Center starts talks to ease MSME compliance burden, financing crunch. peppermint

Providing relief to the micro, small and medium business ecosystem in the country, the Center has started talks on reforms to reduce compliance burden and provide regulatory relaxations for MSMEs in registration, mergers and acquisitions as well as winding up of business. of. Focus on overcoming financial difficulties in the area.

MSME stands for micro, small and medium enterprises.

Inter-ministerial consultations involving the ministries of MSME, Corporate Affairs and Law and Justice have begun on this issue, as well as conversations around possible amendments to the Companies Act, 2013 to include MSMEs as defined under the MSME Development Act, 2006. Is roaming around. , Decriminalizing the conduct of independent directors in MSMEs and easing compliance with filing of financial results, according to three people with direct knowledge of the development.

Read this also Government to improve revival framework for MSMEs

This development is significant as the MSME sector comprises more than 50 million businesses that contribute about one-third of the country’s annual gross value added (GVA) and employ more than 216 million individuals.

The Ministry of Corporate Affairs initiated talks with regard to MSMEs to ease business operations for the sector, a senior government official said.

Balamurugan D., joint secretary in the ministry, said MSME industry associations have made some suggestions including decriminalizing more offenses in relation to the Companies Act, rationalizing e-forms, giving relief from filing or additional fees in certain cases. Of corporate affairs. He said that these suggestions were discussed by the representatives of the concerned ministries and departments for further consultation.

Email queries sent to the MSME and Law and Justice ministries did not elicit any response till press time.

The preliminary discussion held at the stakeholder consultation on January 10 included the industry’s demand to define MSMEs under the Companies Act, 2013, as currently there is no difference in the way MSMEs and large corporations are defined under this law.

While the Companies Act already defines ‘small companies’ on the basis of paid-up capital and turnover of each business, the MSME Development Act, 2006, defines MSMEs on the basis of investment in plant and machinery and turnover of the enterprise. .

Read this also Green MSME policy likely to provide financial, technical support in Budget

Currently, the Companies Act defines ‘small companies’ as companies with a paid-up capital Turnover up to Rs 4 crore more 40 crores. However, the government can increase these limits 10 crore paid up capital and 100 crore turnover as per further rules and regulations as per the Companies Act, 2013.

The demands to ease business operations for MSMEs include proposals that will reduce compliance costs for small businesses. The high cost of regulatory compliance has been a long-standing problem among MSMEs, which operate on limited capital and infrastructure compared to larger corporations.

People familiar with the matter said one of the demands made by the industry was to decriminalize the conduct of independent directors in MSMEs, which would attract more individuals to take up positions in MSMEs.

Another proposal was to relax a certain extent of audit requirements for micro enterprises under the Companies Act to ease filing compliance. Businesses currently investing up to 1 crore and up to turnover 5 crore are eligible as micro enterprises after registration with the government.

To be clear, regulatory compliance for small businesses under the Companies Act is lower than for large corporations. For example, under the Companies Act small companies are required to hold only two board meetings every year, while large companies are required to hold four.

Also, the law has partially relaxed the conditions that board reports of small companies must meet, with lower penalties for small companies compared to other companies for certain violations under the Companies Act.

Read this also Government is considering giving industry status to waste management and recycling sector

To address the funding challenge among MSMEs, access of MSMEs to corporate bonds and debentures under the Companies Act was also discussed, people aware of the development said. Section 71 of the Companies Act allows companies to issue debentures with the option to convert these debt instruments into shares.

Additionally, there were discussions about simplifying MSME operations by reducing regulatory compliance in mergers and acquisitions as well as simplifying exit mechanisms, said people familiar with the matter.

The consultation also included discussion on the most important issue troubling MSMEs – delayed payments.

An official with direct knowledge of the development, requesting anonymity, said discussions were held about possible amendments to the Arbitration and Conciliation Act to facilitate the needs of MSMEs with regard to the issue of delayed payments. The official said the government will further consider whether such amendments are feasible, or whether alternative amendments can be made to the MSME Development Act.

The Arbitration and Conciliation Act, which was initially passed in 1996, has been amended thrice in 2015, 2019 and 2021. Currently, the Union Ministry of Law and Justice is holding a consultation for another amendment for overall reforms in the Act.

Clearly, the government has in the past tried to reduce the cost of dispute resolution for MSMEs. The India Internal Arbitration Center (IIAC), the only arbitration center directly funded by the central government, revised its rules in June 2024 to provide relaxations for MSMEs and make dispute resolution cheaper.

“The discussion also focused on the delay in implementing the arbitral awards granted to MSMEs in their favor, which has been a persistent problem due to frequent appeals,” the official quoted above said.

The Central Government has earlier taken several initiatives to reduce the compliance burden on MSMEs and enhance their global competitiveness.

For example, according to a press statement in September, the Ministry of Commerce and Industry launched a pilot project to set up e-commerce export hubs, making it easier for MSMEs to participate in international markets.

Additionally, enhanced insurance coverage has been introduced, providing access to MSME exporters Loans worth Rs 20,000 crore will be provided at low cost to reduce transaction costs on the Government e-Marketplace (GeM) portal as well as to boost their export potential.

“Depriving MSMEs of their due dues will have cascading consequences that go well beyond the MSMEs facing it,” said Krunal Modi, founding member and manager of strategy and innovation at Presolv360, which provides online dispute resolution services to MSMEs. The impacts ripple through the chain, he said, and as a result all stakeholders including raw material suppliers, manufacturers, sellers, buyers, banks, investors, government and the economy at large have to bear the brunt directly or indirectly.