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Guiding SMEs on Legal Matters

SMEs constitute the bulk of the industrial output of a developing economy like ours. In fact, every large-scale industry today is dependent on SMEs that cater to their various inputs.

Tags: Legal Matters, SMEs legal matters, Ancillary Industries, foreign exchange investment, sme sector, District Industries Centers

BY Neerav Mainkar  |  Aug 02, 2013 comments ( 0 ) |

The Central Government has already appreciated the contribution of the SME sector to the national GDP and has enacted the Micro, Small & Medium Enterprise Development Act, 2006. This act basically lays down the investment criteria to classify the industries either as micro, small or medium enterprise. Essentially, the medium enterprises are governed by the Central Government and the micro & small enterprises are governed by the State Government for the purpose of various developmental schemes, support, registration, etc.


The main area of concern for SMEs is initial capital and working capital. The government has earmarked funds for the initial capital required for the purpose. As regards the working capital needs, the banks are being encouraged to lend their support for the same. However, bottlenecks occur due to delayed payments or non-payments from buyers to these SMEs. This high debtors ratio blocks the working capital of the SMEs and has a cascading effect as they are unable to service their loans or to go ahead with expansion programmes or even buy raw material/equipment on account of such blockage of funds. The government has initiated a Facilitation Council to address such grievances regarding payment and it is made mandatory of every buyer to make payment of the dues to an SME within a period of 45 days from the date of confirmation of the dues. However, this again, is a cumbersome process as the council is generally not seated or the buyer refuses to appear despite much persuasion. Despite this, the effort deserves to be lauded.


In these modern times when the world has become a Global Village, even the SME’s are being exposed to international commercial enterprises either as a buyer or as a seller or may be even as a joint venture. If our government is truly committed to the growth of this sector, then the main concern to be addressed is to sensitize SMEs to the global perspective by way of legal implications and procedures of international trade, the norms for foreign exchange investment, import-export policy of our country, the do and don’t list of items that can be imported/exported, the tax laws; either direct taxes or indirect taxes, legal aid centres to pursue legal wrangles with international parties, fair business practices law of other nations, policy of child labour and anti-corruption laws in business practices. All these should be made available at a single-window so that an SME does not have to run from pillar to post to different agencies for assimilating this information and can concentrate on their core competency area of production/service.


For this purpose, the existing District Industries Centers should be fortified with legal practitioners and experts in various fields of international commercial laws, direct & indirect taxes, etc. The services of these experts should be made available at nominal rates to the SME sector. More importantly, the personnel manning these centers should be sensitised to the fact that it is their bounden duty to extend all possible help to this sector and create a bond of trust and faith with SMEs. This is an uphill task but not an impossible task. What is required is a change of mindset. The drudgery of going through innumerable red tape and documentation is what drives away the SME sector from approaching these centres. The change should begin from the infrastructure and ambience of such Facilitation Centres followed by a change in the attitude. Then alone can we expect that our SMEs will compete with the best in the world.

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