Introduction of Draft National Policy for Micro, Small and Medium Enterprises (MSME) in India – Vital Step towards Boosting MSME’s Visibility and Growth

Introduction of Draft National Policy for Micro, Small and Medium Enterprises (MSME) in India – Vital Step towards Boosting MSME’s Visibility and Growth

Executive Summary:

This article describes:

• • • This article throws light on Draft National Policy for Micro, Small and Medium Enterprises (MSME) in India
    • Introducing Key features of Draft Policy, its advantages in long-run to MSME Sector.

Introduction:

Micro, small, and medium enterprises (MSMEs) are significant players in practically every industrial system in today’s globalized world. They are the most numerous enterprises on all continents, and they also contribute considerably to the creation of jobs and the construction of Gross Domestic Product (GDP).Since India’s independence, the micro, small, and medium sectors have played an essential part in the country’s economic development as a result of Gandhi’s philosophy.

This COVID-19 pandemic has hampers many sectors and the major chunk was affected and got delayed has been witnessed in MSME sector. As COVID-19 spread over the world, prompting international lockdowns, the government announced considerable relief measures for the MSME sector, which had been affected particularly hard by the epidemic. These initiatives primarily focused on providing short-term monetary and financial assistance, ensuring that MSMEs affected by the epidemic had more liquidity. This was a great relief in keeping MSMEs afloat, and some of these policies have even been extended into the current fiscal year. These initiatives, however, are only intended to provide short-term relief and are unlikely to achieve the government’s greater goal of improving India’s global competitiveness in the sector.

Ministry of MSME has released the draft National Policy for MSMEs in India and has recommended “specific action areas” to ensure the sector’s speedy growth. The action areas include Intergovernmental Roles & Responsibility, Legislation and Regulatory Framework for MSMEs in India, Access to Finance/Financial Assistance for MSMEs, Technology Upgradation/ Adaptation, Skill Development, Knowledge Management, Ease of Doing Business, Development of MSME Code and Exit Code.

What is MSME and its importance in Indian Economy

The Government of India has introduced Micro Small and Medium Enterprises in accordance with the Micro Small and Medium Enterprise Development (MSMED) Act of 2006. These companies are primarily engaged in the manufacture, manufacture, processing, or storage of goods and commodities.

MSME is an important sector of the Indian economy and has made significant contributions to India’s socio-economic development. It not only creates employment opportunities, but also works together to develop the country’s rear and rural areas.

But if we compare growth of MSME Sector globally and its contribution to GDP with China and Germany, we are far behind. China and Germany’s MSME Sector contribute 50 to 60 % GDP to their Economy.

Need of National Policy for MSMEs in India

Despite previous actions/initiatives, there was no formal policy concentrating on the growth of MSMEs with the goal of directing and shaping the MSME segment’s future path in India. The Ministry of MSME has now produced a draft National Policy for MSMEs (‘Draft Policy’) in India, which includes “particular action areas” for ensuring the sector’s rapid growth. Until now, India lacked an MSME policy.

Though, Government has introduced various schemes and mission to boost MSME Sectors but that is not enough However, there are certain barriers in the growth of MSME Sectors, which includes:

• Complex Legislative and regulatory framework for MSMEs
• Limited access to institutional loans
• Non-professional management
• Competition from large scale industries and imports
• Inadequate infrastructure in rural areas
• Inefficiency to achieve economies of scale .i.e. large scale production
• Lesser supply of electricity & skilled labour
• Non-friendly dispute resolution mechanism
• No proper MSME code to provide SOPs
• Lack of information and information networks
• Taxes burden and in particular the recently introduced GST and numerous compliances

Government has launched several schemes and portals to benefit MSMEs like the Udyam registration portal makes the registration process simpler, the CHAMPIONS portal helps the smaller units become big. Government has also launched programs to expand and grow digital payments and fintech amongst MSMEs. But due to lack of digitalization in MSME Sector, lack of awareness and knowledge of latest technology, Indian MSMEs cannot avail the full benefits of India’s digitization schemes.

To overcome all these barriers and being MSME the backbone of the country’s economy, Government of India has introduced this draft National Policy for MSMEs in India

Essential Features of National Policy for MSME in India

The draft policy proposes areas of action under eight headings. The main highlights of these action areas are:

• Intergovernmental Roles & Responsibility
It helps to create standard operating procedures of MSME Sectors, help to provide good infrastructure infrastructure like electricity and water connections, waste management, warehousing etc. to MSME Sectors.

• Regulatory Framework for MSMEs in India
Government has enacted Micro Small Medium Enterprise Development (MSMED) Act 2006 and in recent COVID Pandemic it has been amendment inn 2020. But till date there are no state specific laws or regulations for MSME Sector. Each state should have a regulatory system exclusively for MSMEs, under the Insolvency and Bankruptcy Code, 2016.

• Access to easy Finance/Financial Assistance for MSMEs
To ensure simplified loan procedure for MSME Sector. Introducing easy financing Schemes.

• Technology Upgradation/Adaptation
To enable MSME in India is to develop globally by working with global companies to build new institutions to facilitate innovation, adaptation of new technologies and technological development

• Knowledge Management
The central government will create a database to collect information about all MSMEs, a comprehensive cloud-based database in the public domain. An innovative venture that uses artificial intelligence to generate useful information and actively supports MSME and others.

• Ease of Doing Business
Simplified loan procedure, less compliances, tax rebates, and simplified export policies helps MSME Sector to do and expand their business.

• Development of MSME Code
The need to adopt an MSME code that provides detailed instructions for implementing the MSME Act. This Code clarifies regulatory criteria such as the start, continuation or termination of MSME, documentation and declarative procedures under several regulatory laws.

• Exit code:
Under the Insolvency and Bankruptcy Code, 2016, small and medium enterprises with the Fast-Track Corporate Insolvency Resolution Process, set-up an independent Rehabilitation Fund.

Conclusion

The Ministry of MSME has published a draft national policy for small and medium-sized enterprises (MSME) in India. It outlines some steps to promote competitiveness, technological improvements, cluster and infrastructure development, MSME product sourcing, and targeted credit support. In the long run, such policies will ensure that MSMEs will not be closed due to lack of funding, accelerating formalization and growth of the sector.

In short, we can conclude that Policy success is measured by implementation with a time-limited agenda.

Regards,
Legal Team

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