The Indian MSME sector has been a constant engine of growth for the country and contributes around 30 percent to India’s GDP. According to the Ministry of Micro, Small and Medium Enterprises, India has more than 7.9 million MSMEs as of 27 March 2022.

The government understands that the MSME sector is the backbone of the Indian economy. And for India to become a $5 trillion economy, a proper growth framework has to be in place. For that, the government has been proactively creating policies that aim to solve legacy MSME issues such as inadequate and untimely credit, delayed receivables, negligible market linkages, etc.

Despite these efforts from the government, MSMEs are still unaware of a lot of these policies that can accelerate their growth. Additionally, because of a lack of awareness and knowledge, a significant portion of MSMEs fail to keep up with business compliances associated with their respective industries.

In this article, you will get to know about 5 legal and financial policies that are supporting Indian MSMEs.

5 Legal And Financial Policies Supporting Indian MSMEs

1. Collateral Free Financial Support

To provide a collateral-free loan and catalyse the flow of institutional credit to micro and small enterprises (MSEs), the Ministry of MSME, the Government of India, and SIDBI, jointly set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Through CGTMSE, under Credit Guarantee Scheme (CGS), a collateral-free loan is provided to entrepreneurs, which they can use to set up viable micro and small enterprises.

The loan disbursal limit under CGTMSE is Rs 2 crore. According to government data, over 7 lakh guarantees got approved in FY22, the second-highest in eight years.

[Read: Top 5 Government Schemes For Startups And MSMEs In India]

2. Payment Protection Through MSME SAMADHAAN

The office of the Development Commissioner of MSME, Ministry of Micro, Small and Medium Enterprises, has created a delayed payment monitoring system called MSME Samadhan, where MSMEs can file their applications online regarding delayed payments.

Under the Micro, Small and Medium Enterprise Development (MSMED) Act, 2006, the buyer shall make payment to the seller or supplier (MSMEs) for any goods or any services on or before the date agreed upon or all pending dues of MSMEs are to be released within 45 days (maximum) after accepting the products or services. 

If the buyer delays beyond 45 days after accepting the products or services, then the buyer is liable to pay interest which will be computed at the monthly rate and compounded interest at the rates, which will be three times of bank rate notified by RBI.

3. NRI Investment Approval

The government has provided a liberalised policy framework allowing investment of up to 100% of the equity with full benefits for a non-resident Indian (NRI) as an individual/partner in an MSME. 

Though NRIs are eligible for investment in the Indian industrial sector, they still need to abide by the guidelines stated by the Foreign Exchange Management Act.

4. Resolution To MSME Insolvency Issues

To streamline rules and regulations for MSMEs and improve the ease of doing business for them, the government, through the insolvency and bankruptcy code framework, fast-tracks the corporate insolvency resolution process (fast-track CIRP) for smaller debtors. 

Under this, the existing management of an MSME debtor will be permitted to initiate proceedings even before a default occurs. Additionally, the existing management will be allowed to remain in control during the process.

5. Industrial License

MSMEs need to obtain an industrial license from the Ministry of Industries if they are into manufacturing activities.

But, small industrial units that employ less than 50 workers with power or less than 100 workers without power have been given exemption and are not required to obtain any license under Compulsory Licensing Provisions.

Bonus:

MSME-registered businesses can get a concession in payment of electricity bills and a 50% subsidy for registration of the patent. Additionally, enterprises having a registered certificate of MSME can get total exemption ISO certificate charges if they send an application with the registration certificate to the respective authority. 

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