Compliance Challenges in the MSME Sector

Pratik is an experienced Technology and Labour Law Subject Matter Expert with 20+ years of expertise. He is proficient in simplifying intricate legal frameworks with technology, driving operational success, and offering strategic legal guidance for labor-related matters. He was a part of the Select USA Summit delegation under the umbrella of the Ministry of External Affairs and Ministry of MSME along with Indo American Chamber of Commerce.

MSME stands for Micro, Small, and Medium Enterprises. Micro, small and medium enterprises are the foundation stone of this vast business empire of India which bears a lion’s share of the GDP. It is a significant sector, a source of growth, innovation, and job prospects for any country. This sector has proved to be a vital factor in forecasting India’s business scenario.

There are nearly 63 million MSME organizations in India, which are offering a large pool of employment opportunity for the youth lives in under privileged sector of the country. MSMEs help in the process of industrialization in such areas where flow of capital is lesser than areas with larger industries. MSMEs also play a significant role in low investment, flexibility in operations, low rate of imports, and a high contribution to domestic production.

“The MSME sector is the backbone of the Indian economy. It accounts for 30 per cent of the economy and has created 11 crore jobs so far”, - Nitin Gadkari, Union Minister

How to Differentiate MSME
According to the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 MSME sector is classified in two divisions-

Manufacturing Enterprises: It deals with manufacturing or production of goods in any industry.

Service Enterprises: It deals with providing or rendering services.
In micro industries the investment is not more than Rs.1 crore and annual turnover is not more than Rs. 5 crore. For small industries investment is not more than Rs.10 crore and the annual turnover is not more than Rs. 50 crore. In case of medium enterprise, the investment is not more than Rs.50 crore and annual turnover is not more than Rs. 250 crore.

Government’s Initiative for MSME
On 1st June Union Government led by PM Narendra Modi changed the whole definition of MSME, the change was taken place as part of Atmanirbhar Bharat Abhiyaan. Government has also unveiled a new platform for MSME named as Udyam. The registration of Udyam Program started in July 2020 aiming to provide various benefits to grow and thrive.

To successfully register in the portal the candidate needs to put the adhaar Id. After that he will get a unique twelve-digit Udyam Registration Number (URN) through which they can avail various subsidies, schemes and incentives from the government. Apart from adhaar card you also need a basic address proof and full bank details. The registered organization can get collateral-free bank loans, makes it easy to get licenses, registrations, approvals & permits, concession on water & electric bill, exemption of tax, and protection against delayed payments. They get 50% of subsidy on patent right. Now with government’s support, a micro industry can also get ISO certification.

Role of Tools & Technology in MSME
To prosper in business sector every organization needs to have some advanced productivity tool to ensure and enhance productivity from day one itself. They should adopt tools like scribe, few financial technology tools for doing calculations & tally and compliance management tools. This will help them in knowing what to do, when to do and how to do in the business.

Unfortunately, in maximum cases, MSME organizations avoid to use such tools. Compared to 63 million, only 23 to 34 million companies are registered, and maximum of them are not using compliance management system. Zoho is one such tool gives a very nice overall productivity, where you can have a CRM to have a good customer relationship management tool which is also AI based.

Compliance Procedures on Cross-border Payments
Now, with the advent of modern financial technology, payments can be done in any geographic location by promptly using UPI services. Still it is very crucial to facilitate faster and secure money transfer. Government with National Payment Corporation of India is coming up with stringent systems like FERA and FEMA for fairer foreign exchange system.

Easier tools are very much required to ensure that manual processes are good gone off, whereas resource intensive tools are there to ensure compliance. Tools are also needed for auditing and rechecking data and information. Government should support more PPP or Public Private Partnership to uplift the status of these organizations.

Awareness on Intellectual Property Rights (IPR) among MSMEs & Startups
Under the umbrella of Intellectual Property Rights (IPR), trademarks, copyrights, patents all are coming. And today, itself, it's part of the MSME. Whenever you are registering MSME, they should get an option to go and register under IP. Currently there are some AI tools and ML tools helping people to search at least their names or trademarks. To ease the people’s confusion, firstly, government needs to educate all the forums who are working in this area through social media, citizen charter, minimal corporations, and in today’s context, it is very important to align with today's social media world to hit the target audience.

MSMEs help in the process of industrialization in such areas where flow of capital is lesser than areas with larger industries

Challenges for MSME
For logistic part and custom part, technology based solutions should be easily available. Right from the start to everything in the MSME organization, including export oriented part, one good platform, or good facilitation center, online or offline, will be helpful for MSMEs. In fact, 60% of India's GDP comes from service sectors and 80 to 90% comes from MSMEs that's the whole math. Government is doing great in creating awareness for IP and trademarks for the MSME sector to create a company, which can grow into big size, then it's very much mandatory, right from the conceptual stage itself, they need to ensure that whenever their logos are created, they should have the trademark of that logo. When the company is in conceptual stage, they should register themselves with government and get the IP, to grow without any hurdle.

Winding up, maximum of the MSME think they have to go through a lot of compliances and tedious process and it's a burden to them and for that reason, they are reluctant to get registered. Government is giving free IP, free ISO to personal patent, but most of them do not know it, so awareness is very critical.

One must encourage and enable trade facilitation and national trade facilitation and put stress on G20 summit, as they are really providing state of art services in logistics and infrastructure. Moreover, we have to rely on Government for ensuring a broad path towards ease of doing business, as it boosts the morale and the quality of the product. After all, MSME is creating 11 crore job opportunities in India and contributing more than 29% of the GDP as heart of the Indian economy.