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MICRO. SMAll & MEDIUM ENTERPRISES
Nirman Shawan, 7th Floor, Maulana Azad Road,
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Ph.EPABX - 23063800, 23063802, 23063803 FAX - (91-11) 23062315, 23051726, 23061068, e-man- [email protected],in

F.No.PY-10024/6/2020-POLICY-DCMSME (E-17555) Dated:22...·03.2022

To,
All Stakeholders/Industry Associations/
MSME units/ General public

Subject: Draft Policy for Micro, Small and Medium Enterprises in India -req,

Sir/ Madam,

kindly refer to this Ministry's communication of even no. dated 02.03.2022 (copy
enclosed) wherein a draft policy document for MSMEs in India, as prepared by Indian
Institute of Public Administration (IIPA), was circulated for comments/suggestions of the
stakeholders.
2. In this regard, the last date for receiving comments from all stakeholders/ Industry
Associations/ MSME units/ General public on the draft document has been extended to
31.03.2022. It is requested the comments/suggestions/inputs on attached draft policy
document, if not sent earlier or additional comments if any, may kindly be emailed by
31.03.2022 to [email protected] and [email protected].
This issues with the approval of competent authority.

Yours faithfully
f}fCMt'A;{":'>;}Ol "V

(A.K. Tamaria)
Dy. Director (Policy)
Tel:23062680
Enclosed: as above
Draft National Policy for Micro, Small and Medium
Enterprises (MSME) in India

Submitted to

Ministry of Micro, Small and Medium Enterprises

Government of India

Submitted by

Indian Institute of Public Administration

IP Estate, Ring Road, New Delhi
July, 2021
 Content

1. The Background __________________________________________________________ 3

2. Committees’ Feedback and Follow up ______________________________________ 3

3. Intercountry initiatives _____________________________________________________ 4

4. Recent Initiatives __________________________________________________________ 6

5. Need for Policy ___________________________________________________________ 7

6. Vision ____________________________________________________________________ 9

7. Objectives ________________________________________________________________ 9

8. Action Areas _____________________________________________________________ 10

Annexures __________________________________________________________________ 22

Annexure I: Highlights of the Recommendations of Shri Prabhat Kumar Committee (2017)

__________________________________________________________________________________ 22

Annexure II: RBI Committee Findings and Suggestions ______________________________ 28

Annexure III: International Best Practices in SMEs Sector ____________________________ 30

Annexure IV: Initiatives of States in MSME Sector ___________________________________ 48

Annexure V: Legislation/Regulatory Framework for MSMEs in India __________________ 54

Annexure VI: Access to Finance /Technology, Marketing and Infrastructure to MSMEs _ 57

Annexure VII: Intercountry Reforms on MSME Definitions ____________________________ 61

 Draft National Policy for Micro, Small and Medium
Enterprises (MSME) in India

1. The Background
The Micro, Small and Medium Enterprises (MSME) is a highly vibrant and dynamic sector
of the Indian economy with over 6 crores units, providing employment to 11 crores+ people
(just next to Agriculture), having 28% share of GDP and 40% of exports. Like other sectors,
MSME also has been adversely affected in terms of productivity during COVD 19.
Accordingly, the efficiency and productivity of MSME assume further significance to achieve
overall objectives of economic development and a V shape recovery of Indian Economy.

Sector is fairly diversified including activities in the agro-based industries and

accommodating surplus labour from structural transformation, and service centres in rural
hinterland. Further, MSMEs also partner and collaborate with domestic and external
enterprises to develop manufacturing and multipronged supply chains. The MSMEs are
widening their domain across sectors of the economy, producing diverse range of products
and services to meet demands of domestic as well as global markets. A number of statutory
and non-statutory bodies work under the aegis of the Ministry of MSME1.

Creation of MSME and MSMED Act 2006

Government of India, since the beginning of this century has initiated steps to stimulate
productivity of the sector with creation of Ministry of MSME in 2004 and enactment of
MSMED Act 2006, the first major step of its kind. The Act brought together the typology of
units and paved way for investment-based definition of MSME in the manufacturing &
services.

2. Committees’ Feedback and Follow up

Government of India has also taken several steps to strengthen MSME sector in recent
years2. The Ministry also constituted several committees to review the status of MSMEs for

1 These include the Khadi and Village Industries Commission (KVIC) and the Coir Board besides National Small Industries
Corporation (NSIC), National Institute for Micro, Small and Medium Enterprises (NIMSME) and Mahatma Gandhi Institute
for Rural Industrialization (MGIRI) etc.
2(i) MUDRA Bank with over US$ 50 billion disbursement, (ii) online portal for facilitating payment under SAMADHAN and
web based MSME data bank, (iii) 50% fee reduction, (iv) financial support for ZERO DEFECT ZERO EFFECT (ZED)
manufacturing etc.

Indian Institute of Public Administration, New Delhi Page | 3

suitable correction.3 These committees recommended modifications in the ceiling/
definition, Access to finance, global and domestic markets, improving R&D and adopting
modern & affordable technologies, lack of marketing platforms and distribution network,
affordable skilled labour and revision in labour laws taking care of the enterprises without
compromising the interest of the workers, etc. Specific recommendations of two recent
committees are enclosed in Annexure I and II.

3. Intercountry initiatives
Intercountry initiatives to promote MSMEs in recent years have been initiated across the
different aspects of productivity in the sector. These include: (i) Access to easy finance
particularly during CORONA Pandemic, (ii) Competitive SME policy themes (iii)
digitalization support for SMEs, (iv) Skill development of SMEs to improve/retain
competencies, and (v) Protecting start-up and scale-ups. More information on inter country
experience is given in Annexure III. Important points to be noted in this regard are:

i) COVID-19 Crisis Management Fund with attractive guarantee have been created (a)
up to 80% of loan amount for 5 years and concessions in processing fee, bridge loan
guarantee for 12 months in Belgium, (b) salary compensation and loan guarantee in
Denmark, (c) Guarantee up to 90 percent of liquidity enhancement loans in France, KfW
quick loans to MSMEs in Germany depending upon turnover along with economy
stablisation fund,(iv) loan repayment suspension in Italy along with special assistance to
stat up enterprises,(e) Relief in payment of energy bills(gas, electricity) and ‘Re Activa
València’ - liquidity measures designed to compensate for closure or losses and targeted
towards maintaining employment in Spain, (f) Recovery of two weeks sick pay per
eligible employee, loan guarantee upto 80% and bounce bank loan(25% of turn over) for
six years with one year moratorium in UK, (g) Guarantee up to 85 percent for 5-7 years
in Switzerland , and (h)Wage subsidies, working capital loans and specific grants for
sectors most impacted among MSMEs with a purpose to retain employees, improve
cash flow and cover costs of business operations in Singapore .

ii) As part of other policy initiatives (i) Singapore initiated (a) Grants to improve productivity
– Enhanced Mechanisation Credit (Mech) Scheme (b) Equity financing for successful
startups – Startup Enterprise Development Scheme (SEEDS) and (c) Non-financial

3Some recent committees include one-man committee (headed by Kumar 1917), RBI Committee and Working group (UK
Sinha committee -2018) headed by Shri SN Tripathi, DG, IIPA (2020)

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 assistance/consulting for international expansion – IP for Internationalization Program
(ii)SMEs in South Korea cover 99. 5 percent business, 77 per cent of people employed
and 50 per cent of the value add in the economy has initiated (a) Purchase-Guaranteed
New Product Development Programme9for Atmanirbhar/import substitution) and (b)
Hidden Champion Initiative” – Korea Import-Export Bank (Eximbank), (iii)Malaysia has
the Technology Commercialisation Platform (TCP) to encourage innovation and Catalyst
Programme to create home-grown champions with support in the area of financing,
market access and human capital development.

iii) Digitalisation support to MSMEs is promoted by several countries which includes (i)
Federal Ministry for Digital and Economic Affairs launched the Digital Team Austria
initiative, comprising companies in the digitalization industry and offering digital services
to MSMEs free of charge for at least three months (ii) online portal in Italy for SMEs and
the self-employed for free digital services( provided by large private-sector companies)
in fields such as teleworking, video conferencing, and access to mobile data. (iii) a
platform in France called “A Stronger Grand Est” (Plus Forts Grand Est) in order to
connect around 50 innovative companies and communities, companies, associations,
healthcare establishments, etc(iv) Japan and Australia have also set up funds to provide
digitalization support to MSMEs ad (v) readymade solution plateform covering
equipment, connectivity packages, videoconferencing, collaboration platforms, digital
payments, e-commerce platforms, IT solutions and cybersecurity solutions are
established in China, Italy, Austria, Malaysia, Colombia and Singapore.

iv) Helping SMEs reskill or retain competencies is another field taken up by several
countries. It includes (i) support for a new apprentice, up to AUD 1 500 (USD 1 125)
reimbursement for equipment and services including online training when businesses
hire new apprentices, or travel accommodation allowance associated with hiring an
apprentice from rural or regional South Australia, (ii) Austria - a qualification offensive to
strengthen companies in their digitalisation and innovation agendas(iii) - the programme
on Digital Now – Investment Funding for SMEs, running until 2023, to provide financial
grants and encourage SMEs to invest more in digital technologies and in the upskilling
of their employees(iv) Singapore- subsidising absentee payroll for employees taking
training (up to 90% of their hourly basic salary)(v) Turky - E-Academy to free online
training Entrepreneurship Support Programme, with preferential treatment for women,
youth and handicapped entrepreneurs (vi) UK provides a hiring subsidy to incentivise
businesses to hire young workers (from 16 to 24 years old). The scheme covers 100%

Indian Institute of Public Administration, New Delhi Page | 5

 of the national minimum wage for 25 hours per week for 6 months, and additional funding
is provided for their training. (vii) British Columbia, Canada, - Stronger BC, an economic
recovery of MSMEs to reopen, adapt, hire, rehire and grow with Business Recovery
Grant and a 15% Increased Employment Incentive tax credit.

v) Shielding startups and scale ups are taken up with specific measures such as (i) France
-an emergency plan to support start-ups for EUR 4 billion, to strengthen bridge finance
between 2 fundraising rounds, support the availability of venture capital, provide an
accelerated refund of corporate tax credits , (ii) Germany -deployed the Start-up Liquidity
Programme 2020, with funding for public venture capital investors and a Future Fund
(Zukunftsfonds) for a total of up to EUR 10 billion aimed at start-ups that get additional
liquidity to support their way out of the crisis, (iii) Turkey -grants and refundable support
for start-ups in the field of product design or software activities(iv) UK- created a support
package for innovative firms (Future Fund) tool provide high-growth with GBP 125 000
and GBP 5 million and matching funding from private investors, (v) Austria - programme
to identify and develop technology projects within start-ups, many of which receive seed
or pre-seed funding support.

4. Recent Initiatives
The Government of India has taken several steps as a follow up on recommendations and
impact of COVID 19. These cover revised definition, easy process of registration, fiscal
incentives/concessions, additional support of of Rs. 1500 million in the existing kitty(Rs 3000
million) of credit guarantee funds (28 June 2021), access to non-bank credit and expansion
of eligible sectors (retail and whole sale trade with 2. 5 crores enterprises) to MSME4.
Government of India has also consolidated labour laws, Acts Codes etc. into four codes
which include social/ economic protection, safety and security of workers including eligible
MSMEs. Similarly, several states have taken specific measures to facilitate MSMEs for Ease
of Doing Business, and access to raw material and finance. (Annexure IV). These include
Gujarat, Andhra, Nadu, Maharashtra, and Punjab. Their measures are given in Annexure
IV.

The working group formed by Ministry of MSME under chairmanship of DG IIPA in 2020
examined the whole issue in the current context and gave recommendations pertaining to
classification, registration, constitution of National Board and state level monitoring,

4 GoI has reinstated retail and whole sale trade amounting to 2. 5 crores enterprises as MSME, (ToI, 3 July 2021)

Indian Institute of Public Administration, New Delhi Page | 6

Procedure for clearance in line with ‘production first, clearance later’ as applied by state of
Gujarat, Exemption clause giving a three year no tax regime, liquidation procedure, online
grievance redressal, Ease of doing business, and knowledge management etc. Many of the
recommendations have paved way for government actions on similar lines.

The Government of India has a systematic institutional arrangement to promote MSMEs

which covers a legislative and regulatory framework. There are several line agencies and
institutions supporting the Government of India in this endeavor. (Annexure V). Government
has also extended several schemes to extend finance, marketing support, etc. (Annexure
VI) At the same time several countries have taken specific reforms to enlarge the coverage
of MSMEs. (Annexure VII)

5. Need for Policy

This draft of policy document on MSME is in continuation of measures stated earlier to
promote competitiveness, technology upgradation, infrastructure, cluster development,
dedicated credit, procurement of products & financial assistance to MSME. The purpose is
to bring together a comprehensive frame-work of strategies and actions for suitable
adaptation and inclusion in the state level policies. The document needs wider
dissemination, debate and feedback from stakeholders to firm up a national policy for follow
up at intergovernmental level.

The feedback from various committees’ places forward a range of issues for suitable
resolution, although recent actions have tried to address many of them through notifications
from time to time and follow up actions. Yet, there is a need to systematically look into these
issues to form a dynamic policy by GoI to take actions and promote follow up at state level
to address specific barriers in the growth of MSMEs. The main barriers are:

(i) There is a lack of convergence and synergy among various stake holders to
enhance MSME productivity to the best of their ability. Proper mobilization,
awareness and objective oriented actions need to be identified.

(ii) Legislative and regulatory framework for MSMEs in India is quite complex and
varies from state to state. It is largely mixed with industry as a whole and only
couple of states have exclusive framework of codes, regulations and other rules.
(iii) Majority of the States have only one Facilitation Council with inadequate
representation of stakeholders which is not adequate to cater to delayed payment
cases arising in the entire State.

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 (iv) The scope of Facilitation Council is also limited to redress cases of MSEs and
does not cover Medium enterprises supplying to large corporates. Most recent
attempt is the Right to Business Act of Punjab, whereas fairly elaborated
regulations and facilitating rules are also prepared in Tamil Nadu, Andhra Pradesh,
Karnataka, Telangana etc.
(v) Regular supply of electricity, skilled labour, housing for workers etc. are also not
available as per requirements.
(vi) The Ministry of MSME runs numerous schemes targeted at providing credit and
financial assistance. Some of the main schemes are, Prime Minister’s Employment
Generation Programme, Credit Linked Capital Subsidy Scheme (CLCSS) and
Credit Guarantee Trust Fund for MSEs (CGTMSE) - Provision of collateral free
credit for MSMEs. Yet, one of the major problems faced by MSMEs in India is
access to finance.
(vii) Access to soft loans, risk mitigation funds, easy access to raw material and
marketing facilities, existing method of dispute resolution are not industry friendly.
(viii) Technology plays a pivotal role for MSMEs to help them grow and stand up to the
stiff competition from large enterprises and imports. While big industries have
enough resources for continuous technology and quality upgradation, MSMEs, on
other hand have resource constraints related to technical knowledge, R&D
expertise and skills. It is difficult for MSMEs to upgrade themselves.

(ix) It is also noted that low technology level reduces the potential of MSMEs, lower
the demand for the product (lower sales) lower the profit margins. It is also
suggested that higher investment in technology and research development, higher
usage of digital and technology enabled platform is of paramount importance for
Indian MSMEs, to maintain competitiveness in the global markets
(x) Technology upgradation and capacity to efficiently operate the systems need
augmentation/ across the sectors. In this regard, Government of India has
established eighteen Tool Room Training Centres (TRTCs), 15 are in progress
and 100 more are proposed by Ministry of MSMEs which serve technology
promotion and needs to be replicated across the districts.

(xi) MSMEs need people, but skilled, who can contribute productively in the growth of
the enterprise. Estimates indicate that the MSMEs can be a big source of
employment. However, ‘Employability’ of large unemployed youths has been
questioned by many in the know of the things. This ‘unemployability’ hampers
harnessing the demographic dividends as well.
(xii) Our education system in general is not geared towards addressing the challenge
of skilling youths who can be employed in manufacturing, services or commercial

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 sector. The institutes, engaged in providing vocational education like ITIs have
also not been able to match the demand.

(xiii) There are two big challenges before the MSMEs skilling the workforce (i) Sparing
their own employees for skilling, especially in Micro and Small Enterprises, where
workforce is small and (ii) Availability of customized programmes and awareness
about such programmes.

(xiv) There is no MSME code at present to provide SOPs (Standard Operating

Procedures) to facilitate stakeholders to initiate follow up actions accordingly.

(xv) Marketing assistance and apt infrastructure are the backbone for MSMEs.
Ultimately, MSMEs, with all other inputs, financial access and technological
support can survive only if they are able to sell their products and/or services.
Government, through its various schemes, has attempted to provide marketing
assistance to MSMEs in India, but a lot needs to be done properly.
(xvi) In the end, Business environment for ease of doing business and exit code needs
to strengthened.

6. Vision
Stimulate efficiency and productivity of MSME sector to generate income, employment and
become part of domestic and global value chains taking into account structural
transformation, competitive edge, demographic dividend and regional balance.

7. Objectives
(i) To facilitate build a vibrant eco-system for the rapid growth of the MSME sector,

(ii) Identify and sensitize stakeholders to promote MSMEs to the best of their
potential,

(iii) Create physical infrastructure and linkages (backward & forward), amenable to
MSMEs, Ensure access to credit, risk capital, raw material and marketing facilities
for MSMEs,

(iv) Develop a framework for accessible and affordable Technology upgradation and
Capacity Building for MSMEs as well as harnessing the potential of technological
advancement to deliver services to stakeholders especially MSMEs,

(v) Promote a Conducive Business Environment covering ‘ease of doing business’

(EoDB) and suitable exit code.

(vi) Develop appropriate dispute resolution mechanism.

Indian Institute of Public Administration, New Delhi Page | 9

8. Action Areas
In the light of the vision and objectives, specific action areas which need deliberations for a
national policy to guide, motivate, and handhold states. Whereas intergovernmental actions
define potential actions, the sectoral issues provide scope of work in respective areas to be
taken up by various stakeholders. These are:

i. Intergovernmental Roles & Responsibility,

ii. Legislation and Regulatory Framework for MSMEs in India,

iii. Access to Finance/Financial Assistance for MSMEs,

iv. Technology Upgradation/ Adaptation,

v. Skill Development

vi. Knowledge Management,

vii. Ease of Doing Business
viii. Development of MSME Code

ix. Exit code

8.1. Intergovernmental Role and Responsibility

The three-tier system of governance in India has to play a specific and mutually reinforcing
role in the development of MSME sector. There is a consensus in India, as elsewhere, that
the government has to play the role of a facilitator to promote productivity, jobs, and
marketing of goods and services in a competitive environment. Accordingly, specific actions
expected from respective levels of government are:

NATIONAL GOVERNMENT
(i) Develop a National Policy Document and their suitable alignment at state level.

(ii) Develop Standard Operating Procedures (SOP) for registration of MSMEs

(iii) Review the framework for regulating and funding arrangements covering Central
Bank, SIDBI, other public and private sector financial institutions in line with
incentives and concessions to promote competitive enterprises.

(iv) Promote R&D activities and support incubation centres to accelerate development
and transfer of affordable and modern technology.

(v) Develop framework for marketing platform, distribution network covering states,
interstate and international business promotion for a systematic value chain.

Indian Institute of Public Administration, New Delhi Page | 10

 (vi) Develop inter-state platform for exhibitions, seminars, workshops, training,
research etc., to identify common issues, strategies, share experience and show-
case best practices. In this regard, organise stakeholder meets to develop
convergence, synergy, mutual learning and cooperation for higher efficiency and
productivity.

(vii) Identify MSME action agenda on specific inter-state initiative such as DMFC,
Sagarmala, Bharatmala, DMIC and several other corridors as existing at different
places.

(viii) Develop synergy with inter-ministry initiatives particular w. r. t. Ministry of Food

Procurement, Agriculture, Commerce, Industry, Housing & Urban Affairs, Rural
Development, Skill Development etc.

(ix) Develop suitable measures to safeguard interest of the employees and the
enterprise (with respect to employment), giving due cognizance to existing
regulatory framework in line with the proposed labour codes.

(x) Periodic review of composition of National Board of MSMEs with regard to

representation, coverage, deliberations and follow-up. The board may also be
renamed as National MSME Promotion Council.

(xi) Centre should promote a three-tier system of MSME promotion council at Centre,
State and District level.

(xii) Support measures for EoDB at state level taking into account initiatives taken by
DPITT.

(xiii) Strengthen the system of P2P learning to promote collaboration, convergence and
competition

(xiv) Develop model Bylaws, Memorandum and norms for regulation of MSME in
accordance with the MSME Amendment Act, 2020.

(xv) Develop a platform to create an integrated database under uniform format on-
numbers, products, investment, technologies, R&D, marketing etc. in MSMEs and
provide access to stakeholders on need basis.

(xvi) Develop a network for inter-country experience sharing on technology transfer,

quality control, marketing skills and job creation including due cognizance to
informal sector.

(xvii) Document best practices on cluster development, marketing, financing etc. and
link them with awards for best practise and follow up.

(xviii) Develop a network of Research institutions and Chairs in the area of MSMEs.

Indian Institute of Public Administration, New Delhi Page | 11

 (xix) Create online access for grievance redressal integrating it with state level
agencies.

(xx) Develop suitable tracking mechanism for speedy payments which are due to
MSME.

STATE GOVERNMENT
(i) Development of State Policy on MSME in line with the National Policy on MSME.

(ii) Measures for encouraging enterprises to register and providing convenient and
easy mechanism for regulatory compliances.

(iii) Creation and activation of State MSME Facilitation Councils (MFCs) or

Development or Promotion Council.

(iv) Identify focus areas of MSME in the state covering cluster, products, corridors
and R&D and technology hub.

(v) Implement and track measures for EoDB.

(vi) Organize state level stakeholder meets to showcase products, processes and
marketing potential. The stakeholders should include MSMEs, Banks, NBFCs,
Informal Sector representatives, civil society, DICs, local governments etc.

(vii) MFCs should document best practices and initiate award for dissemination and
adaptation.

(viii) MFCs should regularly update the database for MSME related information.

(ix) Help with value chains creating or linking the enterprises.

(x) Integrate the state portals with national level portals.

DISTRICT/LOCAL LEVEL GOVERNMENT

(i) Districts should be focal points at sub-state level of MSME framework.

(ii) District Industry Centres (DICs) to organise District MSME

Facilitation/Development Centre and create local level MSME Facilitation Centre
wherever required.

(iii) Local Level MSME Facilitation Centres (LLMFC) may engage with respective
local government in rural and urban areas for speedy regulatory compliances.

(iv) Local governments may ensure speedy registration of property and permission
for construction.

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 (v) Ensure speedy provision of basic infrastructure like electricity and water
connections, waste management, warehousing, etc.

(vi) District Level MSME Facilitation Councils (DLMFC) and LLMFC should have a
wider representation of all stakeholders, including Banks and other financial
institutions, MSMEs and other industrial establishments in the region.

(vii) MFCs should prepare a facilitation plan which should include technology transfer,
skilled labour, marketing facilities, convergence and synergy with government
programme.

(viii) MFCs should organise regular meets.

(ix) MFCs should document best practices and initiate local award.

(x) DICs should develop a local database for regular updation and onward
submission for a state and national database.

(xi) Special cell should be created in DIC/DLMFC to coordinate with DAY NULM
(National Urban Livelihood Mission) and National Rural Livelihood Mission
(NRLM) with local governments in urban and rural areas.

(xii) Micro enterprises should be given special attention and due representation in
DLMFC/ LLMFC.

8.2. Legislation/Regulatory Framework for MSMEs in India

(i) The majority of issues with Ease of Doing Business are associated with regulatory
norms. These norms have adverse effect on the general business environment
and on the performance of MSMEs. Therefore, there is need for changes and
simplification of these norms.

(ii) The first major step in this direction has been taken by the Ministry of MSME by
bringing appropriate changes in the classification criterion of MSMEs. The new
definition and criterion have come into effect from 1st July, 2020. gears up to
implement the New Norms of classification of MSMEs.

(iii) Each state should have its own regulatory system exclusively for MSMEs.
(iv) Review the composition of facilitation council to widen its outreach and access to
all stakeholders.
(v) Most of the states are having one FC at the state level which is not adequate to
deal with the number of cases being filed and delay and pendency are common
feature. Keeping in view the number of cases coming before the FCs, more FCs
are required to be created. To deal with the situation there is need for establishing
more FCs and if possible/feasible, an FC should be set up in each district. Increase

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 the number of MSEFCs particularly in larger States such as Madhya Pradesh,
Uttar Pradesh, etc., and in areas of large concentration and volume, so as to meet
the time specified for resolving cases.
(vi) The ambit of Facilitation Council needs to be extended to Medium enterprises also.
The MSMED Act, 2006 need to be modified to expand jurisdiction of council to the
cases involving the second party from another state. The modification should also
include the cases already taken up by NCLT which came into effect in the year
2016 much later than MSMED Act, 2006.

(vii) Promote awareness on Samadhaan among MSE borrowers.

(viii) Under the Insolvency and Bankruptcy Code, 2016 MSME dues should be given
priority over all other unsecured payments after settling dues of employees when
a company goes into liquidation or approaches NCLT. Adequate provision in this
regard may be made under MSMED Act. At present in case of liquidation
proceedings under IBC the MSMEs being operational creditors are at the lowest
rung down in the priority list.
(ix) Develop an appropriate legal system to address insolvency, which can play a
critical role for smoother exit of MSMEs from their present business. It may include
out-of-court assistance to MSMEs such as mediation, debt counseling, financial
education, or the appointment of a trustee.
(x) MSMED Act, 2006 at present does not contain any provision relating to use of
Information Utility. At present submission of unpaid invoices are optional for MSME
(operational creditors) under IBC, 2016. Hence, MSME are not utilizing the
Information Utility at the fullest fearing black listing by business houses.
(xi) Specify the process for dispute resolution to be adopted after moratorium period
is over. MSMED Act, 2006 does not have any provision for setting up Online
Grievance Redressal/Complaint Resolution Mechanism for quick resolution of
dispute. An electronic/online system is needed where sellers can upload raise
grievances / complaint on any related issue.

(xii) Decide disputed cases within 90 days to improve liquidity of MSMEs and minimize
the incidence of NPA.

(xiii) There is need to make the Registration of micro, small and medium enterprises
easier. it is the procedural aspects of registration and licensing that have the
potential to serve as hindrances to MSME owners, owing to their tedious and
protracted nature. These need to be simplified.

(xiv) The MSMED Act does not provide any moratorium from seeking
approvals/inspections which becomes a barrier in the ease of doing business for

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 MSMEs. There is a need to suitably relax the process. Accordingly, a set of
modification is required to ensure - Production First & Permission Later.

(xv) At present there is no provision of exemption from inspection and approval for
MSMEs giving intent to initiate business. Some State Legislations like Gujarat Act
is having such provision. Such provision needs to be built in the Central Act with
assigning the power to appropriate authority under the Act.

(xvi) Many states are having different Laws/ ordinances to regulate and promote
MSMEs. There is no uniformity in these States’ Laws. The Central Govt may
prepare a model law and circulate among states. The adoption of the model law
by the state will bring uniformity among all states.

(xvii) At present there is no provision for ease of doing business under the Act. To
provide for the same agencies at State and District levels need to be set up and
have a code outlining the processes to encourage ease of doing business.
(xviii) There is no legal framework for the re-organisation/winding up/exit of small units
leading to a huge wastage of human resources, capital (banks and financial
institutions) and physical resources (industrial land and buildings, plant,
machinery). There is need for recognizing a comprehensive and settled exit policy.
NEED FOR MSME CODE

(xix) To further ensure ease of doing business for the small and micro enterprises, there
is need for adoption of MSME Code which will provide detailed procedure for
implementing the Act which will bring clarity over the procedural aspects and bring
uniformity in the implementation of the Act at the state level and to remove any
ambiguity whatsoever.
(xx) The MSMED Act, 2006 may be reimagined as a comprehensive and holistic
MSME Code having a provision for sunset on plethora of complex laws scattered
all over the legislative framework. The code will bring clarity regarding the
regulatory norms pertaining to the entry, continuance or exit of MSMEs,
documentation and declaration procedures under several regulatory statutes.

(xxi) Accordingly MSME code will facilitate smooth and user friendly process of MSME
creation and follow up giving due regard to safeguard the interests of stakeholders
.

8.3. Access to Finance/ Financial assistance for MSMEs5

5 https://msme.gov.in/sites/default/files/Annualrprt.Pdf

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Tardy access to finance for a range of activities such as productivity, marketing and
technology upgradation are caused by Information asymmetries, higher risks, sizeable
transaction costs and a lack of adequate collateral6. Poor quality of projects seeking funding;
the inability of MSMEs to make the best possible use of available resources of funding; and
the negative attitude displayed by MSMEs towards equity financing. Most of the small firms
rely on internal financing and informal sources. Some of the schemes directed towards the
efforts are, Scheme for providing financial assistance to Khadi institutions under MPDA,
Scheme of Fund for Regeneration of Traditional Industries (SFURTI) and Scheme for Micro
& Small Enterprises Cluster Development Programme (MSE-CDP) along with the existing
schemes, following might further help in providing marketing assistance to MSMEs. Yet, in
order to improve access to finance, specific steps to be initiated are:

(i) Introduce uniformity in and simplification of various loan application formats and
assessment process in line with learnings from supply chain financing and
escrowing of cash flows.
(ii) Develop customised products to assess the financing requirements based on
expected cash flows.
(iii) Use surrogates like personal guarantee, bank statement, GST data, standardized
score cards to evaluate credit worthiness of MSME borrowers.
(iv) Encourage MSMEs to obtain Zero Defect Zero Effect (ZED) Certification from
QCI, and the banks could pass on some benefit due to lower risks for such units
by way of interest/ processing fee concessions.
(v) To reduce TAT (Turnaround Time), move from Balance Sheet or turnover based
Working Capital financing to cash flow based, or supply chain/ cluster-based
financing.
(vi) In addition to PSB Loans In59 Minutes portal, develop facility for new
entrepreneurs, presently under development, needs to be expeditiously
deployed. Enhance loan limit to ₹5 core.

(vii) Ensure that all applications accorded in principal approval are disposed of within
a period of 7-10 days. Review algorithms leading to initial in-principle sanction but
final rejections by the banks’ in a time bound manner.
(viii) Build banks’ ability to capture cash flows of MSME borrowers on a regular basis,
for which tie-ups with Industry Majors/ Aggregators/ Online platforms will have to
be done by the Banks.

6 https://www.financialexpress.com/industry/sme/options-in-msme-financing/48109/

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 (ix) Finance Cluster Development Approach7 with special incentives.
(x) Screening methodology of financing institutions to consider non-financial
parameters and management competencies, while evaluating loan proposals
from SME units8.

(xi) Develop a market for mezzanine financing, including appropriate financial tools.
(xii) Set up a fund for contributing to the margin money required to be brought by the
promoters of SME units taking up technological upgradation.
(xiii) Set up a Marketing Development Fund, which could provide financial assistance
in setting up distribution and marketing infrastructure/ outlets.
(xiv) National Equity Fund Scheme to support the greenfield and expansion projects.

(xv) Develop a dedicated stock exchange for the SME sector so that SMEs can access
capital markets easily, quickly and at lower costs. It will also help to provide
platform for trading of stocks belonging to SME’s and enable them raise funds at
relatively cheaper rates.

(xvi) Revise MSME Capital Investment every three to five years, and link it to inflation
rate.

(xvii) Encourage participation of MSMEs on GeM portal.

8.4. Technology Upgradation

(i) Focus on implementing the new age technology, through better awareness,
adopting of best practices, developing (indigenous technology) as well as
technological collaboration with global partners.

(ii) Promote India’s integration into the global supply chain, bid for outsourcing
businesses, and increase their own productivity. Create an environment for
MSME joint ventures to enable Indian MSMEs to partner with their global
businesses and evolve to global levels on innovation, adapting to new
technologies and attention to quality.

(iii) Develop a focused institution encouraging technology development and R&D

activities in MSME sector in a coordinated manner. The suggested institution may
identify thrust areas for research, new areas for technology application,

7 http://www.eximbankindia.in/Assets/Dynamic/PDF/Publication-Resources/ResearchPapers/OP/20file.pdf
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 opportunities for commercialization of R&D, and hand-holding of MSMEs in their
R&D intensification9.

(iv) Create Centres of Excellence with specialized staff to periodically study issues
faced by MSMEs and build capacity through SOPs, Guidelines, manuals and
checklists.

(v) Support incubation centres and link them with the enterprises to ensure product
development matching the needs of the enterprises. These incubation centres
may be set up and supported across sectors and across the country.

(vi) Ensure technology linked skill development, so that enterprises don’t face the
problem of lack of skilled workforce when they adopt the technology. This may
require linking the incubation centres with vocational training institutes.

(vii) Tool Room Training Centres as exists in select districts should be replicated at
district level across the country.

8.5. Skill Development

(i) District be made the nodal centre for both- (i) receiving the demand for training
from the enterprises about the kind of skill required by them, and (ii) receive the
information from all the training entities about the programmes that they would be
providing in the next six months.

(ii) A convergence be aimed at the district level of various schemes of different

ministries like NULM of Ministry of Housing and Urban Affairs, NRLM of Ministry
of Rural Development, schemes of Ministry of Skill Development etc.

(iii) A Cell may be created in the Distinct Industries Centre, which would collect
information from various training entities about the programmes to be conducted
by them and maintain it, and would also communicate with the concerned
enterprises about the training progammes based on the demands/requests made
by them. It may put all such information on its website as well. While all the training
entities may be asked to inform these cells in each district about their calendar of
training programmes. The Cell on its own should also be collecting the information
from the websites of these training entities and other relevant sources. It may
work as City Livelihood Centre as part of convergence with NULM.

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 (iv) This Cell would also undertake awareness activities, especially in view of the fact
that a large number of micro enterprises are in the informal sector.

(v) The duration of the programmes may be kept small or in parts, if they need to be
longer in nature, because the Micro and Small enterprises may not be in a position
to spare their employees as they mostly have small workforce.

8.6. Knowledge Management

A lot of data has been generated and further more would be generated. The data leading to
‘knowledge development’ needs to be managed in a manner that helps internal as well as
external processes of an enterprise. Data analytics would need to be creative and innovative
to enable all the stakeholders to access it for their purposes and processes. For example,
Nandan Nilkeni says that “Artificial Intelligence can be used to figure out good and bad credit
risk and rates at which loans are given can be tweaked based on such assessment”10.

This is one example, similar innovative strategies may be designed to connect suppliers
with buyers both national as well as international, connect training institutions to enterprises
for manpower development, connect technology developers to enterprises for technology
adoption and upgradation, etc. The role of different stakeholders based on capacities needs
to be delineated for knowledge development, management and dissemination: -

CENTRAL GOVERNMENT
i) Two sets of comprehensive data bases with different verticals be created-

a. All the MSME linked offices be on one network, which includes state level and
local level agencies as well. This may deal with the statuary and legal
requirements like UAM registration, PAN application, various clearances /
NOCs, memorandum, etc.

b. A cloud based comprehensive data base be created and be accessible to

everybody i.e. be in public domain, which may deal with the credit, payments,
marketing, procurement, insurance, technologies, training, etc. Presently
India Enterprise Portal aims to cover some of this, but it is a work in progress,
and should ensure user-friendliness and dynamic / interactive features.

10
AI-based systems to help more SMEs get access to credit: Nandan Nilekani
https://economictimes.indiatimes.com/small-biz/sme-sector/ai-based-systems-to-help-more-smes-get-access-to-credit-nandan-
nilekani/articleshow/73932351.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Indian Institute of Public Administration, New Delhi Page | 19

 ii) Data analytics be used for generating information. Such tools be available on that
website itself and usable for all with a login and password.

iii) Statutory, legal and financial support may be provided to the entities identified for
knowledge creation and dissemination.

iv) Support for development of IEC material and documentation of innovative

practices may be provided to the concerned entities.

v) Support for incubation to promote knowledge based innovative ventures.

STATE GOVERNMENT
i) Ensure effective linkages with the Central Aggregator to timely update state
related MSME data / information on the two data bases.

ii) Use artificial intelligence to generate useful information to support MSMEs

proactively. i.e. apprise the enterprises about relevant developments, in the
concerned sectors like credit, payments, technologies, skill development etc.

iii) Encourage entrepreneurs and enterprises to share relevant information about

their needs for capable manpower, potential clients, technology up-gradation etc,
which can be hosted on the website.

iv) Develop and disseminate IEC material in vernacular languages and use other
IEC methods as well to share and communicate knowledge with stakeholders.

LOCAL LEVEL AGENCIES

vi) Encourage and use online processes.

vii) Proactively engage with entrepreneurs and enterprises, especially in the rural
areas to encourage them updating the data and information on the Central portal
and use that portal for conducting their businesses.

viii) Coordinate with local level and para-statal agencies like financial institutions,
insurers, training institutions using data analytics and artificial intelligence.

8.7. Ease of Doing Business (EoDB)

TRADING ACROSS BORDERS

i) The issue of procedure simplification at the export terminals may be taken up with
concerned authorities.

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ii) Clusters and other significant MSME centres need to be linked with the Transport
infrastructure across the country with further linkage to export terminals.

iii) Designated official at the major ports for looking into the export/import problems of
MSMEs.

ENFORCING CONTRACTS

i) Cheap legal help may be arranged at the district level for MSMEs for non-judicial works,
like drafting of the contracts, advise for techno-legal formalities, etc.
ii) Mechanism may be developed to have trigger/alarm mechanism to alert the
stakeholders about the tensions.
iii) A state level helpline or national level chat service may be planned for advising on
contractual issues.
iv) Micro-enterprises may be provided full legal help upto a certain point.

8.8. Exit Code

(i) Align the small & Medium Enterprises with Fast Track Corporate Insolvency
Resolution Process under the provision of Insolvency and Bankruptcy Code,
2016.

(ii) For the Micro Enterprises, the arbitration route at the district level may be more
speedy as well as convenient, with a provision to escalate the case under certain
conditions.
(iii) Need to ensure recovery rate, as per EoDB methodology, to be better than
national average for micro and small enterprises.
(iv) Monitoring of data input from partners for early warning indicators to be done by
banks on an on-going basis11.
(v) Set up an independent Rehabilitation Fund for rehabilitation of sick, micro, small
and medium enterprises.

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 Annexures

Annexure I: Highlights of the Recommendations of Shri Prabhat Kumar

Committee (2017)

1. The Committee examined the two suggested bases of redefining the MSMEs, i.e.
turnover and employment and found that they do not add anything worthwhile over
the present system.
2. It is recommended that the Government may set up a group to look into the
structures of different industries and suggest appropriate investment-bands for
each subsector.

3. The proposed investment limits for manufacturing units are

4. For Micro - Up to Rs.50 lakh; For Small - Above Rs. 50 lakh Up to Rs.7 Crore; and
For Medium above Rs. 7 Crore Up to Rs.25 Crore.

5. While the proposed investment limits for services units are

6. For micro- Up to Rs.25 lakh; for Small - Above Rs. 25 lakh & Up to Rs.4 Crore; and
for Medium - Above Rs. 4 Crore & Up to Rs.15 Crore.
7. It is also recommended that the Central Government may be empowered to change
the investment limits for Micro, Small and Medium enterprises from time to time
instead of being forced to go to the Parliament. The Act of 2006 may accordingly
be amended.
8. It is imperative to create an apex authority under the chairmanship of the Prime
Minister. The Authority may be called the National MSME Authority.
9. It will also be desirable to have an institutional forum for constant consultation
between Centre and the States. An Advisory Service may also be considered for
communication with the states.

10. The Committee recommends the abolition of the Advisory Committee from the
MSMED Act 2006.

11. The Committee feels that there is an urgent need for creating a comprehensive
MSME database, which can be used to deliver a range of services to individual and
groups of enterprises.
12. In order to give an incentive to the micro entrepreneurs to get registered, the
government can offer them free insurance based family medical care scheme on

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 the lines of RSBY. The premium for the insurance can be shared between the
Central and state governments.

13. The Committee recommends that the issue of a comprehensive MSME database
be considered in consultation with state governments and other subject matter
ministries and then placed before the proposed National Authority at the earliest.
14. It is proposed that the new entrepreneurs should be given a provisional registration.
Further, a new field of women entrepreneurs, Scheduled Caste entrepreneurs and
Scheduled Tribe entrepreneurs should be added in the alphanumeric registration
number.
15. An appropriate Grievance Redressal Mechanism and facility for online application
for Central and State Government schemes may be suitably incorporated in the
portal. Ideally, a single application for bank loans should also be incorporated in
the proposed portal to reach the banks.
16. It is proposed that a Task Force be constituted for preparing the scheme of a
comprehensive Database to consider the Committee's suggestions and submit a
proposal for MSME INDIA within a short time.

17. Good programmes and schemes should be adopted with such modifications as
appropriate e.g. Credit Guarantee Scheme, Credit Linked Capital Subsidy scheme,
SFURTI, PMEGP etc.
18. The MSMED Act, 2006 (Act of 2006) and the Interest on Delayed Payment to Small
Scale and Ancillary Industrial Undertaking Act. 1993 (Act of 1993) are Special Acts
and should supersede all earlier Special Acts.

19. It is urged that the discussions on a single legislation for MSEs with less than 40
workers should gather pace and culminate into a positive outcome for the benefit
of the MSME Sector.
20. The Committee recommends that efforts should be made to provide social security
cover for micro entrepreneurs.
21. Micro and small enterprises play a major role in employment generation in the
country and the Bankruptcy Code may cause avoidable hardship for them. It is
therefore suggested that a study may be undertaken to assess the likely impact of
the code on the MSME Sector.
22. The Telangana model for ensuring statutory clearances for start-ups could be worth
replicating
23. In Gujarat also DICs have facilitation counters at five centres in the big cities. This
number is going to be increased to 10. This is also worth considering.

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 24. There is need to start a series of annual research publication entitled SME India
Monitor/Index on the lines of the above referred world documents including GEM-
India Report 2014. The suggested Monitor/Index may cover the stage SMEs
development in India, ease of doing business, access to finance, and
competitiveness.
25. There have been requests from the industries to pave the way for conversion of all
leasehold plots to freehold and easy conversion of agricultural land for industrial
use.

26. The Committee sees merit in these requests and advocates the State Governments
to allow conversion of lease hold industrial plot to free hold bases after evaluating
the success of a unit after five years. Similarly, the Committee feels that if a
particular entrepreneur is willing to satisfy all norms; especially those related to
pollution and environment, easy conversion of agricultural land for micro and small
industrial uses may be allowed.

27. It is proposed that a Land Bank be created by State Governments with support from
the Central Govemment to promote them for Industrial development.

28. There is a critical need for restoration and renovation of existing Industrial Estates.
29. To promote Micro units in the Rural Areas, it is recommended that small Rural
Business Zones (RBZ) be created after conducting baseline survey of the
resources and skills available in the rural areas.

30. It is also proposed that the State Governments may be encouraged to identify mid-
sized land parcels in urban and semi-urban areas for development as Business
Parks to be leased to SMEs.
31. The Central Government may request the State Governments to lease land to the
State Industrial Development Corporation and or Private Promoters who will,
through Public Private Partnership develop an Integrated Business Park
(IBP)(mostly Sector Specific) through an Spy company.
32. The Integrated Business Park should be on a "Plug and Play Model" so that the
SMEs come to and rent out j take on lease the facility with their business knowledge
supported by their investment in Plant and Machinery.

33. Industrial and Artisan Clusters grow naturally and many times in an unplanned
manner and as such their growth gets stunted. It is recommended that such clusters
be identified and appropriate infrastructure be planned for them. Such
Infrastructure can be called.Cluster Parks.

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 34. The Central and the State Governments should be sensitive to the need for funding
Infrastructure projects. Adequate budgetary provisions need to be made to fund
Industrial Infrastructure specific to the MSMEs.
35. DICs should be developed as Udyami Udyog Bandhus with block and panchayat
level presence with the supporting infrastructure. A specialized cadre of trained
officials employed by the Udyami Udyog Bandhus need to work with local partners
to counsel, mentor and to train small business.
36. The Udyamj Udyog Bandhus can also provide handholding of micro entrepreneurs
in getting them financing through MUDRA. They can also play major role in timely
online grievance redressal carried out through a digitalized platform.

37. The Committee feels that the MSME-DIs should be developed as Udyami Udyog
Mitras and Information, awareness and Guidance on all Schemes should be their
core activities. Furthermore, Reimbursement based schemes should be
administered directly by DIs as much as possible. They can be converted into
clearing houses of available technologies and helpers in technology adaptation.
38. A dedicated TV Channel named as Udyam Bharat can be started in the lines of Lok
Sabha TV and Rajya Sabha TV. This could be an effective instrument for
disseminating information and will enable best practices and progressive
entrepreneurial culture to be showcased.
39. There is an urgent need for accreditation of truly representative Associations by the
Government and to encourage creation of forum of Associations industry wise/zone
wise. Accredited Associations can find a place in the Boards of Public sector Banks
/Fts.
40. On Credit and Finance, the Committee recommended improvements in the
MUDRA scheme.
41. The limits for giving loans under various categories of MUDRA should be enhanced

42. Categorization of Banks' Credit to MSMEs through NBFCs under the Priority Sector
and loans given by banks to NBFCs for the purpose of on-lending to Micro, Small
and Medium Enterprises should be treated as indirect finance to MSMEs eligible
for classification under the Priority Sector lending of banks.

43. Classification of loans to medium enterprises should exclude from the priority sector
and Priority sector lending certificate should be discontinued.

44. The Committee Recommended change in classification of NPA norms in Banks'

lending to MSMEs: The Committee recommends that the 90 days limit fixed by RBI
for classifying over dues of MSMEs as Non-Performing Assets should be increased
to 180 days so that MSMEs are not constrained to divert their working capital

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 towards servicing of their loan-instalments and clearing of their over dues at the
cost of their normal business operations. This improvement in the RBI guidelines
will save a large number of MSMEs from turning sick or getting closed resulting in
loss of economic activity and loss of employment, and further preventing avoidable
classification of bad debts and unwarranted litigation by banks thereby saving the
banks from losses.

45. The Committee recommends that The Reserve Bank of India should permit the
establishment of MSME centric Non-Banking Finance Companies (NBFCs) and
specially created 'MSMEs' Receivables Financing Funds' for limited purpose of
promoting financing against Receivables and discounting of their supply bills.
These NBFCs or Special Purpose Funds can be promoted in joint sector by the
Government through Banks or other Institutions jointly with the Private Sector.
These NBFCs & Funds can be allowed to attract investment from domestic and
international sources and could be operated by banks or the private sector to
finance MSMEs' book debts or to discount MSME supply bills. These NBFCs would
serve only MSME customers primarily to finance their receivables & book debts or
to discount their supply bills.
46. The Committee recommends that in order to obviate the financial constraints faced
by MSMEs on account of delayed payment of their bills E-financing web portal
where all such supply bills and receivables could be offered for discounting or
financing to banks and other financing institutions like NBFCs and factoring
companies should be established. This financing mechanism should enable
availability of an E-platform on which MSMEs can upload their supply bills for
discounting by interested parties who should offer their competitive discounting
rates for the MSMEs to opt for any of them keeping in view their competitive rates.
This E- platform should enable levying of interest for delayed period on the buyers.

47. The Committee recommends that the Government should meet a part of
expenditure of SMEs incurred by them in the initial listing of their equity on the SME
exchanges. This part reimbursement of listing expenditure could either be limited
upto 50% of the total listing expenditure or Rs.I0 Lakhs whichever is lower.

48. The Committee recommends that the Government should provide tax exemption
for the investments in IPOs of SME companies under section 80C of the Income
Tax Act 1961 within the overall prevailing ceiling limit of Rs. 1,50,000/-.
49. The Committee recommends to establish a separate 'SME Equity Investment Fund'
by the Ministry of MSME to be managed by a professionally run entity of fund
managers.

50. Acceptance of MSME Performance and Credit Rating by Banks for lending: The
Committee recommends that the Performance and Credit Rating Scheme of the

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 Ministry of MSME for which the Ministry is incurring huge amount of expenditure
should be accepted by the Reserve Bank of India as eligible rating for availing Bank
loans and no separate Bank Loan Rating should be required from MSMEs.
51. E-Tracking of MSME loan proposals and creation of Database of credit to MSME
sector: The Committee recommends that a comprehensive ePortal should be
established by the Ministry of MSME which should be available to all MSME
applicant borrowers throughout the country so that they can register their loan
applications on such portal against acknowledgement number and the bank should
provide complete information about disposal of such applications. Any loan
applicant should be able to track the current status of his/her application by logging
on to such electronic platform / portal.

(KNN Bureau)

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 Annexure II: RBI Committee Findings and Suggestions

Findings

Even after a journey of more than one decade, the MSMEs sector is still posed with
numerous challenges such as inadequate flow of funds in the sector; costly financing12, lack
of full swing procurement by Government sector from MSMEs; delay in payments ; limited
role of SIDBI; complex registration process; external movement of start-ups amid favourable
external environment thereon in terms of tax concessions, enabling infrastructure, lack of
effective enterprise development centres; inadequate collaboration between MSMEs and
R&D institutions including innovation offering companies and educational institutions; poor
access to services in areas such as improvement of technology, product development and
marketing techniques; etc.

Though banks are cautious about the high risk perception against the collateral free loans,
but it would facilitate the credit diversification of banks.13 Public sector banks have higher
credit exposure with MSMEs (around two-fifth) whereas private sector banks account for
about one third of total MSME credit with comparatively lesser NPAs.14 The credit quality of
MSMEs availing loans from private sector banks and NBFCs is significantly better and as
of June 2018, their NPA levels on account of MSME loans were 3.9% and 5%, respectively.
In this regard the strengthening of information flow environment in the present
recommendations would surely enhance the quality credit for public sector banks, and
thereby bridge the gap of credit shortfall.

Recommendations

In nutshell, the panel recommendations as below specially focus on credit aspect of the
MSME sector, would have implications towards quality credit without delay and appropriate
scale, thereby enabling the MSMEs in capacity building for sustained growth. These are:

12
For the MSME sector, interest costs have not fallen meaningfully as banks have not transmitted the entire reduction in
the repo rate to customers.
13
Indian banks have much exposure towards large industries.
14
The credit quality of MSMEs availing loans from private sector banks and NBFCs is significantly better and as of June
2018, their NPA levels on account of MSME loans were 3.9% and 5%, respectively.

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 1. Amelioration of liquidity crunch for the MSMEs by way of providing distressed asset
funds with a corpus of ₹5000 crore,

2. Cash flow-based lending, revising collateral free loan limit from ₹10 lakh to ₹20
lakh, Credit guarantee scheme for MSMEs,

3. Promoting joint venture of private firms in investing MSME sector through

Government fund of funds,

4. Faster approval of loans through PSBLoansIn59Minutes portal,

5. Ensuring timely payments to MSMEs, etc.

6. The raising of collateral loan for the micro and small enterprises which have
received comparatively lower credit pie as of medium and large enterprises.

7. In order to improve the liquidity position, the TReDS mechanism is recommended

to be put in place.

8. The digital infrastructure for sharing credit information and assessing the historical
performance of borrowers are needed for promotion of green-field projects in the
MSME sector through joint venture mode.
9. Financial engineering in terms of inviting the private players along with new
products would render the competitive lending practices to the MSMEs, thereby
helping in flowing appropriate credit with reasonable cost.

10. Create MSME clusters to collaborate with companies offering innovation

infrastructure, R&D institutions and universities that specialize in a specific industry
or knowledge area.
11. Tax incentivizing to private sector for cluster development and a new intermediary
i.e., Loan Service Provider (LSP) – an agent of the borrowers yield positive results
in terms of enhancing the innovation of the sector and access of greater finance.

12. Other supports should also cover in terms of strengthening of MSME Export
Promotion Council and a national (and state level) Council as a special purpose
vehicle for crowd funding of MSMEs, out-of-court assistance to MSMEs, insurance
coverage to MSME employees such as coverage under Ayushman Bharat to cope
with natural calamities, etc.

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 Annexure III: International Best Practices in SMEs Sector

At present, countries across the world is taking various steps in formulating growth
strategies for SMEs sector and ensuring them to move along with pace of GDP. This section
discuss about the selected best practice taken by different countries for

1. Access to easy finance during CORONA Pandemic

2. Competitive SME policy themes and examples

3. Best practices in digitalization support for SMEs

4. Skill development of SMEs to improve/retain competencies

5. Protecting start-up and scale-ups

I. Measures taken by selected countries from the UNECE region to support MSMEs during
COVID-19 crisis

Country Measures Taken Benefits

1. Austria Austria has taken various New guarantees are being
measures funded by the COVID- provided for MSMEs worth
19 Crisis Management Funds €10 million up to 80% of
[65] . "Digital Team Austria" the loan amount or €2.5
initiative consisted of companies million for 5 years. These
in the digitization industry that guarantees have a one
has offered digital services to time processing fee
MSMEs free of charge for the starting at 0.25 % of the
first 3 months amount to be financed and
a guarantee fee, starting at
0.3% p.a. (variable to risk)
of outstanding liability.

2. Belgium: Belgium Extension of MSME guarantees The existing MSME

is offering state in the Flanders region guarantees have been
guarantees on extended to include
certain loans and companies that were
the existing impacted by the ongoing
guarantees have COVID-19 crisis. These
been extended to guarantees include bridge
includes loan guarantee for existing
companies that non-bank debts up to 12
were affected by months, low-interest
the COVID 19 subordinated loans for
pandemic startups and scale-ups,
lowered one-off premium,
guarantees for bank debts

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 under existing credit
facilities and investment
credits.

Federal Guarantee Scheme The federal state will

(applies automatically and is in provide a guarantee of €50
force currently) billion on certain loans
issued by financial
institutions in Belgium.
Losses suffered will be
apportioned between the
federal state and the
financial sector: - First loss
of 3% will be supported by
the financial sector -
Losses between 3% and
5% will be shared equally
between the financial
sector and the federal
state. - For losses
exceeding 5%, the federal
state will bear 80% of the
loss. All new loans with a
maximum term of 1 year
(unless extended) must be
entered between 1 April
2020 and 30 September
2020 (unless extended).
These guarantees do not
include refinancings, draw-
downs under agreements
entered before 1 April
2020, financings that
cannot contractually be
used for Belgian activities
of the borrower and
agreements that
specifically exclude the
benefit of the guarantee
Belgium has opened up existing Supports firms to find
financial instruments for MSMEs alternative markets,
– such as MSME growth subsidy particularly where supply
chains are impacted.
3. Denmark: A loan guarantee is being The loan amounts to DKK
Denmark is provided to cover losses directly 1 billion in losses in
providing relating to COVID 19 on 70% of Denmark and is intended
guarantees on new corporate loans that are for MSMEs that are
loans for MSMEs being issued. operating at a loss of 50%
and salary or more.

Indian Institute of Public Administration, New Delhi Page | 31

 compensations for Salary compensation for A compensation of up to 75
employees of start- employees of start-ups % of the employee's salary
ups (not more than DKK 23,000
per month per employee)
can be availed in start-ups.
The Danish Export Credit Fund An increase guarantees
(EKF), a state agency in will assist some 250
Denmark, will increase its MSMEs in continuous
liquidity for MSMEs. export business.
4. France; Guarantee Fund "Reinforcement Guarantee up to 90%
France is providing of the Treasury" intended for liquidity enhancement
various guarantee Very Small Enterprises (VSEs), loans from 2-7 years.
schemes, financing MSMEs and mid-cap companies Long- and medium-term
options and other loans, movable and
services for immovable leases,
MSMEs affected by financial leases etc. can be
the pandemic. The guaranteed. Term for 2-7
industry years (can be extended up
associations have to 15 years max. for loans
supported MSMEs with a security interest in
during the crisis real estate asset or in the
through a toolkit on case of sale and leaseback
teleworking and of real estate). Up to €5
advice to million for MSMEs and €30
companies. million for European
Institute of Innovation and
Technology (EITs) can be
guaranteed. Elimination
period has been reduced to
6 months.
Guarantee Fund " Confirmed Up to 90 % guarantee on
Line of Credit" Intended for confirmed credit lines for a
MSMEs and mid-caps and is period of 12-18 months.
renewable only once. Renewal of confirmed ST
lines of credit (overdrafts,
overdraft facilities,
discounts, daily etc.) can
be guaranteed. Can be
used for financing the
business operating cycle.
Guarantee equal to the
duration of the CT line (up
to €5 million for MSMEs
and up to €3 million for
mid-cap companies).
Mid Term Financing: provision of Can be used for one-off
asset loans intended for VSEs, cash requirements and an
MSMEs and mid-cap companies exceptional increase in
with at least 12 months of working capital
balance sheets requirement, linked to
economic situation.

Indian Institute of Public Administration, New Delhi Page | 32

 €50,000 to 5 million for
MSMEs and up to 30million
for midcap companies can
be provided. Time:
between 3-5 years, of
which 6- 12 months of
deferred depreciation.
Provision of unsecured
loans on assets of the
company or its manager.
Mid Term Financing: ready to Allows financing a cash
bounce loans intended for VSEs, requirement related to
MSMEs and midcaps. Being cyclical difficulty, a
provided in partnership with the temporary fragile situation
regions and is cofinanced or a working capital
requirement that does not
allow normal operating
condition. Financing
ceiling: €10,000 to
300,000. Term: 7 years,
including 2 years of
deferred capital
amortization.
Increase in the maximum For factoring companies
outstanding amount of secured currently benefitting from
receivables agreements for the benefit
of MSMEs, it has been
proposed to increase the
maximum outstanding
amount of secured
receivables from €200,000
to 500,000 and allow the
release of security deposit.
Export Guarantees and pre For MSMEs Bpifrance
financing through Bpi Assurance Export Insurance will now
Export cover for the duration of
COVID 19 pandemic, its
policyholders (credit
institution) up to 90% of
issued and declared
guarantee commitments
(export guarantee
insurance) or pre-financing
setup (pre-financing
guarantee) compared to
80% previously.
Companies applying for
export pre financing
guarantee will now have 6
months (compared to 4
months previously) for the

Indian Institute of Public Administration, New Delhi Page | 33

 bank to set up the
underlying pre financing
credit as from the
notification by Bpifrance
Assurance Expert of the
granting of its guarantee.
For issuing institutions, this
will reduce the risk of when
issuing guarantees or
setting up pre-financing
credits, as well as provide
addition time to setup pre-
financing credits facilitating
the granting of such
financing to the companies
Credit Mediation Credit Mediation is being
provided to company of
any size and in any sector
experiencing financing
difficulties with its banking
partners or that is suffering
the consequences of a
reduction in guarantees
from a credit insurer.
Deference of payment of rents The members FFA of have
undertaken deference of
the payment of rents for
MSMEs and VSEs
belonging to one of the
affected sectors whose
activity is interrupted
pursuant to the decree of
15 March 2020. These
include auditoriums,
conference, meeting, show
or multipurpose rooms;
sales shops or shopping
centers; Restaurants and
pubs; dance halls and
game rooms; libraries,
documentation center;
Exhibition halls; covered
spot establishments;
museums.
Solidarity Fund €2bn for small MSMEs having turnover
businesses (3 months) less than €1million, having
lost 70% of their turnover
between March 2019 and
March 2020 will be paid an
additional aid by the region
and these companies will

Indian Institute of Public Administration, New Delhi Page | 34

 be eligible for an flat rate
aid of €2,000 if they employ
at least 1 employee are
unable to pay their debts
within 30 days and have
been refused cash loan by
their bank. From 1 April, all
companies concerned will
be able to make a simple
declaration on tax website
- impots.gouv.fr - to receive
aids up to €1,500 and since
15 April, the companies
experiencing the most
difficulties will be able to
obtain, on a case by case
basis from the region an
additional aid of €2,000.
5. Germany: KfW Quick Loans for MSMEs Provided that the company
Germany is has made a profit in the
providing easier sum of the years 2017-
loans for its 2019 or in 2019, if it has
MSMEs, with only been on the market for
increased grace a shorter period a "fast
periods and no loan" must be granted with
guarantee or the following key points: -
collateral required The loan is available to
medium-sized enterprises
with more than 10
employees that have been
active on the market at
least since 1 January 2019.
- The loan volume per
company is up to 25% of
the total turnover in 2019, a
maximum of €800,000 for
companies with more than
50 employees, a maximum
of €500,000 for companies
with up to 50 employees. -
The company must not
have been in difficulty on
31 December 2019 and
must be in an orderly
financial situation at that
date. - On request, up to 2
grace years at the
beginning is provided to
reduce the shortterm
burden. - The bank
receives a 100% indemnity

Indian Institute of Public Administration, New Delhi Page | 35

 from KfW, secured by a
guarantee from the
Federal Government. - The
loan is approved without
further credit risk
assessment by the bank or
KfW. Collateral is not
provided and loan is
approved quickly. The term
of the loan has been
extended from 5 up to 6
years, and even up to 10
years for loans of up to
€800,000 and the
assumption of a positive
forecast for the
continuation of operations
is based on the assumption
that the companies had
sound financial
circumstances as on 31
December 2019.
Germany has set up an It aims to ring-fence
Economy Stabilisation Fund businesses seen as of
(Wirtschaftsstabilisierungsfonds) critical importance for the
German economy as a
whole.
6. Italy: Suspensions of loans repayment Italian MSMEs affected by
Italy has introduced for MSME the consequences of
public guarantees COVID-19 can have their
and support for its loan repayments
innovative start-ups suspended until 30
and MSMEs. It is September 2020 on
also allowing outstanding bank loans as
suspension of loan at 17 March 2020.
repayment for Italian bank cannot revoke
MSMEs. The Italian credit facilities until 30
export credit September 2020.
agency, Servizi

Indian Institute of Public Administration, New Delhi Page | 36

 Assicurativi del Support for innovative start-ups Additional resources of
Commercio Estero €100 million for the year
(SACE) has 2020 were allocated to
announced a €4 refinance loans already
billion package to granted to innovative start-
help MSMEs ups. A fund of €10 million
address cash flow was established to grant
needs and diversify innovative start-ups non-
export markets. In repayable contributions to
addition, the Italian be used to purchase
Agency for the services provided by
promotion of incubators, accelerators,
business innovation hubs and
internationalization, business angels. A fund
Italian Trade aimed at sustaining
Promotion Agency venture capital was
(ICE1) has provided with additional
absorbed the costs €200 million for the year
already incurred by 2020 to support
companies for investments in innovative
participation in fairs start-up and innovative
and events MSME share capital.

Support to MSME At the territory level an

agreement was made
between 14 municipalities
of the South East Milan
area to build a portal for
MSMEs that aims at giving
support in consultation to
micro and small
businesses in the areas
affected by the recent
COVID-19 pandemic
The Ministry of Innovation and This includes a portal for
Digitalisations launched an MSMEs to access free of
initiative “Digital Solidarity” costs digital services from
large private sector
companies regarding
smart/teleworking, video
conferencing, access to
mobile data, cloud
computing etc

Indian Institute of Public Administration, New Delhi Page | 37

 7. Spain Aid to facilitate payment of utility Aid to facilitate payment of
Spain is providing bills electricity, gas and other
aids to facilitate energy services bills of its
utility payments clients including MSMEs
and financial and by splitting invoices up to
closure support for 12 months.[52] It will
its MSMEs. Spain postpone the electricity
has offered €2 and gas bills of MSMEs
billion as part of its that will be issued during
additional loan the second semester of the
guarantee year
programme in Financial aid for MSMEs in Since the beginning of
guarantees to Castile-La Mancha April, the Regional
exporting Government has
companies. coordinated a financial aid
Measures to help mechanism of €15 Million,
digitize MSMEs aimed at MSMEs and the
have also been self-employed of Castile-
taken up to La Mancha, to back credit
facilitate operations of up to
teleworking and €300,000. It has also
prevent external designed a plan of more
(outside the than €220 million for
European Union) economic recovery post
takeovers of COVID-19 crisis. The plan
Spanish firms in will feature measures such
strategic sectors as the creation of a €25
million non-refundable
financial aid line aimed at
MSMEs and the
selfemployed resuming
their activity immediately
after the lockdown was
lifted while maintaining
their employees.
‘Re Activa València’ liquidity ‘Re Activa València’ is a
measures series of liquidity measures
designed for MSMEs to
compensate for closure or
losses and targeted
towards maintaining
employment. Under this
payment of municipal
taxes has also been
delayed. An assistance
and coordination service
has been launched to ease
the access to the
administration’s benefits,
as well as a financial

Indian Institute of Public Administration, New Delhi Page | 38

 control system about the
effects of the crisis

8. United Kingdom: Statutory Sick Pay (SSP) relief It includes refund to cover
United Kingdom package up to 2 weeks' SSP per
has introduced eligible employee off work
various loan due to COVID19. The
schemes and companies can reclaim
employee sick pay expenditure for any
packages employee who has claimed
SSP because of COVID-
19. This scheme covers
full-time employees, part-
time employees,
employees on agency
contracts and employees
on flexible or zero-hour
contracts. Employers can
claim back from both the
Coronavirus Job Retention
Scheme and the
Coronavirus Statutory Sick
Pay Rebate Scheme for
the same employee but not
for the same period of time
for an employee.
Coronavirus Business Under this scheme
Interruption Loan Scheme launched on 23 March
2020, MSMEs with an
annual turnover of less
than £45 million can
borrow up to £5 million with
a government guarantee
covering 80% of the loan.
The loan will only be
available from accredited
lenders, and the first year
will be interest-free.
Bounce Back Loan Allows MSMEs affected by
the pandemic to receive
loans of up to 25% of their
annual turnover (capped at
£50,000) from accredited
lenders. These loans have
a term of up to 6 years and
benefit from a payment
holiday during the first
year. The Government of
the United Kingdom will
guarantee the amounts

Indian Institute of Public Administration, New Delhi Page | 39

 provided under these
loans, and borrowers will
not have to pay any fees or
interest during the first 12
months.
Increased support for MSME by Bank of England has
the Bank of England promised increased
support for banks lending
to the real economy and
will unveil new incentives
for banks that increase
their lending to MSMEs. In
particular, it is offering a 4-
year collateralized loans to
cover at least 10% of real
economy lending at
interest rates at or very
close to Bank Rate and
additional funding to banks
that increase lending to
MSMEs
9. Switzerland: COVID-19 loans for MSMEs The Swiss Government
Switzerland has that: are established / has introduced
introduced loans incorporated prior to 1 March government-guaranteed
and guarantees for 2020; have an annual turnover loans from Swiss banks as
certain MSMEs lower than CHF 500 million; have an interim measure for
[88] . Swiss no ongoing debt collection Swiss MSMEs to help
Government has liquidation proceedings; have alleviate liquidity problems
offered significant negative impact on due to COVID-19. An
compensation for the turnover due to the COVID- expected CHF 40bn in
reduced exports 19 pandemic; do not benefit from financing will be provided
promotion federal financial support to MSMEs. MSMEs can
activities of CHF measures introduced in the apply for loans up to 10 %
4.5 million areas of culture or sport. of their annual turnover, up
to a maximum of CHF 2
million. For demands of up
to CHF 500,000 will be
guaranteed by the Swiss
Government and will carry
no interest rate. Demands
in excess of CHF 500,000
will be guaranteed 85 % by
the Swiss Government and
the primary bank provider
will bear the risk for the
remaining 15%. The
annual interest rate is
currently 0.5 % and
standard credit checks
have to be imposed on the
borrowing entity and this

Indian Institute of Public Administration, New Delhi Page | 40

 can make the approval
process slower. The
guarantees by the Swiss
Government last for 5
business years with a
possibility for extension up
to 2 years and restrictions
like no payments of
dividends and no transfer
of funds to parent-
companies abroad and
must be repaid within 5
business years at the
latest.
10. Singapore Singapore has topped direct government spending for MSMEs
at 8.9 percent of GDP during the pandemic, including wage
subsidies, working capital loans and specific grants for sectors
most impacted. These responses have helped MSMEs retain
employees, improve cash flow and cover costs of business
operations.
11. Canada Canada spent 6.6 percent of GDP on MSMEs. Direct fiscal
measures by leading countries have included lump-sum direct
transfers to affected firms, subsidy of employee wages, raised
unemployment packages, compensation for sick leave and
rent subsidies.
In Canada, a hotline service helps farming entrepreneurs and
small business owners access financial planning advice and
information on options for public financial support

Source: https://unece.org/fileadmin/DAM/energy/se/pdfs/geee/Guidelines_MSME_EE-
RE_Final.pdf

II. Competitive SME policy themes and examples

A. Singapore: Singapore Ranked No. 1 in the World Bank’s “Doing Business” survey
consistently in the world. Singapore government is famed for its business-friendly
policies and pro-business attitude. Various government agencies and statutory boards
have programs and schemes targeted at different industries with different objectives.
Following are some examples from Singapore that could serve as reference for
designing policies and programs to support competitive SMEs. Following measures
have been taken by Singapore for SMEs

1. Grants to improve productivity – Enhanced Mechanisation Credit (MechC)

Scheme:
This grant is open to all Singapore-registered construction contractors, aimed at
helping them to improve productivity and adopt new technology. Administered by
Building & Construction Authority (BCA) of Singapore, and recently enhanced with
higher cap and larger funding amount in 2013, this grant reimburses contractors up

Indian Institute of Public Administration, New Delhi Page | 41

 to 70 per cent of the costs incurred in purchasing or leasing equipment that results
in productivity improvements.
This scheme looks at rewarding “throughput” rather than “inputs”, and it rewards only
those who have already demonstrated significant productivity improvement (i.e. at
least 20 per cent manpower saving). As such, it encourages the firms to become
more productive and hence more competitive in the process, and incentivizes those
who have achieved positive results. The scheme has certainly benefited many small
contractors, resulting in as much as 400 per cent improvement in productivity for
some.
2. Equity financing for successful startups – Startup Enterprise Development
Scheme (SEEDS):To assist young (less than 5 years) and prospective
(demonstrating high growth potential with clear scalability for the international
market) entrepreneurs to grow, the scheme provides co-investment options with
another third party investors. Specifically, SPRING SEEDS Capital (SSC), a wholly-
owned subsidiary of SPRING Singapore, will match the sum invested by third-party
investor(s) dollar-for-dollar up to a maximum of $1 million, thereby taking an equity
stake in the investee. Government is not directly involved in the private sector capital
market actions. Qualified VCs have full autonomy to choose, are incentivized to
invest more because of higher returns due to co-financing, yet have to bear the risk
if the startup fails. It helps the prospective SMEs to tackle both the challenges of
access to finance and access to expertise. This scheme has helped many local
startups to grow and expand in the international market.
3. Non-financial assistance/consulting for international expansion – IP for
Internationalisation Program: Singapore provides training and consultancy
services on protecting and maximizing intellectual property rights for Singapore
companies who wish to venture abroad, through strategy, research, training and
online resources. This program, among many others that championed by various
Singapore government agencies, are aimed to develop a pool of knowledge and
experiences in a certain domain area (e.g. IP) that all firms can tab on, or serve as a
common platform to create a more vibrant environment for aspiring businesses to
grow. By providing more publicly available resources required by growing SMEs, no
firms are excluded from the benefits that government offers, yet only the more
competitive ones will utilise these resources to their advantage to create more value
in the economy.
B. South Korea: The South Korea economy has grown rapidly into the 10th largest
economy power in recent years, and SMEs have made significant contribution. They
account for 99.5 per cent of the total businesses, 77 per cent of people employed and
50 per cent of the value add in the economy. There have been over 100 SME policies
since 1960s, with themes shifting as the economy developed. In recent years, the focus
has been on strengthening SME competitiveness, internationalisation and establishing
win-win cooperation between large businesses and SMEs. South Korea has taken
following measures for SMEs
1. “Purchase-Guaranteed New Product Development Programme” – SMBA
Through this program, the Small and Medium Business Administration (SMBA)

Indian Institute of Public Administration, New Delhi Page | 42

 supports SMEs’ new product development with up to 500 million KRW funding after
receiving voluntary demand from the public organisations or large firms. The
government (i.e. SMBA) marries the demand and supply from large and small firms
respectively, institutionalizing the collaboration in the complementary eco-system.
Government funding is spent on product innovation with a tested market demand, to
support SMEs that have demonstrated scalability. According to the SMBA's 2009
Report, this programme has been very effective for SMEs in lowering development
cost and in substituting previously imported products with nationally produced ones.
Participation has steadily increased with over 170 purchasing organisations taking
part in 2008.
2. “Hidden Champion Initiative” – Korea Import-Export Bank (Eximbank: As the
official export credit agency of Korea, the Korea Eximbank developed this program
to provide policy assistance to facilitate high-potential SMEs’ development towards
becoming a leading global export company. As the state-run bank, Eximbank will
provide both financial and non-financial support to selected SMEs throughout the
stages of business activities including product development, production, and
overseas sales. Though the selection process might be challenged on the ground of
fairness and effectiveness, the concept behind this initiative is to give special
attention to more competitive firms in the market, and provide targeted resource aid
to facilitate their growth.
C. Malaysia: Malaysia has fairly vibrant private sector, and the Malaysian SMEs have been
at the forefront of economy development even before the countrys independence. At
present Malaysia anked number 1 in ease of doing business among 49 upper middle
income countries.

With the vision of “creating globally competitive SMEs across all sectors that enhance
wealth
creation and contribution to social well-being of the nation“ and to become a high income
nation by 2020, the Malaysia SME Master Plan 2012 – 2020 clearly articulated 4 goals
and 32 initiatives to change the SME landscape in the country. The philosophy adopted
in this master plan is very much in line with the concept of competitive SME.

The four stated goals are:

a) increase business formation
b) expand number of high growth and innovative firms (similar to competitive SME
approach)
c) raise productivity (this goal is also embedded in the competitive SME approach)
d) intensify formalization

The following two initiatives serve to illustrate how they achieve the goals of expanding
number of high growth and innovative firms and of raising productivity. Though these
initiatives are yet to crystalize as specific policies, they are helpful in reflecting the thought
process of policy designing.
i. Malaysia is developing the Technology Commercialisation Platform (TCP) to
encourage innovation. Under this program, the current incubation facilities are
integrated under one national platform; programme managers are incentivised upon
successful commercialisation; and SMEs and potential financers are better linked.

Indian Institute of Public Administration, New Delhi Page | 43

 As we can observe, the design of the TCP project focuses on identifying the most
competitive and innovative firms.
ii. The second example is the Catalyst Programme, which aims to create home-grown
champions through a targeted approach with support in the area of financing, market
access and human capital development. The program has transparent selection
criteria and exit mechanisms and design supports the development of the most
competitive firms.
III. Best practices in digitalization support for MSMEs
In recent years governments around the world have taken digital support initiatives
for MSMEs which tend to fall into three categories

1. Provisioning of information and expertise – Services that support the

enhancement of digital knowledge to select and operate technologies. For
example, Austria’s Federal Ministry for Digital and Economic Affairs launched
the Digital Team Austria initiative, comprising companies in the digitalization
industry and offering digital services to MSMEs free of charge for at least three
months.

Italy launched an initiative called Digital Solidarity, which includes the creation of
an online portal where SMEs and the self-employed can register to access free
digital services provided by large private-sector companies in fields such as
teleworking, video conferencing, and access to mobile data.

In France, the Région Grand Est has set up a platform called “A Stronger Grand
Est” (Plus Forts Grand Est) in order to connect around 50 innovative companies
and communities, companies, associations, healthcare establishments, etc.
within the region to identify innovative products and services that could help
overcome the crisis and rebound.

2. Grants and funding for digitalization – Direct financial support for procuring
technologies/services to accelerate digitalization. In Germany, for instance, the
government has set up dedicated funds for digitalization and ICT advancement
of MSMEs. Similarly, Japan offers subsidies to support teleworking, adoption of
IT solutions and developing e-commerce sales channels
Australia announced in September 2020 a package of AUD 800 million to
remove outdated regulatory barriers, boost the capability of small businesses and
back the uptake of technology across the economy. The measures include
spending AUD 29 million on the rollout of 5G high-speed Internet and
AUD 28.5 million to promote open banking, where customers can shop around
for financial services with their own data. It also includes AUD 6.9 million to test
the use of blockchain to cut compliance costs.
In November 2020, France earmarked EUR 100 million to support small
business in building up online operations. In addition, the government platform
FranceNum, launched in 2018 to connect SMEs willing to digitalise with a network
of specialised consultants, became a platform for live information on support
initiatives from national and local governments, and the private sector. To
increase its reach, a daily radio show discusses upcoming digital trends.

3. Ready-made solutions/platforms – Provision of, or enabling access to, digital

solutions that can be immediately adopted by MSMEs without the relevant skills

Indian Institute of Public Administration, New Delhi Page | 44

 in-house. This may be the most impactful category of digitalization initiatives, as
these address multiple challenges simultaneously. Ready-made solutions can be
in the form of equipment, connectivity packages, videoconferencing, collaboration
platforms, digital payments, e-commerce platforms, IT solutions and cybersecurity
solutions, among others. Such solutions reduce the need for technical expertise
as well as capital required for in-house development or purchase of digital
solutions. They may also provide strategic direction on how to engage in a larger,
forward-looking digital strategy.
In China, for example, the government has been providing support for MSMEs to
migrate to cloud computing by purchasing collaborative cloud technology solutions
that enable home office, online training and e-commerce.
Similarly, the Italian government has established a portal where enterprises,
particularly MSMEs, can register to access free digital services from large private-
sector companies.
In Singapore, these solutions have been targeted towards helping sectors
individually. For example, one program short-lists a series of technology solutions
that MSMEs can implement to enhance specific tasks related to their sectors. The
program includes a tailored list of solutions and finances up to 80 percent of the
expenses related to purchase and implementation. Individual authorities are also
supplying ready-made solutions for MSMEs:
In Colombia, the focus is on creating virtual marketplaces, including forums where
companies offer discounts and free services to help other businesses, as well as
digital marketplaces for B2B and B2C. Ready-made solutions from the Colombian
government include free online tools, digital payment tools and webpage
development for businesses to enable MSMEs to maintain client communication
channels.
Austria and Malaysia, have focused on providing digital platforms as well. In
Austria, several regional online platforms promote products online. In Malaysia,
the government is developing a digital marketplace to allow smaller suppliers to
work with government for procurement.
IV. Helping SMEs reskill or retain competencies

Some countries have expanded the existing measures for the training and skills
development of SMEs or have launched new ones.
Australia adjusted its national My Skills programme that subsidises upskilling,
reskilling and vocational training. The support includes up to AUD 5 000 (USD 3 750)
for hiring a new apprentice, up to AUD 1 500 (USD 1 125) reimbursement for
equipment and services including online training when businesses hire new
apprentices, or travel accommodation allowance associated with hiring an apprentice
from rural or regional South Australia. Furthermore, in October 2020, the government
provided an additional AUD 1.2 billion (USD 900 million) to create 100 000 new
apprenticeships and traineeships, with a 50% wage subsidy for businesses that
employ graduates.

Austria started a qualification offensive to strengthen companies in their digitalisation

and innovation agendas. The aim is to systematically develop and expand the
competencies of companies and of their employees in the areas of research,

Indian Institute of Public Administration, New Delhi Page | 45

 technology, development, innovation and digitalisation. In addition, the programme
supports knowledge transfer and the co-operation between science and industry.

Germany has designed the programme Digital Now – Investment Funding for SMEs,
running until 2023, to provide financial grants and encourage SMEs to invest more in
digital technologies and in the upskilling of their employees. Applying SMEs must
present a digitalisation plan to invest in either software/hardware or employee
training.

Singapore is subsidising absentee payroll for employees taking training (up to 90%
of their hourly basic salary) through the Skills Future Singapore initiative. This
initiative especially targets the food service and retail sectors.

Turkey gives strategic importance to spread the entrepreneurial culture and

ecosystem and provides entrepreneurship training. To address rising demand, since
2019, KOSGEB has established a platform called E-Academy that gives access to
free online training. Beneficiaries can also access the Entrepreneurship Support
Programme, with preferential treatment for women, youth and handicapped
entrepreneurs. Additional activities are carried out to ensure the visibility of the
programme through KOSGEB directorates and raise the awareness of women and
youth.

The UK introduced the Kickstart Scheme in September 2020, a hiring subsidy to

incentivise businesses to hire young workers (from 16 to 24 years old). The scheme
covers 100% of the national minimum wage for 25 hours per week for 6 months, and
additional funding is provided for their training.

British Columbia, Canada, has developed StrongerBC, an economic recovery plan

that introduces new supports for businesses to reopen, adapt, hire, rehire and grow.
Support includes inter alia a new Small and Medium Sized Business Recovery Grant
and a 15% Increased Employment Incentive tax credit.

V. Shielding start-up and scale-ups

France launched an emergency plan to support start-ups for EUR 4 billion, to
strengthen bridge finance between 2 fundraising rounds, support the availability of
venture capital, provide an accelerated refund of corporate tax credits and
accelerated payment of the Programme des Investissements d’Avenir (PIA)
innovation grants already allocated, and allocate innovation support from Bpifrance,
including direct equity investments.

Germany has deployed the Start-up Liquidity Programme 2020, with additional
funding for public venture capital investors (both individual funds and funds of funds)
and a Future Fund (Zukunftsfonds) for a total of up to EUR 10 billion aimed at start-
ups that get additional liquidity to support their way out of the crisis.

Turkey proposes grants and refundable support for start-ups to promote RDI in the
field of product design or software activities. A product development module has
been added to the 2021 call for projects. The SME Technology Support Programme

Indian Institute of Public Administration, New Delhi Page | 46

 also aims to support investments in the production and commercialisation of high-
and medium-high-technological products.

The UK has created a support package for innovative firms (Future Fund) that will
provide high-growth UK-based companies with between GBP 125 000 and GBP 5
million and matching funding from private investors. In addition, targeted support is
channelled to the most R&D-intensive SMEs in the form of grants and loans.

In Austria, the AplusB programme plays an important role as a co-operation and

inspiration partner in the national university landscape. The programme identifies and
develops technology projects within start-ups, many of which receive seed or pre-
seed funding support. At the local level, Upper Austria, for example, has developed
a start-up support package which provides a deferral of active start-up loans and
special consulting services via the Tech2b Inkubator, which is one of the six regional
incubators of the AplusB programme that supports technology start-ups with high
growth potential.

Indian Institute of Public Administration, New Delhi Page | 47

 Annexure IV: Initiatives of States in MSME Sector

States are one of the most important stakeholders as far as MSMEs are concerned. A robust
MSME sector provides employment to the unemployed in the states and also helps the
state’s economy. They have always been a focus area, but MSMEs have started receiving
increased attention in view of the realization of their potential in the overall development of
the state. Some of the important initiatives that have been taken by the states are---

1. GUJARAT
Gujarat has been one of the top performers as far as growth of MSME sector is concerned.
Three initiatives stand out-

(i) Scheme to help MSMEs reduce energy consumption. It plans to help MSMEs in the
state to reduce their energy consumption as well as carbon footprint using latest
technologies in conservation. Gujarat Energy Development Agency (GEDA) has
devised a long term plan for the same. One of the ways being promoted by it is to use
the `Waste heat’, which is usually emitted in the form of air, in these units. There is
potential of saving almost 2500 MW electricity through harnessing of ‘Waste heat’.
GEDA is planning to share the cost of equipment with MSMEs.

(ii) In October 2019, the Gujarat state cabinet decided to bring Gujarat MSME Facilitation
Ordinance to improve ‘Ease of Doing Business’ for MSME sector. This is to help a
person who intends to set up an industrial unit. On average, units need permissions
from 12 different departments and it delays the production up to 3 years. They would
now be not required to obtain various approvals in the first 3 years of their operations.
After that they would be required to get the necessary approvals in 6 months. The
Ordinance proposed ‘Investors Facilitation Agency’ at the State level and ‘District
Industries Centre’ at the district level.

(iii) Gujarat Govt. inked a MoU with the National Stock Exchange to help MSMEs in fund
raising and understand hedging foreign-exchange fluctuations for MSMEs engaged in
imports and exports. The state is also planning to create a fund on the NSE platform
to encourage investors to invest in the state.

The NSE would help MSMEs in listing on NSE’s SME exchange platform EMERGE. The
Govt. would bear a part of the expenses related to the listing. EMERGE has 205 companies
listed currently, of which 64 firms are from Gujarat.

Indian Institute of Public Administration, New Delhi Page | 48

Further, the Gujarat Govt. and the NSE will also promote online digital bills receivable
discounting platform.

2. KERALA

Kerala government has modified ‘Kerala Single Window Interface for Fast and Transparent
clearance' (KSWIFT) to facilitate immediate clearance for investment proposals up to Rs 10
crore. It has upgraded KSWIFT portal for the purpose. 15 Departments/ Agencies are
available on the platform reducing the physical touch-points and bureaucratic delays.

3. ANDHRA PRADESH
Andhra Pradesh has MSME Parks Policy-2018-23, under which it is to set up MSME Parks
in all the Assembly constituencies spanning into 25 to 100 acres to realize their potential.
The government intends to make large enterprises as ‘anchor investors' for MSME Parks.
With a motive to make large enterprises to enter into business relationships with the
MSMEs, the government will allocate a maximum of 10% of the area in each park to them.

4. TAMIL NADU

The government has put in place the concept of ‘ease of doing business’ and a ‘single
window portal’ for the MSME sector to facilitate the functioning of the industries. A dedicated
desk has been set up in every district of the state to help the MSMEs in settling dues related
to the sector from the industries. The state provides different type of subsidies to support
the MSMEs.

a. Subsidy schemes for micro manufacturing enterprises

• 25%Capital Subsidy on the value of eligible plant and machinery.

• 20% low tension power tariff subsidy for the first 36 months from the date of
commencement of commercial production or from the date of power connection,
whichever is later.

• Stamp duty exemption on mortgaged and pledged documents.

b. Subsidy schemes for Industrially Backward Blocks and Agro Based

Enterprises

Micro, Small and Medium Manufacturing Enterprises established in 251 industrially

backward blocks, all industrial estates promoted by the Government and
Government Agencies like SIPCOT, SIDCO, etc., (excluding Industrial Estates
located within a radius of 50 Kms from Chennai city centre) and agro based

Indian Institute of Public Administration, New Delhi Page | 49

 enterprises set up in all the 385 Blocks in the State are eligible for the following
package of incentives:

• 25% capital subsidy on the value of eligible plant and machinery subject to a
maximum of Rs.30 lakh.

• 5% additional employment intensive subsidy on the value of eligible plant and

machinery for providing employment to 25 workers for 3 years within the first 5
years from the date of commencement of commercial production, subject to a
maximum of Rs.5 lakh.

• 5% additional capital subsidy on the value of eligible plant and Machinery for
enterprises set up by women, SC/ST, differently abled and transgender
entrepreneurs subject to a maximum of Rs.2 lakh.

• 25% additional capital subsidy on the value of eligible plant and machinery
installed to promote cleaner and environment friendly technologies subject to a
maximum of Rs.3 lakh, if certified by the Tamil Nadu Pollution Control Board.

• 20% low tension power tariff subsidy for the first 36 months from the date of
commencement of commercial production or from the date of power connection
whichever is later.

c. Special Capital Subsidy for Thrust Sector Enterprises

A Special Capital Subsidy of 25% on the eligible plant and machinery subject to a
maximum of Rs.30 lakh is extended to 13 thrust sector enterprises setup anywhere
in the State viz., Electrical and Electronic Industry, Leather and Leather goods, Auto
parts and components, Drugs and Pharmaceuticals, Solar Energy Equipment, Gold
and Diamond Jewellery for exports, Pollution Control equipments, Sports Goods and
Accessories, Cost effective building materials, Readymade Garments, Food
Processing, Plastic and Rubber Industries.
d. Generator Subsidy

The Micro, Small and Medium manufacturing enterprises anywhere in the State,
which purchase Generator sets up to 320 KVA capacity are eligible for a Generator
Subsidy at 25% of the cost of the generator set, subject to a maximum of Rs.5 lakh.
e. Back-ended Interest Subsidy

Back-ended interest subsidy at the rate of 3%, subject to a maximum of Rs.10.00

lakh for a period of 5 years is being provided to Micro, Small and Medium
Manufacturing Enterprises for term loans up to Rs.1 crore obtained for Technology
up-gradation / modernization and Credit Guarantee Fund Trust Scheme (CGFTS).

Indian Institute of Public Administration, New Delhi Page | 50

5. MAHARASHTRA

The state has given the following incentives:

6. PUNJAB

Indian Institute of Public Administration, New Delhi Page | 51

Punjab has adopted a Right based approach for MSME sector and brought a legislation to
fasten the process of setting up units. The Right to Business Act, according to the
government, will have overriding powers over various Acts of different departments that
make approvals necessary before the setting up of small and medium units. The Act
provides that the MSME unit can be set up after ‘In-Principle’ approval from the District
Bureau of Enterprise, headed by the Deputy Commissioner, working under the guidance of
the State Nodal Agency, headed by the Director, Industries.

• Approval for units in approved Industrial Parks will be given in three working days.

• For new enterprises outside approved Industrial Parks, the decision on the
“Certificate of In-Principle Approval” shall be taken by the District Level Nodal Agency
within 15 working days, as per the recommendations of the Scrutiny Committee.

• Unit owners will have three and a half years after setting up the unit to obtain seven
approvals from three departments: the sanction of building plans; issuance of
completion/occupation certificate for buildings; registration of new trade licences
under The Punjab Municipal Act, 1911 and The Punjab Municipal Corporation Act,
1976; change of land use under The Punjab Regional and Town Planning and
Development Act, 1995; application for No-Objection Certificate under The Punjab
Fire Prevention and Fire Safety Act, 2004; approval for factory building plan under
The Punjab Factory Rules, 1952; and registration of shops/establishments under The
Punjab Shops and Commercial Establishments Act, 1958.

• The industries involving hazardous processes will have to obtain a Fire NOC and get
approval for the factory building plan before setting up the unit.

• All units will have to get environmental clearance from the Pollution Control Board
beforehand.

• With this, a District Bureau of Enterprise (DBE) would be established in each district,
headed by the Deputy Commissioner as chief executive officer, while General
Manager of the District Industries Centre (DIC) would act as the Additional Chief
Executive Officer, with other members to be notified by the Government from time-
to-time.

• The DBE shall be designated as District Level Nodal Agency, which would work
under the overall superintendence, direction and control of the State Government
and the State Nodal Agency.

• The District Level Nodal Agency will assist and facilitate MSME enterprises in the
State, maintain record of ‘Declaration of Intent’ received and issue ‘certificate of In
Principle Approval’ under the Act.

Indian Institute of Public Administration, New Delhi Page | 52

Indian Institute of Public Administration, New Delhi Page | 53
 Annexure V: Legislation/Regulatory Framework for MSMEs in India

There is an exclusive legislation for micro, small and medium enterprises known as the
Micro, Small and Medium Enterprises Development Act, 2006.

The Micro, Small and Medium Enterprises Development (MSMED) Act was notified in 2006
to address different issues affecting MSMEs, inter alia, the coverage and investment ceiling
of the sector. The MSMED Act seeks to facilitate the development of these enterprises as
also enhance their competitiveness. The MSMED Act has the following key provisions:

- Establishment of a National Board for Micro, Small and Medium Enterprises headed
by the Minister for MSME. The role of the Board is to examine the factors affecting
the promotion and development of MSMEs, review the policies and programmes of
the Central Government and make recommendations in regard to facilitating the
promotion and development and enhancing their competitiveness.

- It provides the first-ever legal framework for recognition of the concept of “enterprise”
which comprises both manufacturing and service entities. It defines medium
enterprises for the first time and seeks to integrate the three tiers of these enterprises,
namely, Micro, Small and Medium.

- It empowers the Central Government to undertake programmes and issue guidelines

and instructions to develop and enhance the competitiveness of MSMEs

The primary responsibility of promotion and development of MSMEs is of the State

Governments. However, the Government of India, supplements efforts of the State
Governments through various initiatives. The role of the Ministry of MSME and its
organizations is to assist the States in their efforts to encourage entrepreneurship,
employment and livelihood opportunities and enhance the competitiveness of MSMEs in
the changed economic scenario15.

On 9 May 2007, the erstwhile Ministry of Small Scale Industries and the Ministry of Agro
and Rural Industries were merged to form the Ministry of Micro, Small and Medium
Enterprises (M/o MSME).

15 https://msme.gov.in/sites/default/files/Annualrprt.pdf

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Framework for Revival and Rehabilitation of MSMEs16

In order to provide a simpler and faster mechanism to address the stress in the accounts of
MSMEs and to facilitate the promotion and development of MSMEs, the Ministry of Micro,
Small and Medium Enterprises, Government of India, vide its Gazette Notification dated
May 29, 2015 notified a ‘Framework for Revival and Rehabilitation of Micro, Small and
Medium Enterprises’. Reserve Bank of India, after continuous follow up, has also issued
guidelines to the Banks on 17.3.2016. Under these guidelines Banks have created a
structure for finalising corrective action plan for revival & rehabilitation of MSMEs.

Organizational Setup17

The M/o MSME has two Divisions called Small & Medium Enterprises (SME) Division and
Agro & Rural Industry (ARI) Division. The SME Division is allocated the work, inter- alia, of
administration, vigilance and administrative supervision of the National Small Industries
Corporation (NSIC) Ltd., a public sector enterprise and the three autonomous national level
entrepreneurship development/training originations. The Division is also responsible for
implementation of the schemes relating to Performance and Credit Rating and Assistance
to Training Institution, among others. SME Division is also responsible for preparation and
monitoring of Results- Framework Document (RFD) as introduced in 2009 by the Cabinet
Secretariat under Performance Monitoring and Evaluation System (PMES). The ARI
Division looks after the administration of two statutory bodies viz. the Khadi and Village
Industries Commission (KVIC), Coir Board and a newly created organization called
Mahatma Gandhi Institute for Rural Industrialization (MGIRI). It also supervises the
implementation of the Prime Minister's Employment Generation Programme (PMEGP).

The Implementation of policies and various programmes schemes for providing

infrastructure and support services to MSME's is undertaken through its attached office,
namely the Office of the Development Commissioner (010 DC (MSME)), National Small
Industries Corporation (NSIC), Khadi and Village Industries Commission (KVIC); the Coir
Board, and three training institutes viz., National Institute for Entrepreneurship and Small
Business Development (NIESBUD), NOIDA, National Institute for Micro, Small and Medium
Enterprises (NI-MSME), Hyderabad, Indian Institute of Entrepreneurship (lIE), Guwahati
and Mahatma Gandhi Institute for Rural Industrialization (MGIRI), Wardha a society
registered under Societies Registration Act, 1860.

16 https://msme.gov.in/sites/default/files/Annualrprt.pdf
17 https://msme.gov.in/about-us/about-us-ministry

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The National Board for Micro, Small and Medium Enterprises (NBMSME) was established
by the Government under the Micro, Small and Medium Enterprises Development Act, 2006
and Rules made there under. It examines the factors affecting promotion and development
of MSME, reviews existing policies and programmes and makes recommendations to the
Government in formulating the policies and programmes for the growth of MSME.

Office of the Development Commissioner [MSME]18

The Micro, Small and Medium Enterprises- Development Organisation (MSME-DO) is

headed by the Additional Secretary & Development Commissioner (MSME). The Office of
the Development Commissioner (Micro, Small & Medium Enterprises) assists the Ministry
in formulating, co-ordinating, implementing and monitoring different policies and
programmes for the promotion and development of MSMEs in the country.

18 https://msme.gov.in/about-us/about-us-ministry

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 Annexure VI: Access to Finance /Technology, Marketing and
Infrastructure to MSMEs

The Ministry of MSME runs numerous schemes targeted at a) providing credit and financial
assistances, b) marketing assistance and infrastructure development, and c) technological
and quality upgradation. A snapshot of all the schemes is provided below:

Credit and Financial assistance to MSMEs:

1) Prime Minister’s Employment Generation Programme:

The scheme aims to generate employment opportunities in rural as well as urban areas of
the country through setting up of new self-employment ventures / projects / micro
enterprises. Another objective is to provide continuous sand sustainable employment to all
age segments of traditional and prospective artisans and rural / urban unemployed youth in
the country, so as to help arrest migration of rural youth to urban areas. A third objective is
to increase the wage earning capacity of artisans and contribute to increase in the growth
rate of rural and urban employment.

2) Credit Linked Capital Subsidy Scheme (CLCSS)

The objective of the Scheme namely “Credit Linked Capital Subsidy Scheme (CLCSS)” for
Technology Upgradation of Micro and Small Enterprises is to facilitate technology
upgradation in Micro and Small Enterprises (MSEs) by providing capital subsidy of 15%
(limited to maximum of Rs.15.00 lakhs) on institutional finance availed by them for induction
of well-established and improved technology.

Presently, 51 Sectors/sub-sectors with approved Machinery/ Technologies are covered

under the scheme. The scheme is applicable to new and existing Micro & Small Enterprises
(MSEs) engaged in manufacturing.

3) Credit Guarantee Trust Fund For MSEs (CGTMSE) - Provision of collateral free credit for
MSMEs
Guarantees are provided for extending collateral free lending to Micro and Small Enterprises
through banks and financial institutions (including NBFCs). The Scheme covers collateral
free credit facility (term loan and/ or working capital) extended by eligible lending institutions
to new and existing micro and small enterprises up to Rs. 200 lakh per borrowing unit.

Subsidy/Fiscal Assistance for Access to Technology

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Technology plays a pivotal role for MSMEs to help them grow and stand up to the stiff
competition from large enterprises and imports. While big industries have enough resources
for continuous technology and quality upgradation, MSMEs, on other hand have resource
constraints related to technical knowledge, expertise, skills, and finance. It is difficult for
MSMEs to upgrade themselves. Sonia Mukherjee (2018), highlighted that low technology
level reduces the potential of MSMEs, lower the demand for the product (lower sales) and
lower profit margins. She suggested that higher investment in technology and research
development, higher usage of digital and technology enabled platform is of paramount
importance for Indian MSMEs, to maintain competitiveness in the global markets. Therefore,
policy support for technology up-gradation and modernization is invariably extended to
MSME sector by the ministry through various schemes and programmes. These include:

1. Credit Linked Capital Subsidy Scheme (CLCSS) for technology upgradation of micro
and small enterprises by providing 15 per cent upfront capital subsidy.

2. Financial Support to MSMEs in Zero Defect Zero Effect (ZED) Certification Scheme
to create awareness amongst MSME’s about ZED manufacturing and motivate them
for assessment of their enterprise for ZED and supports them.
3. International Cooperation (IC) Scheme -Technology infusion and/ or upgradation of
Indian micro, small and medium enterprises (MSME’s), their modernisation and
promotion of their exports are the principal objectives of assistance under the
scheme.
4. ISO 9000/ISO 14001 Certification reimbursement Scheme [NMCP Scheme]
5. National Manufacturing Competitiveness Programme (NMCP) – It aims to develop
global competitiveness among Indian MSME’s by improving their processes,
designs, technology and market access. There are ten components of NMCP which
are likely to spur innovation and growth in the MSME sector. These include marketing
support/assistance to MSME’s (Bar code), Entrepreneurial and managerial
development of SME’s through incubators, Enabling manufacturing sector to be
competitive through Qms & Qtt, Building awareness on intellectual property rights
(IPR), lean manufacturing competitiveness for MSMEs, design clinic for design
Expertise to MSME’s manufacturing sector (design), marketing assistance &
technology upgradation, technology and Quality upgradation support to MSMEs.

6. Promotion of Information and Communication Tools (ICT) in MSME Sector [NMCP

Scheme] the main objective of the scheme is to encourage and assist the potential
MSME clusters to adopt ICT tools and applications in their production and business
processes, with a view to improve their productivity and competitiveness in national
and international markets.

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 7. A scheme for promoting innovation and rural Entrepreneurship (aspirE) was
launched by the ministry in 2015. The scheme was formulated to set up a network of
technology centres and incubation centers to accelerate entrepreneurship and start-
ups for innovation and entrepreneurship in agro -industry. The planned outcomes of
aspirE are setting up technology Business incubators (tBi), livelihood Business
incubators (lBi) and creation of a fund of funds for such initiatives with SIDBI.

MSME Ministry with World Bank’s loan assistance is implementing Technology Centre
Systems Programme (TCSP) to establish 15 new Tool Rooms and Technology
Development Centres (TCs) and upgrading the existing 18 TCs across the country. Its aim
is to provide high end skilling and technical support to MSMEs. In a bid to bring MSMEs on
digital platform and for providing them digital identity, organizations like Common Service
Centres (CSC), Entrepreneurship Development Institute of India (EDII) on boarded.
Awareness programmes and workshops are being organized all over the country for MSME
stakeholders and for bringing all MSME service providers on a single platform. Recently,
President of India launched “MSME Sampark” portal – a digital platform where the recruiters
would have access to the increasing talent pool of trained manpower, facilitating their
placement. Another prominent Digital Platform is Government e-Marketplace. (GeM), a one
stop portal for facilitating online procurement of common use Goods & Services required by
various Government Departments / Organizations / PSUs, thereby increasing efficiency and
transparency. It will help in boosting the growth of MSMEs, small manufacturers and other
sellers.

Fiscal support for Marketing /Infrastructure

1) Scheme for providing financial assistance to Khadi institutions under MPDA

Government has introduced w.e.f. 01.04.2010, a flexible, growth stimulating and artisan
oriented Market Development Assistance (MDA) Scheme, in place of the erstwhile system
of Rebate. Under MDA, financial assistance is provided to institutions @ 20% of the value
of production of khadi and polyvastra, to be shared among artisans, producing institutions
and selling institutions in the ratio 40:40:20. MDA provides institutions flexibility to use the
assistance for improving the outlets, products and production processes, besides giving
incentive to customers, etc.

2) Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

The objectives of the scheme are to organize traditional industries and artisans into clusters
to make them competitive and provide support for their long term sustainability, sustained

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employment, to enhance marketability of products of such clusters, to equip traditional
artisans of the associated clusters with the improved skills, to make provision for common
facilities and improved tools and equipment for artisans, to strengthen the cluster
governance systems with the active participation of the stakeholders, and to build up
innovative products, improved technologies, advanced processes, market intelligence and
new models of public-private partnerships.

3) Scheme for Micro & Small Enterprises Cluster Development Programme (MSE-CDP)
The Ministry has adopted the cluster development approach as a key strategy for enhancing
the productivity and competitiveness as well as capacity building of Micro and Small
Enterprises (MSEs) and their collectives in the country.

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 Annexure VII: Intercountry Reforms on MSME Definitions

Number of employees

MSME Definitions
(number of employees)

Country
Micro Small Medium Large

Australia 0-4 5-19 20-199 >199

<10 Services; 10-24 Services; 50-100 Services; >100 Services;
<25 25-99 100-250 >250
Bangladesh Manufacturing Manufacturing Manufacturing Manufacturing
Brazil 0-9 10-49 50-249 >249
Canada 1-4 5-99 100-499 >499
20-200 >200
5-20 Wholesale; Wholesale; 50- Wholesale;
<5 Wholesale; 10-50 Retail; 20- 300 Retail; 100- >200
<10 Retail, 100 Warehouse; 200 Warehouse; Warehouse;
Accommodation, 10-100 100-300 >300
Restaurant, Accommodation, Accommodation, Accommodation,
Information, Restaurant, Restaurant, Restaurant,
Software, Software, Software, Software,
Tenancy, Other; Tenancy, Tenancy, Other; Tenancy, Retail,
<20 Heavy Information, 100-2000 Other; >1000
Industry, Other; 20-300 Information; 300- Heavy Industry,
Transportation, Heavy Industry, 1000 Heavy Transportation,
Warehouse, Transportation, Industry, Postal, Property
Postal; <100 Postal; 100-300 Transportation, management;
Property Property Postal, Property >2000
China management management management Information
France 0-9 10-49 50-249 >249
Germany 0-9 10-49 50-249 >249
India
Indonesia 1-4 5-19 20-99 >99
Israel 0-4 5-19 20-100 >100
Italy 0-9 10-49 50-249 >249
Japan 1-9 10-49 50-300 >300
≥ 300
< 10 in <50 in < 300 Manufacturing,
Manufacturing, Manufacturing, Manufacturing., Mining,
Mining, Mining, Mining, Construction,
Construction, Construction, Construction, Transportation;
Transportation; Transportation; < Transportation; ≥ 200
Korea, Rep. < 5 in other 10 in other <200 Agriculture; Agriculture; ≥

Indian Institute of Public Administration, New Delhi Page | 61

 MSME Definitions
(number of employees)

Country
Micro Small Medium Large

<100 Others; <50 100 Others; ≥50

Real State Real EState
Netherlands 0-9 10-49 50-249 >249
New
Zealand 0-5 6-9 9-20 >20
1-4 Industry, 5-24 Industry, 25-199 Industry, >199 Industry,
Construction, Construction; 5- Construction; 15- Construction;
Services; 1-3 15 Services; 4-14 34 Trade; 16-74 >34 Trade; >74
Sri Lanka Trade Trade Services Services
Sweden <11 11-48 49-199 >199
<200 ≥200
Manufacturing, Manufacturing,
Construction, Construction,
Taiwan, Mining; <100 Mining; ≥100
China <5 Other Other
United
Kingdom 0-9 10-49 50-249 >249
United
States 0-19 20-99 100-499 >499
<20 Industry, 20-99 Industry, 100-499 Industry, >500 Industry,
Mining, Mining, Mining, Mining,
Construction; Construction; 10- Construction; 50- Construction;
<10 Trade, 49 Trade, 99 Trade, >100 Trade,
Agriculture, Agriculture, Agriculture, Agriculture,
Brazil Services Services Services Services
20-200 >200
5-20 Wholesale; Wholesale; 50- Wholesale;
<5 Wholesale; 10-50 Retail; 20- 300 Retail; 100- >200
<10 Retail, 100 Warehouse; 200 Warehouse; Warehouse;
Accommodation, 10-100 100-300 >300
Restaurant, Accommodation, Accommodation, Accommodation,
Information, Restaurant, Restaurant, Restaurant,
Software, Software, Software, Software,
Tenancy, Other; Tenancy, Tenancy, Other; Tenancy, Retail,
<20 Heavy Information, 100-2000 Other; >1000
Industry, Other; 20-300 Information; 300- Heavy Industry,
Transportation, Heavy Industry, 1000 Heavy Transportation,
Warehouse, Transportation, Industry, Postal, Property
Postal; <100 Postal; 100-300 Transportation, management;
Property Property Postal, Property >2000
China management management management Information
France 0-9 10-49 50-249 >249
Israel 1-4 5-19 20-99 >99

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 MSME Definitions
(number of employees)

Country
Micro Small Medium Large

Italy 0-9 10-49 50-249 >249

≤20
Manufacturing,
construction,
transportation,
other industries;
≤5 wholesale,
Japan services, retail
Sweden 0-9 10-49 50-249 >249
United
Kingdom 1-9 10-49 50-249 >249
United
States 1-19 20-99 100-499 >499
Sweden 1-9 10-49 50-249 >249
United
States 1-19 20-99 100-499 >499
Brazil <10 10-49 50-249 >249
United
States 1-9 10-99 100-499 >499
Brazil

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Assets, local currency, unless otherwise noted

MSME Definitions
(assets,
Country local currency, unless otherwise noted)
Curren
Micro Small Medium Large
cy
Australia AUD
500,000- 10,000,000- >150,000,00
<500,000- 10,000,000 150,000,000 0 Services;
Services; Services; Services; >300,000,00
<5,000,000 5,000,000- 100,000,000- 0
Banglade Manufacturin 100,000,000 300,000,000 Manufacturi
sh g Manufacturing Manufacturing ng BDT
Brazil BRL
Canada
>800,000,00
3,000,000- 50,000,000- 0
50,000,000 800,000,000 Construction
<3,000,000 Construction; Construction; ;
Construction 20,000,000- 50,000,000- >100,000,00
; 50,000,000 100,000,000 0 Real
<20,000,000 Real Estate; Real Estate; Estate;
Real Estate; 1,000,000- 80,000,000- >120,000,00
<1,000,000 80,000,000 120,000,000 0 Leasing
Leasing and Leasing and Leasing and and
Commercial Commercial Commercial Commercial
China Services Services Services Services CHN
France EUR
Germany
1,000,000- 20,000,000- >50,000,000
<1,000,000 20,000,000 50,000,000 Services;
Services; Services; Services; >100,000,00
<2,500,000 2,500,000- 50,000,000- 0
Manufacturin 50,000,000 100,000,000 Manufacturi
India g Manufacturing Manufacturing ng INR
50,000,000 – >
Indonesi < 500,000,000 500,000,001 – 10,000,000,
a 50,000,000 million 10,000,000,000 000 IDR
Israel ILS
Italy EUR
Japan JPY
<
8,000,000,0 ≥8,000,000,
00 000
Manufacturin Manufacturi
g; < ng; ≥
3,000,000,0 3,000,000,0
00 Mining, 00 Mining,
Korea, Construction Construction
Rep. , , KRW

Indian Institute of Public Administration, New Delhi Page | 64

 MSME Definitions
(assets,
Country local currency, unless otherwise noted)
Curren
Micro Small Medium Large
cy
Transportati Transportati
on on
Netherla
nds EUR
New
Zealand
Sri Lanka
Sweden
>79,999,999
<80,000,000 Manufacturi
Manufacturing, ng,
Taiwan, Construction, Construction
China and Mining , and Mining TWD
United
Kingdom
United
States USD
Brazil BRL
>800,000,00
3,000,000- 50,000,000- 0
50,000,000 800,000,000 Construction
<3,000,000 Construction; Construction; ;
Construction 20,000,000- 50,000,000- >100,000,00
; 50,000,000 100,000,000 0 Real
<20,000,000 Real Estate; Real Estate; Estate;
Real Estate; 1,000,000- 80,000,000- >120,000,00
<1,000,000 80,000,000 120,000,000 0 Leasing
Leasing and Leasing and Leasing and and
Commercial Commercial Commercial Commercial
China Services Services Services Services CHN
France EUR
Israel ILS
Italy EUR
≤300
Manufacturin >300,000,00
g, 0
construction, Manufacturi
transportatio ≤300,000,000 ≤300,000,000 ng;
n, other Manufacturing; Manufacturing; >100,000,00
industries; ≤ ≤100,000,000 ≤100,000,000 0
100 Wholesale; Wholesale; ≤ Wholesale;
wholesale, ≤50,000,000 50,000,000 >50,000,000
services; ≤ Service and Service and and Service and
Japan 50 retail Retail Retail and Retail JPY
Sweden

Indian Institute of Public Administration, New Delhi Page | 65

 MSME Definitions
(assets,
Country local currency, unless otherwise noted)
Curren
Micro Small Medium Large
cy
United
Kingdom
United
States USD
Sweden
United
States
Brazil BRL
United
States
Brazil BRL

Indian Institute of Public Administration, New Delhi Page | 66

Turnover, local currency, unless otherwise noted

MSME Definitions
(turnover, local currency, unless otherwise noted)
Country
Curren
Micro Small Medium Large
cy
Australia AUD
Banglad
esh BDT
Brazil BRL
Canada
10,000,0000-
100,000,000
Software;
5,000,000-
500,000- 200,000,000
10,000,000 Retail;
Software; 10,000,000-
1,000,000- 300,000,000
5,000,000 Warehouse;
Retail; 10,000,000-
1,000,000- 1,000,000,000 >50,000,000
10,000,000 Information; Property
Warehouse, 10,000,000- management;
Information, 2,000,000,000 >100,000,000
<500,000 Real Estate; Real Estate; Software,
Software; 1,000,000- 20,000,000- Accommodati
<1,000,000 20,000,000 300,000,000 on,
Retail, Postal, Postal; Restaurant;
Warehouse, Accommodation 20,000,000- >200,000,000
Postal, , Restaurant; 100,000,000 Retail;
Accommoda 1,000,000- Accommodation >300,000,000
tion, 80,000,000 , Restaurant; Warehouse,
Restaurant, Tenancy; 80,000,000- Postal,
Information, 2,000,000- 1,200,000,000 Transportatio
Real Estate, 30,000,000 Tenancy; n;
Tenancy; Transportation; 30,000,000- >400,000,000
<2,000,000 3,000,000- 300,000,000 Heavy
Transportati 20,000,000 Transportation; Industry,
on; Heavy Industry; 20,000,000- Wholesale;
<3,000,000 3,000,000- 400,000,000 >800,000,000
Heavy 60,000,000 Heavy Industry; Construction;
Industry, Construction; 60,000,000- >1,000,000,0
Construction 5,000,000- 800,000,000 00
; <5,000,000 10,000,000 Construction; Information;
Property Property 10,000,000- >1,200,000,0
managemen management; 50,000,000 00 Tenancy;
t; 10,000,000- Property >2,000,000,0
<10,000,000 50,000,000 management; 00 Real
China Wholesale Wholesale 50,000,000- Estate CHN

Indian Institute of Public Administration, New Delhi Page | 67

 MSME Definitions
(turnover, local currency, unless otherwise noted)
Country
Curren
Micro Small Medium Large
cy
400,000,000
Wholesale
France EUR
German
y
India INR
>
Indonesi < 300,000,000 – 2,500,000,001 – 50,000,000,00
a 300,000,000 2,500,000,000 50,000,000,000 0 IDR
Israel ILS
Italy EUR
Japan JPY
≥30,000,000,0
00
<30,000,000,00 Publication,
0 Publication, Information,
Information and Communicatio
Communication, n, and others;
and others; ≥
<20,000,000,00 20,000,000,00
0 Agriculture 0 Agriculture
and others; and others;
<10,000,000,00 ≥10,000,000,0
0 Sewerage, 00 Sewerage,
waste waste
management, management,
and others; and others;
Korea, <5,000,000,000 ≥5,000,000,00
Rep. Real State 0 Real State KRW
Netherla
nds EUR
New
Zealand
Sri
Lanka
Sweden
Taiwan,
China <100,000,000 >99,999,999 TWD
United
Kingdom ≤2,000,000 ≤10,000,000 ≤50,000,000 >50,000,000 EUR
United
States USD
Brazil BRL
<500,000 500,000- 10,000,0000- >50,000,000
China Software; 10,000,000 100,000,000 Property CHN

Indian Institute of Public Administration, New Delhi Page | 68

 MSME Definitions
(turnover, local currency, unless otherwise noted)
Country
Curren
Micro Small Medium Large
cy
<1,000,000 Software; Software; management;
Retail, 1,000,000- 5,000,000- >100,000,000
Warehouse, 5,000,000 200,000,000 Software,
Postal, Retail; Retail; Accommodati
Accommoda 1,000,000- 10,000,000- on,
tion, 10,000,000 300,000,000 Restaurant;
Restaurant, Warehouse, Warehouse; >200,000,000
Information, Information, 10,000,000- Retail;
Real Estate, Real Estate; 1,000,000,000 >300,000,000
Tenancy; 1,000,000- Information; Warehouse,
<2,000,000 20,000,000 10,000,000- Postal,
Transportati Postal, 2,000,000,000 Transportatio
on; Accommodation Real Estate; n;
<3,000,000 , Restaurant; 20,000,000- >400,000,000
Heavy 1,000,000- 300,000,000 Heavy
Industry, 80,000,000 Postal; Industry,
Construction Tenancy; 20,000,000- Wholesale;
; <5,000,000 2,000,000- 100,000,000 >800,000,000
Property 30,000,000 Accommodation Construction;
managemen Transportation; , Restaurant; >1,000,000,0
t; 3,000,000- 80,000,000- 00
<10,000,000 20,000,000 1,200,000,000 Information;
Wholesale Heavy Industry; Tenancy; >1,200,000,0
3,000,000- 30,000,000- 00 Tenancy;
60,000,000 300,000,000 >2,000,000,0
Construction; Transportation; 00 Real
5,000,000- 20,000,000- Estate
10,000,000 400,000,000
Property Heavy Industry;
management; 60,000,000-
10,000,000- 800,000,000
50,000,000 Construction;
Wholesale 10,000,000-
50,000,000
Property
management;
50,000,000-
400,000,000
Wholesale
France EUR
Israel ILS
Italy EUR
Japan JPY
Sweden
United
Kingdom GBP

Indian Institute of Public Administration, New Delhi Page | 69

 MSME Definitions
(turnover, local currency, unless otherwise noted)
Country
Curren
Micro Small Medium Large
cy
United
States USD
Sweden
United
States
2,400,000- 16,000,000-
Brazil <2,400,000 16,000,000 90,000,000 >90,000,000 BRL
United
States
Brazil BRL

Indian Institute of Public Administration, New Delhi Page | 70