MSMEs and Role of Professionals in Self Reliant India

Scenario of MSMEs in India

The Indian Micro, Small & Medium Scale Enterprises (MSME) sector is the spine of the Indian economic structure and has interminably acted as the bulwark for the Indian economy, providing it buoyancy to fend off global economic shocks and adversities. With around 63.4 million units throughout the geographical region of the country, MSMEs contribute around 8% of the manufacturing GDP and 45% of the GDP of India's manufacturing output. MSMEs have been able to generate and provide major employment and contribute around 40% of the overall exports from India. The sector has consistently maintained a growth rate of over 10%. About 20% of the MSMEs are based out of rural areas, which indicate the deployment of significant rural workforce in the MSME sector and is an exhibit to the importance of these enterprises in encouraging coherence and inclusive development as well as generating large scale employment, especially in the rural areas. MSMEs are growth engine of Indian Economy.

Definition:

In order to revive MSMEs from the hard hit impact of COVID-19 and lockdown, the Ministry of MSME, New Delhi, has notified new limit for MSME vide Notification No. CG-DL-E-01062020-219680 dated 01st June, 2020, subsequent notification No. CF-DL-E-26062020-220191 dated 26th June, 2020 and done away the distinction between manufacturing and services sector with new limit of investment and turnover as under:

Existing and Revised Definition of MSMEs

Note: The aformentioned Fees is exclusive of GST.

* Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification

As per notification, it must be noted that any person who intends to establish a MSME may file Udyam Registration online in the Udyam Registration portal, based on self-declaration with no requirement to upload documents, papers, certificates or proof and obtain an e-certificate, namely, “Udyam Registration Certificate” upon completion of the registration process. Such facilitation, itself, reflects the motto of Self Reliant India movement.

Our Hon’able Prime Minister Shri Narendra Modi hass announced five things for building a self-reliant India and to put the India on growth trajectory and i.e. intent, inclusion, investment, infrastructure and innovation, while delivering the inaugural address at CII Annual Session 2020 on 01st June, 2020. These Five I’s are important for building Atmanirbhar Bharat. The base of this movement is to create robust local supply chain and thereby strengthens India’s stake in the global economy.

With this much importance to MSMEs and “Self-Reliant India” concept, the Role of the Professionals become multi folded on both the front i.e. compliances and advisory. An endeavour is attempted to elaborate this Role in Self Reliant India and MSMEs:

Start-ups:

Start-ups are most favourable business model in Atmanirbhar Bharat. The Company Secretaries are the Professionals who have been trained and groomed in way to comply with new changes and challenges sweeping across the Industries. The role of Company Secretary in Start-ups is beyond traditional one. A complete information and in depth knowledge of competitors, predecessors, big players of the market with initial research will increase chances of starting out on the right path upon which, necessary changes will be made to the business plan, model and market strategy. CS can, not only guide starts-up since its conceiving idea, incorporation, funding, approvals, licences, day - to - day business affairs like compliances, valuations, liaising with various entities such as CA’s, valuers, staffers, venture capitalists, IPR practitioners, corporate strategies planning for business, but also detect and minimise frauds and scams and to stay up breast with corporate governance as a conscious keeper.

Funding including Foreign Investment

As we know, Self Reliant means less and less dependency on others (countries). The Professionals play lead role in decision making process of maintaining ratio of owned fund and borrowed fund in any business. MSMEs go through a series of funding starting from seed capital to first round and second round, each valuing the MSMEs at a different stage. The CS will have to change the capital structure of the company to accommodate the fluctuating equity based on the capital or provide a capital structure and options for the venture capitalists which can work in an optimum manner for both, the promoters as well as the funding entities. Another tope most need of the business is lowest rate of interest over borrowed fund which is major forte of professional expertise.

In case, MSMEs are planning for receiving funding in the form of foreign investment then, the role of Professionals shall contains responsibility of compliances and true direction both. The professional must guide MSMEs in terms of identification of foreign investors, contributions, sources of fund, KYC of foreign investors, time period, repayment terms, ownership terms, approval/automatic route, registration, involvement of Authorised Dealer Bank, prior and post permissions of Government, documentations and compliances as defined in under FDI (Foreign Direct Investment ) policy announced by the Government from time to time read with FEMA (Foreign Exchange Management Act), 1999 regulating foreign funding transactions and Foreign Currency Regulation Act, 2010, rules made there under as amended from time to time till date.

Strategic Management:

The definition of Key Managerial Personnel includes Company Secretary as mentioned in provisions of Section 2(51) of the Companies Act, 2013. Achievement of targets and goals with tools of analysis, formation, execution and evaluation resulting into strategies of optimum utilisation of the available resources in prescribed time period is called as strategic management in which the Professionals are playing important role. Professionals explained the management for Planning instead of evasion or pretended ignorance. The professionals always keep the Promoters updated and aware of the changing market for competitive advantage. Success of any business set up depends on the minute planning and strict implementation by catching opportunity available in the market. Continuous Dynamic process of formulating strategies, policies and implementation cannot be imagined without involvement of professionals in Self Reliant India.

Governance:

In simple terms, Governance means set of systems, strategies, policies, principles and processes of implementation in the business by which a Company is governed. The Company Secretaries are bridge between Board of Directors and stakeholders, deposit holders, bankers, Regulators, employees, workers. This Professional enhances Boards’ sustainability oversight towards business and society. Governance directly impacts image and branding of business. In order to achieve the real goal of Atmanirbhar Bharat Abhiyan, it becomes duty of Company Secretaries to advice management in such a manner that the MSMEs must manufacture and sell products/ services not only in India but also create export market by keeping best competitive rate and quality.

Listing:

In May, 2020, in order to make fuller capital account convertibility, the government has thrown open the doors for Indian public companies to directly list their shares abroad and access a larger pool of capital in permissible foreign jurisdictions. The Professionals play role in identifying the foreign market and foreign stock exchanges for accessing pool of capital to the Indian MSMEs and of course, its compliances then-after.

As a part of reforms and relaxation, the Government has allowed all private companies that list NCDs on stock exchanges not to be regarded as listed companies. It becomes great relaxations for Indian Private Companies who access debt fund by issue and of listed NCDs since it can maintain and enjoy benefits of “private/unlisted” status even after listing of NCDs.

Regulatory Reforms

In order to help MSMEs in this difficult time in terms of labour, raw materials, permissions, finance and to capture new opportunities including manufacturing of medical items and accessories, the Ministry of Micro, Small and Medium Enterprise launched web-portal called www.champions.gov.in (Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength) on 01st June, 2020.

Stimulus Package of the Central Government of India for MSMEs:

Amid COVID-19 and continuous Lockdown situation, out of the 15 relief measures announced by the Finance Minister Nirmal Sitharaman under the mega Rs 20 lakh crore stimulus package, nine aimed at bringing lockdown-hit India’s vast MSME sector back to life.

1. Banks and NBFCs will offer up to 20 per cent of entire outstanding credit as on February 29, 2020, to MSMEs. Units with upto Rs. 25 crore outstanding credit and Rs. 100 crore turnover are eligible for taking these loans that will have four-years tenor with a moratorium of 12 months on principal payment. The scheme can be availed till October 31, 2020. The government will provide complete credit guarantee cover to lenders on principal and interest amount. Many measures and assistance has been announced to boost liquidity and enable MSMEs to compete with foreign companies, and strengthen their network.
2. MSMEs declared NPAs or those stressed will be eligible for equity support as the government will facilitate the provision of Rs 20,000 crore as subordinate debt. The government will also provide Rs 4,000 crore to CGTMSE that will offer partial credit guarantee support to banks for lending to MSMEs.
3. Announcement of revision in definition of MSMEs is also one of the assistance to economy.
4. In order to remain in completion with the large size foreign companies during procurement of tenders, global tenders till Rs.200 Crores will be exclusively available for MSMEs.
5. The government and central public sector enterprises will release all pending MSME payments in 45 days. The minister also said that fintech enterprises will be used to boost transaction-based lending using the data by the e-marketplace. This e-market for developing linkages for MSMEs will be promoted to replace trade fairs and exhibitions.
6. Special insolvency resolution framework for MSMEs under section 240A of the Insolvency and Bankruptcy Code, 2016 (IBC) will be notified soon. Moreover, announcement as to suspension of fresh initiation of insolvency proceedings upto one year depending upon pandemic situation too, largely insulates MSMEs.
7. Decriminalisation of Companies Act violations involving minor technical and procedural defaults like CSR reporting, inadequacies in Board Reports, delay in holding annual general meetings etc and majority of the compoundable offences sections to be shifted to internal adjudication mechanism.
8. As an endeavour of ease of doing business, provisions of Part IXA (Producer Companies) of Companies Act, 1956 to be included in Companies Act, 2013 provision to create additional/ specialized benches for NCLAT and lower penalties for all defaults for Small Companies, One-person Companies, Producer Companies and Start-ups.
9. The Government plans to introduce new policy for a New, Self-reliant India under which: List of strategic sectors requiring presence of PSEs in public interest will be notified, private sector will be allowed in strategic sectors including privatisation of Leading Public Sectors Enterprises. It will also increase the number of private enterprises in strategic sectors and decrease the public holding companies to one or four maxima.

Internal or External Business Environment

The Professionals are the persons who are much aware about internal and external business environment keeping in view the segment and necessity of particular business.

Internal business environment includes efficiency and quality of human resources, Unity of workers, vision, mission and objectives of organisation and its structure, Corporate concept, culture and style of function of top management, actual resources and technological capabilities of the organisation.

External business environment includes micro and macro business environment which contains factors like economic, political, legal, social thinking, global market conditions, technological and demographic changes and sense of competitiveness.

As stated earlier, Company Secretaries, being Key Managerial Personnel and Complete Corporate Manager, knows entire internal and external business environment of the Company and guide the Company towards Self Reliant India movement after considering entire business culture of the Company. Professionals are truly Adapters rather than agents of change.

Other aspect related to MSMEs

Under Self Reliant movement, the Government of India has been announcing various Schemes of Subsidy, lowest rate of interest loan, Export Promotions Scheme for MSMEs which must be kept as informed by the Professionals to the Promoters of MSMEs for ease and development of doing business. Some of these Scheme and circulars are narrated as under:

1. The Ministry of MSME (Ministry), Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) with a view to facilitate flow of credit to the MSME sector without the need for collaterals/ third party guarantees. The CGTMSE provide cover for credit facility up to Rs. 100 lakh which have been extended by lending institutions without any collateral security and /or third party guarantees. A guarantee and annual service fee is charged by the CGTMSE to avail of the guarantee cover. (RBI circular RPCD/PLNFS/BC.No.39/06.02.80/2002-04 dated November 3, 2003 and RPCD.SME&NFS.BC.No.79/06.02.31/2009-10 dated May 6, 2010)
2. Ministry of MSME implements a scheme called Credit Linked Capital Subsidy Scheme (CLCSS) for technology upgradation of Micro and Small enterprises in the country. Under the scheme, 15 per cent capital subsidy, limited to maximum of Rs 15 lakh is provided to the eligible MSMEs for upgrading their technology with the well-established and improved technology as approved under the scheme.
3. The Ministry is implementing the Micro and Small Enterprises - Cluster Development Programme (MSE-CDP) wherein support is provided for Diagnostic Study; Soft Interventions like general awareness, counselling, motivation and trust building, exposure visits, market development including exports, participation in seminars, workshops and training programmes on technology upgradaion etc; Hard Interventions like setting up of Common Facility Centres (Common Production/Processing Centre, Design Centre, Testing Centre etc.) and creation/upgradation of infrastructural facilities in the new/existing industrial areas/ clusters of MSEs.
4. The Ministry conducts various types of training programme like Entrepreneurship Development Prorgamme (EDP), Entrepreneurship Skill Development Programme (ESDP), Management Development Prorgamme (MDP), Industrial Motivation Campaign (IMC) etc. through its various organisations for self employment as well as wage employment. The training programmes are primarily focused to promote self employment in the country. Thus all type of programmes have input which provide necessary information and skills to a trainee to enable him to establish his own micro or a small enterprises.
5. The National Manufacturing Competitiveness Programme (NMCP) is the nodal programme of the Government to develop global competitiveness among Indian MSMEs. The Programme was initiated in 2007-08. This programme targets at enhancing the entire value chain of the MSME sector through the following schemes:(a) Lean Manufacturing Competitiveness Scheme for MSMEs;(b) Promotion of Information & Communication Tools (ICT) in MSME sector;(c) Technology and Quality Up gradation Support to MSMEs;(d) Design Clinics scheme for MSMEs;(e) Enabling Manufacturing Sector to be Competitive through Quality Management Standards (QMS) and Quality Technology Tools (QTT);(f) Marketing Assistance and Technology Up gradation Scheme for MSMEs;(g) Setting up of Mini Tool Room under PPP Mode;(h) National campaign for building awareness on Intellectual Property Rights (IPR);(i) Support for Entrepreneurial and Managerial Development of SMEs through Incubators.(j) Bar Code under Market Development Assistance (MDA) scheme (k) Technology and Quality Upgradation Support to Micro, Small and Medium Enterprises (TEQUP) for enhancing competitiveness of MSME sector through Energy Efficiency and Product Quality Certification (l) Design Clinic Scheme for Design Expertise to improve the design of the product to meet global challenges and compete with similar products domestically and internationally (m) Building Awareness on Intellectual Property Rights (IPR) for the MSME to enhance awareness of MSME about Intellectual Property Rights (IPRs) and to take measure for protecting their ideas and business strategies (n) the ISO: 9001/14001/HACCP Certification Reimbursement Scheme for Micro & Small Enterprises (MSEs) for reimbursement of certification expenses, only to those MSEs which have acquired Quality Management Systems (QMS)/ISO 9001 and /or Environment Management Systems (EMS)/ ISO14001 and / or Food Safety Systems (HACCP) Certification. Under the scheme provides reimbursement of 75% of the certification expenses up to a maximum of Rs.75,000/- (Rupees seventy five thousand only) to each unit as one-time reimbursement only to those MSEs which have acquired Quality Management Systems (QMS)/ISO 9001 and /or Environment Management Systems (EMS)/ ISO14001and / or Food Safety Systems (HACCP) Certification (o) Incubation Scheme under which the government promotes and encourages the innovative MSMEs to come up with new ideas, design, and products as well as launch them in the market. The government manages approximately 75% to 80% of the costs of innovative projects developed by MSMEs.
6. Credit Rating under the scheme is being carried out through empanelled rating agencies i.e. Credit Rating Information Services of India Limited (CRISIL), Credit Analysis & Research Limited (CARE), Onicra Credit Rating Agency of India Ltd. (ONICRA), Small and Medium Enterprises Rating Agency of India Ltd. (SMERA), ICRA limited and Brickwork India Ratings. Under this Scheme, rating fee payable by the micro and small enterprises is subsidized for the first year only and that is subject to maximum of 75% of the fee or Rs. 40000/-, whichever is less.
7. A composite loan limit of Rs.1 crore can be sanctioned by banks to enable the MSME entrepreneurs to avail of their working capital and term loan requirement through Single Window in terms of RBI Master Circular on lending to the MSME sector dated July 1, 2010. All scheduled commercial banks have been advised by our circular RPCD.SME&NFS. BC.No.102/06.04.01/2008-09 on May 4, 2009 that the banks which have sanctioned term loan singly or jointly must also sanction working capital (WC) limit singly (or jointly, in the ratio of term loan) to avoid delay in commencement of commercial production thereby ensuring that there are no cases where term loan has been sanctioned and working capital facilities are yet to be sanctioned. These instructions have been reiterated to schedule commercial banks also.
8. As part of the financial sector liberalization, all credit related matters of banks including charging of interest have been deregulated by RBI and are governed by the banks' own lending policies. With a view to enhancing transparency in lending rates of banks and enabling better assessment of transmission of monetary policy, all scheduled commercial banks had been advised in terms of RBI circular; DBOD.No.Dir.BC.88/13.03.00/2009-10 on April 9, 2010 to introduce the Base Rate system w.e.f. July 1, 2010. Accordingly, the Base Rate System has replaced the BPLR (Bank’s prime Lending Rate) system with effect from July 1, 2010.
9. With the enactment of the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, for the goods and services supplied by the MSEME units, payments have to be made by the buyers as under: The buyer is to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement, before the appointed day. The agreement between seller and buyer shall not exceed more than 45 days. If the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank. For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the interest as advised at above. In case of dispute with regard to any amount due, a reference shall be made to the Micro and Small Enterprises Facilitation Council, constituted by the respective State Government. (the relevant RBI circular; IECD/5/08.12.01/2000-01 dated October 16, 2000 (reiterated on May 30, 2003, vide circular No. IECD.No.20/08.12.01/2002-03 ), available on RBI website).

It can be concluded that the Government of India have always focused on MSMEs in both the time i.e. whether boom or recession in economy. But when the “Self Reliant India Movement” is initiated by the Government of India, MSMEs become prime tool for achievement of logic of the movement which can be implemented in a better way through Professionals.