60 or 90 day payments)
therefore this tax regime may not be suitable for engaging with a supplier registered under the MSME regime as the firm would be paid in 45 days.
Therefore, the relative competitiveness of companies under the MSME regime compared to similar companies with a different tax regime could be reduced.

How can Octagona help you?

Octagona, as knowledge partner of the Indian Embassy in Italy,
is available to connect you and support you in defining your joint venture and in developing your business in India.

You can contact Mr. Brando Bruschi: b.bruschi@octagona.com

We remind you that the Octagona Task Force as Knowledge Partner of the Indian Embassy is available to provide free support, detailed information and advice to all Italian companies that may need it.

In this regard, you can contact:

Alessandro Fichera | a.fichera@octagona.com | +39.328.2123458
Monica Sessi | m.sessi@octagona.com | +39.340.3422473
bRando Bruschi | b.bruschi@octagona.com | +39.348.9653664