A Study on a Potential MSME Green Channel

If you travel abroad by Air and go through the immigration process, we are asked to choose between Red and Green Channels for exiting the facility. Those who are carrying goods that need permits go through the red channel and those who are carrying items within stipulated limits or with no goods to declare may pass with ease through the Green Channel. This simple shift in lanes has done wonders in making international travel smoother, and the airport experience to be hassle free.

If this could work so well for passengers, why can’t the same be applied to Industries that fall under MSME, the Ministry of Micro, Small and Medium Enterprises. This Government sector issues a unique identification Card to the industries, similar to our Aadhar Card, which is called the Udhyog Aadhar Card. This is a very beneficial scheme, which simplifies loans, subsidies and access to marketing avenues.

Proposing a Green Channel for Udhyog Aadhar Card holders

The holders of the Udhyog Aadhar card are classified based on their turnovers and their benefits are outlined along this classification. This article will lead you through a hypothetical scenario, where MSME’s are classified under finer categories and given ratings. These ratings will be very pertinent later on, when we talk about the potential Green Channel for MSME’s.

We are going with the safe assumption here that the business holders themselves, are more aware about the trade ecosystem, than the people who are acting as the regulators. If MSME businesses start collapsing, the government revenue from these industries will take a serious dive.

Potential Factors

The first criteria for obtaining an MSME license are of course the investment and turnover. The Government has now merged the Manufacturing and Services sector, while earlier the slabs set for each were different. The current classification is as follows.

Classification Investment Turnover
Micro-Enterprise < 1 crore < 5 crore
Small-enterprise 1 Cr to 10 Cr 5 Cr to 50 Cr
Medium-Enterprise 10 Cr to 20 Cr 50 Cr to 100 Cr

Apart from this, there has to be a credit approval system based on ratings, which will be given on

  • Employment Generation
  • Infrastructure Spending
  • Contribution to the GDP
  • Income Tax Returns
  • ESI Returns
  • PF returns
  • GST returns
  • Bank Transaction history
  • CSR
  • Output Quality, and other such factors.

Rating points System

Let us take the example of a company which has shown a 3 year profit track record, has maintained perfect documents and filed their taxes and paid it on time without fail. This company would automatically receive a rating of 100%. Even a small misdemeanour like failing to pay their taxes on time, could take off some serious points from the rating.

Those companies which hold 81% to 100%, will be classified as A–rated Companies and will have the privilege of using the Green Channel to its full extent. Two of the most pertinent eligibility criteria for being given a rating is to have the Two T’s – Trade certificate, which is the MSME registration certificate, which has to be current and valid. The other T is the Tax returns like Income Tax, GST etc.

MSME Green Channel

Like the Airport Green Channel, the MSME Green Channel will be an easy walkthrough to all Government sanctioned Checks.

Companies that have A-Rating will pass through all Customs and GST Checkpoints without being subjected to inspection. This ease of access will in fact promote business holders to keep their records clean.

Companies with rating between 61% – 80%, will be subject to minimum inspection by any one department of the MSME Ministry.

Companies with rating between 41% – 60%, will be subject to inspection by the GST department.

Companies with rating between 21% – 40% will be subject to inspection from 2 departments.

Companies with rating below 20%, will be subject to the usual norms at inspections and checkpoints.

This hypothetical scheme will reduce a lot of paperwork, the manpower and time of which can be diverted into increasing productivity. Increased productivity, means more employment opportunities and increased revenue to the Government through these Green channel approved Companies.

 

Potential incentives of the A-Rating system

  • The Government could partner with A-Rated companies for Skill Training. Grants would be given towards engagement and training of new labour, wherein the Intern’s or Trainee’s salary would be borne by the Government, for an initial period of 18-24 months.
  • Decrease in the EMD i.e. the Bank guarantee amount to enable MSME companies to engage in large scale government projects. A Floating amount could also be agreed upon with least value on larger project sizes, gradually increasing to 10% as project value decreases.
  • Strict and secure tender application process, which will be tamper proof. Selection must be based on merit, expertise and financial credibility alone.
  • Prime share of business under Make In India, to be generated from MSME.
  • Special status and subsidies for companies that promote the Indian handicraft Industry.
  • Creating a uniform base for online payments, gradually eliminating financial movement through cash and cheques. This will ensure all transactions are transparent and are as per the papers. Bill discounting at attractive rates, to be made available to all MSME, to add liquidity in cash flow.

These are all potential benefits that can be availed when a refined rating system and a Green Channel are introduced for MSME’s. These schemes will incentivise more people to start businesses, without the anxiety of facing hurdles at all points.

This hypothesis is open for speculation and needs to be studied in depth to analyse feasibility. But if ever a system like this comes into place, it is a boon for all MSME business holders to increase their valuable contribution to the Indian economy.