How MSMEs Benefit from NIC Code and Udyam Registration

Introduction

Micro, Small, and Medium Enterprises ( MSMEs ) form the backbone of many economies, especially in developing countries like India. The MSMEs offer a source of employment, promote entrepreneurship, and contribute significantly to the growth of a nation like India. In India, mechanisms have been developed by the government that would enable the MSMEs to achieve growth and development. Two important ones are the NIC Code and Udyam Registration. These tools make it easier for businesses to get recognized, access benefits, and operate smoothly.

In this article, we will look at, how NIC Code and Udyam Registration can benefit MSMEs and why they’re important in the growth of small businesses.

What is a NIC Code?

An NIC Code (National Industrial Classification) is a system used in India to classify businesses and industries based on the type of activities they perform. It helps identify the business activities, whether it’s involved in manufacturing, services, or other sectors. The government uses this system to track economic activities, create policies, and regulate businesses.

Structure of the NIC Code:

Sections: The highest level of classification includes 21 broad sections, each representing a major industry, such as agriculture, manufacturing, or IT services.
Divisions: Each section is divided into specific categories called divisions. For example, within the manufacturing section, you’ll find divisions like food production or textile manufacturing or spare parts manufacturing, etc.
Groups: Divisions are further broken down into groups for more detailed classification. For example, within textile manufacturing, you might have groups for cotton or wool or nylon fabric production.
Classes and Sub-classes: At the most detailed level, groups are divided into classes and subclasses, which provide specific details about the type of activity. For Example, in textiles, subclasses could differentiate between hand-woven and machine-made fabric.

This structure ensures that every business activity can be precisely categorized.

NIC Code Role in Udyam Registration

One such process, intended and propagated by the Indian government, is Udyam Registration for smooth recognition to MSMEs. It was launched in July 2020, as a replacement for the earlier system known as Udyog Aadhar. This registration of Udyam is very important because this assigns a unique identification number to MSMEs, thereby enabling them to access various benefits provided by the government, such as subsidies, loans on reduced interest rates, tax benefits, and easier access to tenders.

The NIC Code plays a very important role in the entire process of Udyam Registration. Here’s how:

Accurate Business Classification: According to the Udyam Registration, it is a must for MSMEs to specify the NIC Code on self-declaration. This informs the government with specificity regarding the business the enterprise is into. Without such categorization, the government cannot possibly keep track or extend specific benefits to the respective industries. For example, if a business deals with dairy farming, then the NIC Code would differ from that of enterprises that deal in making shoes, and the extended schemes or benefits towards these industries may be different as well.

Policy Making and Support: Through the NIC code, the government can immediately know what businesses are set up in respective fields and can plan policies right away. In some crisis situations, the government can identify particular businesses and provide relief packages to certain industries which are the worst hit due to such situations. Instead, in the presence of an NIC Code, businesses in those sectors are identified and support is provided with much greater ease.

Access to Financial and Legal Benefits: In case a business is registered under Udyam, with its NIC code provided, various financial and legal benefits can be granted, such as protection against delays in payments, eligibility for loans under special government schemes, easy financing, etc. The NIC code shall help in categorizing the business correctly so that it applies to industry-specific benefits. MSME loan apply online can become easier with Udyam.

NIC Code: Applications Across Industries

Starting from Agriculture and Manufacturing to Services and Technology, NIC Code systems are applied almost in every other industry in India. Every Industry has a set of NIC Codes explaining various types of activities in that particular industry.

Let’s look at how the NIC code is applied across industries:

Agriculture: The NIC Code helps in differentiating agriculture and other activities related to the sector. Examples include codes available for crop production, dairy farming, poultry farming, and fisheries. This would allow the agriculture businesses to claim specific benefits and grants available to their particular activity.

Manufacturing: Manufacturing falls into a huge category, and NIC Codes are assigned to companies producing food items, garments, electrical and electronics items, and chemical products. This helps in defining the specific nature of the manufacturing process and assists the administration in extending their support in the required manner.

IT and Services: This NIC Code helps classify an entity into the right sector involved in business related to IT, software development, or any other service-related activity. This will make them eligible for all those government schemes, tax benefits, and promotional activities designed for the service sectors.

Construction and Infrastructure: All construction-related enterprises, whether housing, road building, or construction of industrial buildings, have their specified NIC Codes. Such a classification enables the government to target construction-related business entities, which often enjoy special support, particularly when the country is investing big in infrastructure development.

Conclusion

The NIC Code and Udyam Registration carry high potential for growth and development in MSMEs in India. By classifying a business correctly, they allow the government to extend sector-specific benefits, formulate effective policies, and extend timely financial support. MSMEs that do Udyam Registration with the correct NIC Code can avail a long list of benefits such as subsidies, tax exemptions, and easier access to government project tenders.

Unsecured business loan have emerged as an effective source of finance for MSMEs and often come with quicker approval and competitive rates of interest with less documentation. This goes a long way in expanding a business or effectively managing the working capital of a firm. This assists MSMEs in achieving growth beyond the various schemes of the government. All these mechanisms put together contribute to strengthening the MSME sector in India and contribute to economic progress in all sectors.

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