Indian MSMEs towards 25 Percent of GDP

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Policy and Regulations for MSME’s

Manufacturing is one of the high growth sectors in India. Prime Minister of India had launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. India is expected to become the fifth largest manufacturing country in the world by the end of year 2022.

Manufacturing’s share in India’s GDP has been stuck at 16% since the 1980s. The current policy changes aim to increase the share of manufacturing in the country’s GDP from the current 16% to 25% by 2022. The National Manufacturing Policy aims to create 100 million additional jobs in the next decade.

Bold action is required to change the anemic growth of electronics manufacturing just when the global electronics industry is rapidly ending historical strategies for growth. To achieve its potential, electronics manufacturing in India must move beyond "high-volume, low-cost" activities, towards a greater focus on "low-volume, high-value" production and on frugal innovation for the domestic market.

WHY FOCUS ON MSME’S

The Small and Medium Enterprises (SME) segment of manufacturing has in particular attracted due attention in the new policy as can be seen from the various financial and incentives related reasons. The need for special focus on the segment arises from the fact that currently, 8% of overall GDP, 45% of manufacturing output and 40% of the country’s exports originate in more than 26 million SME units across the country. These SME units are engaged in the production of more than 6000 products, 22% of which are food products, 12% are chemicals and chemical products, 10% basic industry metals, 8% metal products, 6% each of electrical and machinery parts and rubber and plastic products (36% of miscellaneous products).

Announcing the Union Budget for 2017, Finance Minister Arun Jaitley said MSMEs having revenues less than Rs. 50 crore have been given a cut in corporate tax rate to 25 %, from 30% earlier, a cut in income tax by 5% that would benefit 96% of Indian companies.

Below are few initiatives which have been taken by Govt. of India to help manufacturing sector, we will discuss few incentives schemes in detail for better understanding. The article can only create curiousness about incentives scheme among MSME’s to find out more.

Financial and tax incentives to small and medium enterprises: Reduced corporate tax as mentioned above.

International Cooperation Scheme: It is pertaining to participation  by  Indian  MSMEs  in  international  exhibitions, trade  fairs  and  buyer-seller  meets  in  foreign  countries  as  well  as  in India, in which there is international participation. This scheme provides financial assistance of up to 95% of airfare and space rent of entrepreneurs.  Assistance is provided on the basis of size and type of the enterprise.

Credit Guarantee Scheme: For individuals a provision of collateral free loans upto a limit of Rs.50 lakhs for individual MSEs.

Credit Linked Capital Subsidy Scheme for Technology Up-gradation:

One of the reason where Indian MSME’s lags is technology and updated equipment’s. Use of old and outdated technology is hurdle in growth. The revised scheme aims at facilitating technology up - gradation by providing 15% up - front capital subsidy to small scale industrial units, including tiny, khadi, village and coir industrial units, etc. In  varying  mosaic  of  technology  obtaining  in  more  than  7,500  products  in  Indian  small  scale sector, technology up -gradation would mean a significant step up  from  present  technology  level  to  a  substantially  higher  one involving  improved  productivity.

Note: Replacement of existing equipment/technology with same equipment/technology will not qualify for subsidy.

Support for entrepreneurial and managerial development of MSME’s:

The scheme provides early stage funding to nurture innovative business ideas (it is called business incubator) which could be commercialised in one year. The funding support for setting up this varies from 4-8 lacs for each idea to maximum of 62 lacs for each business incubators.

Single window scheme: This scheme provides loan for fixed asset and working capital, this scheme can be availed by entrepreneur setting up new project in MSE, and new promoter acquiring unencumbered fixed asset of existing MSE also modernisation or technological up-gradation of potentially viable sick units is also possible.   

Incentives for Green Manufacturing:

While it is true that government has reduced number of environmental hurdles, but a balanced act of incentivizing industries which follow green norms has been taken promptly. For instance:

  • 5% interest in reimbursement & 10% capital subsidy for the production of equipment/machines/devices for controlling pollution, reducing energy consumption and water conservation.
  • An incentive of USD 3076.92 for all buildings which obtain a green rating under the Indian Green Building Council (IGBC) / Leadership in Energy & Environmental Design (LEED) or Green Rating for Integrated Habitat Assessment (GRIHA) systems.
  • A rebate on water cess for setting up wastewater recycling facilities.

Artificial Intelligence: The Future

Time to move beyond "high-volume, low-cost" activities, and focus on "low-volume, high-value” production. For long we have been trying to emulate and update existing technology, it’s time we think ahead in time and look for frugal innovations, the world is talking about industrial revolution 4.0 that includes artificial intelligence, robotics, deep learning and internet of things and there is hardly any need to adopt these modern technology. The Government is expected to provide incentives for use of frontier technologies like artificial intelligence and robotics in the new industrial policy that is likely to be unveiled soon, the policy draft has been released by commerce and industry ministry for consultation with various stakeholders. Such developments are very important as India is aiming to increase contribution of manufacturing sector from in GDP from 16% to 25% by 2022.  

Note from the author:-

I have mentioned only a few important schemes which I thought could help, There are many government schemes which can help MSME’s, Raw material assistance scheme, single point registration scheme, scheme for rehabilitation of sick industrial units etc. This article can only create curiosity among MEME’s to find out more on government incentive schemes.

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