Ray of Hope Reaches the Small Scale Enterprises

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Ray of Hope Reaches the Small Scale Enterprises

May 3, 2018

Scarcity of capital, shortage of resources, delayed payments, technological obsolesce, increasing competition and harsh clean up of loans are leaving the small scale entrepreneurs at cross roads. It is high time that they reinvent their methods and appropriately utilize the opportunities available, in order to compete in the arena of Indian market.

Let us first look into some practical issues that are confronted by many entrepreneurs in running their respective businesses. This article is an attempt to address the major concerns and learn how to turn around the situation to one’s favor.

Today, India is on the threshold of a new economic revolution. Connectivity and access to resources have become an easy affair. Fortunately, the different schemes taken by the Government of India are far encouraging to the start ups and MSME (micro, small and medium enterprises) sector. One must positively plunge into these new pathways to find solutions that are smart and sustainable for the projects. To reap benefits from the various incentives provided under MSMED (Micro, Small and Medium Enterprises Development Act, 2006) primarily one needs to identify the status and type of the enterprise.

The following slabs have been prescribed under the MSMED Act to determine the different classes of the units or projects:

S.NoType of EnterpriseManufacturing Enterprises
(Investment in Plant and Machinery)
Manufacturing Enterprises
(Investment in Plant and Machinery)
Service Industry
(Investment in equipment)
1MicroDoes not exceed Rs. 25 LakhDoes not exceed Rs. 10 Lakh
2SmallExceeds Rs. 25 Lakh but does not  exceed Rs. 5 CroreExceeds Rs. 10 Lakh but  does not exceed Rs. 2 Crore
3MediumExceeds Rs. 5 Crore but does not  exceed Rs. 10 CroreExceeds Rs. 2 Crore but does  not exceed Rs. 5 Crore

The next step after determining the category is to register as a SSI unit under MSMED. Enterprises avail immense benefits, incentives and support rendered either by the Central or the respective State Government.

1. How to register under MSMED? Can a private limited company or a proprietary concern or a service oriented entity, or a partnership firm be enrolled as a SSI unit?

Positively, all the following entities are eligible to get registered:

  • Proprietorship
  • Hindu undivided family
  • Association of persons
  • Co-operative society
  • Partnership firm
  • Limited liability partnership firm
  • Company or an Undertaking

Any entity pertaining to manufacture or service sector can apply for the registration and get qualified to receive benefits provided under the Act. A Medium enterprise engaged in the manufacture or production of goods or provision of services has to compulsorily enroll under the MSMED Act, whereas for the other enterprises the registration is discretionary or optional.

SSI Registration or Small Business Registration is all the same as MSME Registration in India. It is basically provided by the Ministry of Micro, Small and Medium Enterprises routed through the Commissioner of Industries of the respective State Governments, under whom the District Industries Centre is authorized to grant the Registration certificate. Uniform registration procedures followed all over the country however, some States have made certain modifications to obtain the recognition. The following are the three steps, which remain common to all regions:

Step 1: Obtain Provisional SSI Registration

Step 2: Start the Business
Start the business activity or production with the provisional SSI registration certificate.

Step 3: Acquire Permanent SSI Registration
After the commencement of production or activity, one can apply for and receive permanent SSI registration. But a Permanent SSI registration will be granted only if the following conditions are satisfied by the SSI unit:

i) The unit has obtained all necessary clearances whether statutory or administrative.
ii) The unit does not violate any restrictions formulated under various Regulatory bodies.
iii)   The value of plant and machinery is within the prescribed limits.
iv) The unit is not owned, controlled or a subsidiary of any other industrial undertaking as per the notification.

Note: Online SSI Registration can be obtained through http://udyogaadhaar.gov.in/ mostly in 10 to 20 days, subject to State Government processing time. For more details please visit the above mentioned website.

2. How to overcome the difficulties in accessing bank credit?

Generally, SSI units do not find it easy to access bank credit as they face difficulties in providing sufficient collateral security for loans. Considering this, the Government launched the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) so as to facilitate flow of credit to the MSE sector. Certainly, it is like a dream come true for the business men looking for capital expansion. As per the scheme, all Scheduled Commercial Banks (either PSU, Private or Foreign banks), selective Regional Rural Banks, or such of those Institutions directed by Government of India can make use of guarantee cover in respect of their eligible credit facilities. The borrowers can obtain both term loan and working capital facilities from a single agency.  The quantum of credit facility that can be covered under the Scheme is Fund and non-fund based (Letters of Credit, Bank Guarantee etc.) credit allowances that goes up to Rs.100 lakh per eligible borrower, provided they are extended purely on the project viability without collateral security or third party guarantee. CGTMSE offers guarantee cover up to 75% of the amount in default subject to a maximum of Rs.62.50 lakhs. However the extent of guarantee cover is 85% in specific cases like:

(a)    For micro and small enterprises operated and/ or owned by women irrespective of the credit availed.

(b)   To SSI units in the North Eastern Region (including State of Sikkim) regardless of the loan granted.

Note:  Visit www.cgtmse.in for more guidance.

3. The other biggest hurdle one would face is delayed payments from buyers/customers. How does one effectively recover money from them?

This is again a major concern for many business men. Due to delayed payments, the capital gets stuck with few customers and the situation gets worsened when the liabilities do not match the assets. One feels that he/she has reached the end of the road. Definitely, a registered SSI entrepreneur experiences a huge relief in recovering the dues faster from the debtors or the buyers and receives interest on the arrears through the process of arbitration and conciliation.

In the instance of failure of the payments, the seller or the service provider (MSE unit) must have filed an Entrepreneurs Memorandum (EM) Part-II with the DIC (District Industries Centre) of the concerned state/union territory where the unit is located. Just after receipt of the petition of the supplier, the MSEFC would conduct the proceedings. Through the process of arbitration and conciliation MSEFC would settle the issue and if the decree is in favor of the seller or the service provider the buyer would be demanded to pay interest at a rate 3 times the Bank Rate notified by RBI (Reserve Bank of India), compounded with monthly interest. The time limit to pass the decree is 90 days from the date of making such reference. Once the appeal is made, there is no provision to withdraw the proceedings.

4. What is the time limit to claim the right of interest on the due payments from the buyer or the customer?

Whenever a buyer or a customer receive goods or services from an authenticated SSI unit, he needs to make sure that the payments are made before the end of the credit period subjected to three specific conditions; else the interest would be charged on the outstanding dues. The pre- requisites are as follows:

  • In case of no agreement between the seller and buyer, the payment should be made before the appointed day, which is the day after the expiry of  15 days from the day of acceptance or the day of deemed acceptance of any goods or services, by the buyer.
  • Where the date agreed upon is 45 days or less than 45 days then from the date as agreed upon in writing.
  • Where the date agreed upon is more than 45 days then within 45 days from the date of acceptance of goods or services.

In addition to this, under the Income Tax Act, 1961, the arrears to the SSI unit are not allowed as deduction for the computation of total income. This infers that the buyer should ensure that he does not owe any outstanding amount including the interest for more than 15 days from the agreed period or else this would be disclosed in the Annual Financials of the Buyer and the same will not be considered for deduction.

Disclosure of delayed payment in audited accounts

The buyer shall furnish the following additional information in his annual statement of accounts, namely:-

  • The principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier (micro or small enterprise) as at the end of each accounting year.
  • The amount of interest paid by the buyer along with the amounts of the payment made to the supplier or service provider beyond the appointed day during each accounting year.
  • The amount of interest due and payable for the period of delay in making payment (‘payment’ here means the payment which has been made but beyond the appointed day during the year and without adding the interest thereon specified under this Act for the period of delay).

5. What are the additional incentives and subsidies accommodated for medium and small enterprises?

It is no more unworkable or impossible for the SSI units in receiving subsidies and incentives under the Act. MSMED offer a consistent boost for the registered entrepreneurs. And it is necessary for the business associations to mention /print MSMED Registration/EM Number (Entrepreneurs Memorandum Number) on their letter heads, supply order sheets, invoices, bills and other relevant documents so that there remains an identification of being a MSE supplier in order to take advantage of the various schemes. The below mentioned points are some of the allowances provided:

a) Registration under NSIC (National Small Industries Corporation). TheGovernment of India is the single largest buyer of a variety of goods. With a view to increase the share of purchases from the small-scale sector, the Government Stores Purchase Programme was launched in 1955-56. NSIC registers Micro & small Enterprises (MSEs) under Single Point Registration scheme (SPRS) for participation in Government Purchases. Kindly visit nsic.co.in/gp.asp to grab more information.

b) Reduction in rate of interest from banks.
c) Preference in procuring Government tenders and are acquired at cost free.
d) Stamp duty and Octroi benefits.
e) Participation in Excise Exemption Scheme.
f) Re – imbursement of ISO certification expenses.
g) Under the Public Procurement Policy for Micro and Small Enterprises (MSEs) Order 2012, 20% procurement from Micro & Small Enterprises of the total acquirement by Central Ministries/Departments/CPSUs has become mandatory.
h) Credit Linked Capital Subsidy Scheme for technology up-gradation.
i) The Presumptive taxation scheme u/s 44AD of Income Tax Act, which is available for small and medium enterprises the turnover limit is increased to 2 crore rupees that frees them from the burden of maintaining detailed books of accounts and get the audit done.

I hope this article has created sufficient confidence in you that it is indeed a good prospect to get registered as a SSI unit. Sadly, in India we have a wide spread belief that any procedure connected with the Government is going to be a delay and the so called Government grants, endowments are hard to reach the common man. But with the introduction of e-governance, automation of processes and other significant initiatives what looked impracticable has become a reality today. Therefore registering under MSMED Act would make small scale entrepreneurs to scale hitherto unheard of heights.

May 2016

For all kind of support with regard to registration of SSI and post-registration compliances, you can get in touch with us.

Disclaimer: The entire contents of this document have been developed on the basis of relevant information. Though the author has made utmost efforts to provide authentic information however, the author and the company expressly disclaims all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.

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