Introduction:

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). The Ministry designs policies, promotes and facilitates programmes, projects, schemes and monitors their implementation, with a view to assisting MSME and helping them to scale up.

The Micro, Small and Medium Enterprises Development (MSMED) Act was notified in 2006 to address different issues affecting MSME, 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 Hon’ble Union Minister for MSME. The role of the Board is to examine the factors affecting the promotion and development of MSME, 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 legal framework for recognition of the concept of “enterprise” which comprises both manufacturing and service entities.
  • It empowers the Central Government to undertake programmes and issue guidelines and instructions to develop and enhance the competitiveness of MSME.

Definition of Micro, Small and Medium enterprises:

In accordance with the MSMED Act, MSME are classified as below:

(i) a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;

(ii) a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and

(iii) a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.

To give effect to the new classification of MSME as notified on 26th June, 2020, the Udyam registration portal was launched on 1st July, 2020. The earlier criterion of classification of MSME under MSMED Act, 2006 was based on investment in plant and machinery or equipment and was different for manufacturing and service units.

Estimated number of MSME in country:

As per the National Sample Survey (NSS) 73rd round, conducted by National Sample Survey Office, Ministry of Statistics & Programme Implementation during the period 2015-16, there were 633.88 lakh unincorporated non-agriculture MSME in the country engaged in different economic activities (196.65 lakh in Manufacturing, 0.03 lakh in Non-captive Electricity Generation and Transmission , 230.35 lakh in Trade and 206.85 lakh in Other Services) excluding those MSME registered under (a)Sections 2m(i) and 2m(ii) of the Factories Act, 1948, (b)Companies Act, 1956 and (c)construction activities falling under Section F of National Industrial Classification (NIC) 2008.

Distributions of Estimated MSME (Nature of Activity Wise)

*Non-captive electricity generation and transmission

Estimated Employment in the MSME Sector (Activity Wise)

*Non-captive electricity generation and transmission

Source: Annual Report of 2023-24 issued by Ministry of Micro, Small & Medium Enterprises

TReDS (Trade Receivables Discounting System) Platforms for MSMEs

TReDS is an electronic platform introduced by the Government of India to help Micro, Small, and Medium Enterprises (MSMEs) access quick and easy financing by enabling the discounting of trade receivables (invoices) through an online platform. TReDS is designed to address the challenges faced by MSMEs in managing their working capital and improving cash flow by providing an alternate mechanism for raising short-term finance.

Key Features of TReDS Platforms

  • Facilitates Invoice Discounting: MSMEs can upload their invoices on the platform to get them financed by banks or NBFCs (Non-Banking Financial Companies).
  • Auction Mechanism: Financial institutions bid to discount the invoices, and MSMEs can choose the best offer, helping them secure the best possible financing terms.
  • Quick Access to Working Capital: MSMEs can access liquidity by getting their receivables paid upfront, instead of waiting for long payment cycles from buyers.
  • Involves Multiple Stakeholders:
    • MSMEs (as sellers of goods or services),
    • Buyers (corporates or government entities),
    • Financiers (such as banks and NBFCs) who provide the funds.
  • Government Support: The system is regulated by the Reserve Bank of India (RBI), and platforms are required to be registered with it.

Key TReDS Platforms in India

  1. M1xchange

Overview: Developed by Mynd Solutions, M1xchange is one of the largest TReDS platforms in India. It enables MSMEs to discount their trade receivables at competitive rates, improving their cash flow and working capital.

  1. RXIL (Receivables Exchange of India Ltd.)

Overview: RXIL is a joint initiative between SIDBI (Small Industries Development Bank of India) and National Stock Exchange (NSE). RXIL aims to create a platform that offers MSMEs a transparent, efficient, and cost-effective mechanism to discount their receivables.

  1. Invoicemart

Overview: Invoicemart is another leading TReDS platform established in India, providing MSMEs with the facility to discount their invoices. The platform is supported by the Asian Development Bank (ADB) and operated by Clearing Corporation of India Ltd. (CCIL).

Latest notification issued by Ministry of MSME on 7th November 2024

MSME Ministry has mandated that all companies registered under the Companies Act, 2013, and Central Public Sector Enterprise (CPSEs) with a turnover of INR 2,50,00,00,000 (Indian Rupees Two Hundred and Fifty Crore) or more must now register on the TREDS platform. Previously, this requirement applied only to companies and CPSEs with a turnover of INR 5,00,00,00,000 (Indian Rupees Five Hundred Crore) and above.

Eligible companies and CPSEs are required to complete their registration on the TReDS platform by 31st March 2025

Conclusion

The MSME sector contributes almost 30% to India’s GDP and MSMEs are key to the US$ 5 trillion Indian economy projections. They are most affected by working capital challenges and thus the latest notification for mandatory registration on TREDS platform will certainly provide a fillip to the MSMEs. The regulators should also provide incentives and education to MSMEs to adopt the latest technologies and modern equipment so that their productivity can be enhanced further.

 

Akansha Rathi and Associates (ARACS), Company Secretary Firm in Navi Mumbai is engaged into compliance related services. We have a team of experts who not only possess required skills and experience but also have worked in complex business environment and were engaged in providing complex solutions in terms of providing related Compliance services to our clients.

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