Introduction
A Micro, Small and Medium Enterprises Development Act, 2006 became operational on October 02, 2006. The act facilitates / boosts the promotion, development and enhancing the competitiveness of micro, small and medium enterprises.
A Micro, Small and Medium Enterprises Development Act, 2006 became operational on October 02, 2006. The act facilitates / boosts the promotion, development and enhancing the competitiveness of micro, small and medium enterprises.
Earlier, MSME’s were classified into two categories on the basis of amount of investment i.e., Manufacturing & Service Enterprises but now according to the revision made in October 2019 by Union Minister Nitin Gadkari, the proposed basis for categorizing MSME’s will be on the amount of turnover. Also, there will be no distinction between the manufacturing and service sectors.
Applicability
Previously (On the basis of the amount of investment)
Previously (On the basis of the amount of investment)
EnterprisesMicroSmallMediumManufacturing EnterprisesLess than INR 25 lakhsMore than INR 25 lakhs, but less than INR 5 croreMore than INR 5 crore, but less than INR 10 croreService EnterprisesLess than INR 10 lakhsMore than INR 10 lakhs, but less than INR 2 croreMore than INR 2 crore, but less than INR 5 crore
Proposed (On the basis of the amount of turnover)
EnterprisesTurnoverMicro enterprisesLess than or equal to Rs.5 croreSmall enterprisesMore than Rs.5 crore, but less than Rs.75 croreMedium enterprisesMore than Rs.75 crore, but less than Rs.250 crore
Advantages or Benefits of MSME
There are various benefits or advantages of MSMEs which are as follows:
There are various benefits or advantages of MSMEs which are as follows:
- Cheaper bank loans
MSMEs can easily avail loans and that too at cheaper rates. There are certain loan programs available for SMEs as compared to big sized companies who generally do not qualify for such loans. It has come to notice over the period that the loans to SMEs are often backed up with small business administration. Even local banks may also wish to grant loans to MSMEs considering their loan amount request. - MSMEs direct involvement
One of the biggest advantages that MSMEs have is the fact that they can directly control their output and customer interaction as compared to companies having huge operations. The owner in an SME, for instance, maybe considered in a position to have an examination of the product quality and further he can also make necessary recommendations for its improvement. In this way, MSMEs are also able to undertake proper risk management at their earlier stages. - Taking immediate decision
The MSMEs tend to easily accommodate to the changes occurring in the business environment. Since there does not exist any specific formal hierarchy in the case of MSMEs, it helps in speeding up the decision-making process. If the business owner of an MSME believes that MSME is prone to certain business challenges with their competitors, he may act promptly as he does not have to wait for the approval from others. - Encourages Team Spirit
It has been observed over the period that MSMEs provide ample scope for encouraging team spirit within the organizational workforce. It is because an MSME business owner recognizes the talent and skill set of each employee and understand their importance. Cross-training also takes place at times across the departments to equip the employees to perform various allocated tasks even if they are being moved to another division or section within the organization. - Other Advantages
There are certain other advantages as well that are available to MSMEs. MSMEs may choose to avail subsidies in patent and trademark registration. They can also have access to industrial promotion subsidy along with low-cost ISO certification. Further, they can also take advantage of electricity concessions and tax benefits to some extent. Minimum Alternate Tax (MAT) can also be carried forward for up to 15 years instead of 10 years.
DisadvantagesThere are various disadvantages of MSMEs which are as follows:
- Difficulties to find funding
Although cheap loans are easily accessible to MSMEs, yet they do not enjoy substantial support. They do not have huge financial capital as compared to large corporations. MSMEs cannot wish to go for listing themselves on stock markets, and cannot also raise funds through short term financial Instruments. - Higher costs
MSMEs often find it a challenging task to attain economies of scale. This is the reason as to why they are frequently seen struggling with adjusting to the prices they are planning to offer to their customers or end-users. Generally, they do not tend to compete on prices. - Access to a less skilled workforce
SMEs in general often fail to provide ample opportunities or possibilities of advancement. Young and fresh talent at certain times always give priority to the large enterprise over an SME. An SME may have to offer certain incentives in order to infuse young talent in the organizational workforce. - Uncertainty
SMEs also face a certain amount of uncertainty. They may be successful at the start but possibly will dilute the business growth in the long run due to certain external factors such as economic downturns, changing consumer demand, etc. It is imperative on the part of SMEs to anticipate all the potential changes in the business environment so as to properly survive in the market. - Other challenges
There are certainly other challenges as well that come in the way of SMEs. These challenges may include complex labor laws, unavailability of modern technology, and unequal distribution of MSMEs all over India.
