India’s economy is growing rapidly, with GDP expected to grow by 6% year-on-year. The Micro, Small and Medium Enterprises (MSME) sector contributes significantly to GDP and is crucial to its overall increase. The MSMEs are those meeting requirements for...

India’s economy is growing rapidly, with GDP expected to grow by 6% year-on-year. The Micro, Small and Medium Enterprises (MSME) sector contributes significantly to GDP and is crucial to its overall increase.

The MSMEs are those meeting requirements for investment in plant and machinery and in annual turnover. Micro enterprises have an investment limit of INR10 million (USD120,000) and a turnover limit of INR50 million. Small businesses have an investment limit of INR100 million and a turnover limited to INR500 million. Medium enterprises are limited to investment of INR500 million with a turnover of no more than INR2.5 billion. All sectors of the economy are open to the MSMEs.

The sector is dynamic, creating significant job opportunities with lower capital needs than larger fields. To protect the interests of the MSMEs and offer incentives, the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), supports and enhances their competitiveness in both the manufacturing and service sectors. The act allows the government to implement developmental programmes and guidelines. The government has launched many policies and incentives for the MSMEs. The MyMSME mobile application enables easier registration of MSMEs and access to government schemes. To strengthen the sector and bring unregistered MSME businesses within the formal framework, the Udyam Assist Portal (UAP) allows the MSMEs to claim benefits under priority sector lending provisions.

Delayed payments hamper many businesses. The Ministry of MSMEs has introduced the MSME Samadhaan, an online portal to help micro and small enterprises. Businesses may report delayed payments to the Micro and Small Enterprise Facilitation Council set up by various state governments, ensuring prompt redress. The ministry also supports enterprises financially through a Zero Defect and Zero Effect certification scheme promoting the Make in India initiative. The ministry provides them with subsidies of up to 80%.

The Emergency Credit Line Guarantee Scheme has provided extra credit to more than 13 million MSMEs. This expands guarantee cover by INR500 billion to INR5 trillion. An additional credit of INR2 trillion for micro and small enterprises is available under the Credit Guarantee Trust for Micro and Small Enterprises. To give MSMEs continuous financial support the government has introduced the Credit Guarantee Scheme for Micro and Small Enterprises offering collateral-free loans of up to INR20 million. Additional support includes covering ISO certification fees and concessions on electricity bills.

Under the Aatmanirbhar Bharat Abhiyan or Self Reliant India programme, retail and wholesale MSME trades have received INR50 billion through the self-reliant fund from 2021. Non-tax benefits are extended for three years. Other initiatives include the Champions online portal, non-tax incentives for a higher MSME status and the growth-boosting Raising and Accelerating MSME Performance programme. The government encourages FDI through investor-friendly policies in most sectors. Policy is regulated by the Department of Promotion of Industry and International Trade (DPIIT), under the Foreign Exchange Management Act, 1999. Most sectors are allowed 100% FDI under the automatic route, that is without prior approval.

Republic of Korea companies may enter India through a joint venture or a wholly owned subsidiary. Once set up, businesses can register as MSMEs provided they have a physical presence and comply with the MSMED Act. They then receive various MSME benefits. India and Korea have signed a memorandum of understanding to co-operate over MSMEs. Bodies such as the National Small Industries Corporation and the Central Public Sector Enterprise work with the Korean SMEs and Start-ups Agency, KOSME.

Initiatives such as Korea Plus help investors boost, streamline and retain Korean investments in India. The India-Korea Startup Hub is a central one-stop platform encouraging collaboration between their startup ecosystems. It promotes direct co-operation on key regional issues. These efforts facilitate Korean investment and promote shared business interests.

India’s rapidly growing economy, driven in part by the thriving MSME sector, demonstrates a robust commitment to self-reliance and competitiveness.

Rajat Prakash is managing partner, Siddharth Mahajan is a partner, Bharat Sood is an associate at Athena Legal.

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