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Centre looks at overhaul of MSME Development Act 2006

Centre looks at overhaul of MSME Development Act 2006

Discussions being held over review of definition, measures to promote and develop MSMEs

Surabhi
Surabhi
  • Updated Jun 18, 2024 4:14 PM IST
Centre looks at overhaul of MSME Development Act 2006MSMEs also pointed to big companies shifting business to unregistered MSMEs, as it lends them the flexibility to not meet the mandatory provision and continue with a longer payment cycle of 90-120 days, according to a report in The Indian Express.

The government is undertaking a comprehensive review of the Micro, Small and Medium Enterprises Development Act, 2006, including a review of the definitions of small businesses.

According to sources, the MSME ministry is looking at all aspects of the Act to bring it in sync with the current trends and put in place some of the lessons learnt from the past. “The Act came into effect in 2006. Since then the entire economic situation has changed and there are many new challenges and opportunities for the sector,” said a person familiar with the development.

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The amendments to the Act are likely to include a relook at the definitions of MSMEs, measures for development and promotion for these businesses as well as provisions around delayed payments.

At present, MSMEs are defined based on dual criteria linked to their investment in plant and machinery and annual turnover. This could now only be based on annual turnover to keep it in sync with the goods and services tax.

Further, there are also challenges with regard to value addition and subsequent high turnover by close to 25 sectors such as diamond polishing and gems and jewellery, grills, cables, wire cutting and pharmaceuticals. Clarity around using turnover for definition will enable that firms in these sectors are correctly classified, sources noted.

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Chapter 4 of the MSME Development Act, which relates to measures for promotion, development and enhancement of competitiveness of MSMEs is also under review. While the government already has a number of measures and schemes to promote and develop the sector as well as a procurement preference policy, sources indicated that some of these measures will also be tweaked in line with requirements and representations from the sector.

Plans are also afoot to overhaul of the provisions around delayed payments and to streamline procedures and ensure faster execution of payments. There are discussions to bring an enabling provision to ensure that the award by the facilitation council gets implemented and MSME gets its payments.

Under current provisions, a payment to an MSME is considered to be delayed if it is not made within 45 days of the delivery of a good or service. In such cases the buyer has to pay compound interest with the monthly rests to the supplier on the amount at thrice the notified bank rate. In case the payment gets stuck further, every state has a facilitation council for settlement of disputes and filing of payments by issuing directions to the buyer.

Published on: Jun 18, 2024 4:14 PM IST
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