UNIT 3 B

THE MICRO, SMALL AND MEDIUM

ENTERPRISES DEVELOPMENT ACT, 2006
1948-1991
In all the Policy Resolutions from 1948 to 1991, recognition was given to
the micro and small enterprises, termed as an effective tool to expand
employment opportunities, help ensure equitable distribution of the national
income and facilitate effective mobilization of private sector resources of
capital and skills.
The Micro, Small and Medium Enterprises Development Organisation
[earlier known as Small Industries Development Organization (SIDO)] was
set up in 1954 as an apex body for sustained and organised growth of micro,
small and medium enterprises. Within next two years, the National Small
Industries Corporation, the Khadi and Village Industries Commission and
the Coir Board were also set up.
1991-1999
The new Policy for Small, Tiny and Village Enterprises of August, 1991 laid
the framework for government support in the context of liberalisation, which
sought to replace protection with competitiveness to infuse more vitality and
growth to MSEs in the face of foreign competition and open market.
Supportive measures concentrated on improving infrastructure, technology
and quality. The Small Industries Development Bank of India (SIDBI) and a
Technology Development and Modernisation Fund were created to
accelerate financial and technical services to the sector.
A Delayed Payment Act was enacted to facilitate prompt payment of dues to MSEs
and an Industrial Infrastructure Development (IID) scheme was launched to set mini
industrial estates for small industries. The aim of the IID scheme was to provide
developed sites with infrastructural facilities like power distribution network, water,
telecommunication, drainage and pollution control facilities, roads, banks, raw
materials, storage and marketing outlets, common service facilities and technological
back up services etc. The scheme covered rural as well as urban areas with a
provision of 50% reservation for rural areas and 50% industrial plots to be reserved
for tiny sector. The scheme also provided for upgradation/strengthening of the
infrastructural facilities in the existing old industrial estates.
1999 onwards
The Ministry of MSME [earlier known as Ministry of Small Scale Industries and
Agro & Rural Industries (SSI & ARI)] came into being from 1999 to provide
focused attention to the development and promotion of the sector. The new Policy
Package announced in August, 2000 sought to address the persisting problems
relating to credit, infrastructure, technology and marketing more effectively. In 2006,
the long-awaited enactment for this sector finally became a reality with the passage
of the Micro, Small and Medium Enterprises Act. In March, 2007, a third Package
for the Promotion of Micro and Small Enterprises was announced which comprises
the proposals/schemes having direct impact on the promotion and development of
the micro and small enterprises, particularly in view of the fast changing economic
environment, wherein to be competitive is the key of success.
THE MICRO, SMALL AND MEDIUM ENTERPRISES
DEVELOPMENT ACT, 2006
 The Micro, Small and Medium Enterprises Development (MSMED) Act,
2006 seeks to facilitate the development of these enterprises as also enhance
their competitiveness.
 The MSMEs sector is nursery of entrepreneurship, often driven by individual
creativity and innovation. The role of this sector in the economic and social
development of the country is well established as it helps in employment
creation, resource utilization and income generation.
 In India this act is the main legislation governing MSMEs and with the
enactment of MSMED Act, 2006, the concept and classification of enterprises
on the basis of investment were introduced.
 The Company Secretaries play an important role in educating the promoters
and management of the MSMEs and also perform the functions like
counselling of MSMEs for the rights and benefits available to them; advisory
role in formation, registration, taxation and foreign direct investment;
assistance in compliance with the technicalities laid down by the MSMED
Act, 2006 itself like classification of industries, registration under the Act,
procedure of filing of Entrepreneurs Memorandum and disclosure
requirements.
 The MSME sector contributes 8 per cent of the country’s GDP, 45 per
cent to the manufactured output and 40 per cent to the exports.
 The MSMEs provide employment to about 60 million people through
26 million enterprises.
 The labour to capital ratio in MSMEs and the overall growth in the
MSME sector is much higher than in the large industries.
 The geographic distribution of the MSMEs is also more even. Thus,
MSMEs are important for the national objectives of growth with
equity and inclusion.
 The MSME sector in India is highly heterogeneous in terms of the
size of the enterprises, variety of products and services produced and
the levels of technology employed. While one end of the MSME
spectrum contains highly innovative and high growth enterprises,
more than 94 per cent of MSMEs are unregistered, with a large
number established in the informal or unorganized sector. Besides the
growth potential of the sector and its critical role in the manufacturing
and value chains, the heterogeneity and the unorganised nature of the
Indian MSMEs are important aspects that need to be factored into
policy making and programme implementation.
DEFINITIONS

 Board means the National Board for Micro, Small and Medium
Enterprises established under section 3

 Enterprise means an industrial undertaking or a business concern or

any other establishment by whatever name called, engaged in the
manufacture of goods, in any manner, pertaining to any industry
specified in the first schedule to the Industries Development and
Regulation Act 1951, or engaged in rendering of any service.

 Enterprises have been classified broadly into:

(i) Enterprises engaged in the Manufacture/production of
Goods pertaining to any industry; &
(ii) Enterprises engaged in providing/rendering of services.
The MSMED Act (Section 7) classifies the Micro, Small and Medium
Enterprises (MSMEs) on the basis of investment in plant and machinery for
manufacturing units, and investment in equipment for service enterprises. The
criterion of investment in plant and machinery* stipulates self declaration
which in turn entails verification if deemed necessary and leads to transaction
costs.

Manufacturing enterprises have been defined in terms of investment in plant

and machinery (excluding land & buildings) and further classified into:
 Micro Enterprises - investment up to INR 25 lakh.
 Small Enterprises - investment above INR 25 lakh & up to INR 5 crore
 Medium Enterprises - investment above INR 5 crore & up to INR 10 crore.

Service enterprises have been defined in terms of their investment in

equipment (excluding land & buildings) and further classified into:
 Micro Enterprises – investment up to INR 10 lakh
 Small Enterprises – investment above INR 10 lakh & up to INR 2 crore.
 Medium Enterprises–investment above INR 2 crore & up to INR 5 crore.
Recent Amendments in MSMED in the year 2017:

 The Union Cabinet chaired by the Prime Minister Shri Narendra Modi
approved change in the basis of classifying Micro, Small and Medium
enterprises from ‘investment in plant & machinery/equipment’ to ‘annual
turnover’. This has been done to encourage ease of doing business, make the
norms of classification growth oriented and align them to the new tax regime
revolving around GST (Goods & Services Tax). The consequent growth and
will pave the way for increased direct and indirect employment in the MSME
sector of the country.
 Section 7 of the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006 will accordingly be amended to define units producing
goods and rendering services in terms of annual turnover as follows:
 A micro enterprise will be defined as a unit where the annual turnover does
not exceed five crore rupees;
 A small enterprise will be defined as a unit where the annual turnover is
more than five crore rupees but does not exceed Rs 75 crore;
 A medium enterprise will be defined as a unit where the annual turnover is
more than seventy five crore rupees but does not exceed Rs 250 crore.
 Additionally, the Central Government may, by notification, vary turnover
limits, which shall not exceed thrice the limits specified in Section 7 of the
MSMED Act.
CONCERNS OF MSME SECTOR
Presently, the Indian MSME`s are facing different types of problems.
Most of the problems are controllable while rests are uncontrollable.
Some of the concerns are as follows:
 Absence of adequate and timely banking finance
 Poor infrastructure
 Access to modern technology/non-availability of suitable technology
 Access to markets/ineffective marketing strategy
 Getting statutory clearances related to power, environment and labour
 Limited capital and knowledge
 Low production capacity
 Constraints on modernisation & expansions
 Non availability of skilled labour at affordable cost
 Follow up with various government agencies to resolve problems due
to lack of man power and knowledge etc.
 Lack of credit from banks- The MSME`S are presently facing the problems of
credit from the banks. The banks are not providing the adequate amount of loan
to the MSME`S. The loan providing process of the banks is very long and
formalistic. The owners of the MSME`S have to produce different types of
documents to prove their worthiness. The banks provide on an average 50%
total capital employed in fixed assets. The cost of credit is also high.
 Competition from multinational companies- In present era of globalization, the
MSME`S are facing great competition from the international manufacturing
companies who are proving quality goods at cheapest price. Therefore, it is very
difficult to compete with the multinational companies.
 Poor infrastructure- Though, MSME`S are developing so rapidly but their
infrastructure is very poor. With poor infrastructure, their production capacity is
very low while production cost is very high.
 Unavailability of raw material and other inputs- For MSME’s require raw
material skilled work force and other inputs, which are not available in the
market. Due to unavailability of these essentials, it is very difficult to produce
the products at affordable prices.
 Lack of advanced technology-The owners of MSME`S are not aware of
advanced technologies of production. Their methodology of production is out-
dated. The owners are using older method in the field of fabricated metal and
textile.
 Lack of distribution of marketing channels-The MSME`S are not
adopting the innovative channels of marketing. Their advertisement and
sales promotion are comparatively weaker than the multinational
companies are. The ineffective advertisement and poor marketing
channels lead to a very poor selling.
 Lack of training and skill development program- The training and
development programs in respect of MSME`S development concern is
very low. So, skilled manpower is not being available to MSME`S. The
owners are aware of the innovative methods of production. The skill
developmental schemes conducted by the government are not
sufficient.
 Complex labour laws and red-tape - All the laws related to the all
aspects of manufacturing and service concern are very complex and
compliance with these laws are practically difficult .The various
decisions of factory’ are depend upon the factory commissioner and
inspector, so there are so many chances of red-tapism in the operation
of MSME’S.
To obviate these problems, the Ministry of MSME is implementing a number of
Schemes & Programmes. Furthermore, the Ministry has been interacting with
various concerned Ministries/Departments/State Governments/Banks and other
stake-holders to streamline the mechanism for grant of loans, simplify labour laws
and other procedures to facilitate the growth of MSME units.
It is very important to empower the SME sector to utilize the limited resources
(human & economic) they have in an optimum manner. The SMEs need to be
educated and informed of the latest developments taking place globally and helped
to acquire skills necessary to keep pace with the global developments. SMEs are
now exposed to greater opportunities than ever for expansion and diversification
across the sectors. Indian market is growing rapidly and Indian entrepreneurs are
making remarkable progress in various Industries like Manufacturing, Precision
Engineering Design, Food Processing, Pharmaceutical, Textile & Garments,
Retail, IT and ITES, Agro and Service sector.
India, MSME’s account for more than 80% of total number of industrial
enterprises and employs over 6 crore people. As per estimates and statistics, out of
26 million MSME’s, only 1.5 million are registered and remaining unregistered.
The state wise distribution of MSME’s is not equal because 55% of MSME’s are
in 6 states only, namely, Uttar Pradesh, Maharashtra, Tamil Nadu, West Bengal,
Andhra Pradesh and Karnataka. Further, women own about 7% of MSME’s and
more than 94% of the MSME’s are proprietorship or partnerships.
NATIONAL BOARD FOR MICRO, SMALL AND MEDIUM
ENTERPRISES
Section 3 empowers the Central Government to establish National Board
for Micro, Small and Medium Enterprises with its head office at Delhi and
consisting of:
 The Minister in charge of the Ministry or Department of the Central
Government having administrative control of the micro, small and
medium enterprises to be the ex officio Chairperson of the Board
 The Minister of State or a Deputy Minister, if any, in the Ministry or
Department of the Central Government having administrative control of
the micro, small and medium enterprises to be ex officio Vice-
Chairperson of the Board. Where there is no such Minister of State or
Deputy Minister, such person as may be appointed by the Central
Government to be the Vice-Chairperson of the Board;
 Six Ministers of the State Governments having administrative control of
the departments of small scale industries or, as the case may be, micro,
small and medium enterprises, to be appointed by the Central
Government to represent such regions of the country as may be notified
by the Central Government in this behalf, ex officio;
 Three Members of Parliament of whom two shall be elected by the
House of the People and one by the Council of States;
 The Administrator of a Union territory to be appointed by the Central
Government, ex officio;
 The Secretary to the Government of India in charge of the Ministry or
Department of the Central Government having administrative control of
the micro, small and medium enterprises, ex officio;
 Four Secretaries to the Government of India, to represent the Ministries
of the Central Government dealing with commerce and industry, finance,
food processing industries, labour and planning to be appointed by the
Central Government, ex officio;
 The Chairman of the Board of Directors of the National Bank, ex officio;
 The chairman and managing director of the Board of Directors of the
Small Industries Bank, ex officio;
 The chairman, Indian Banks Association, ex officio;
 One officer of the Reserve Bank, not below the rank of an Executive
Director to be appointed by the Central Government to represent the
Reserve Bank;
 Twenty persons to represent the associations of micro, small and medium
enterprises, including not less than three persons representing
associations of women's enterprises and not less than three persons
representing associations of micro enterprises, to be appointed by the
Central Government;
 Three persons of eminence, one each from the fields of economics,
industry and science and technology, not less than one of whom shall be a
woman, to be appointed by the Central Government; and
 Two representatives of Central Trade Union Organisations, to be
appointed by the Central Government; and
 One officer not below the rank of Joint Secretary to the Government of
India in the Ministry or Department of the Central Government having
administrative control of the micro, small and medium enterprises to be
appointed by the Central Government, who shall be the Member-Secretary
of the Board, ex officio.
FUNCTIONS OF THE BOARD
Section 5 empowers the Board subject to the general directions of the
Central Government to, perform all or any of the following functions,
namely:
(a) examine the factors affecting the promotion and development of
micro, small and medium enterprises and review the policies and
programmes of the Central Government in regard to facilitating the
promotion and development and enhancing the competitiveness of such
enterprises and the impact thereof on such enterprises;
(b) make recommendations on matters referred to above or on any other
matter referred to it by the Central Government which, in the opinion of
that Government, is necessary or expedient for facilitating the promotion
and development and enhancing the competitiveness of the micro, small
and medium enterprises; and
(c) advise the Central Government on the use of the fund
DEVELOPMENT COMMISSIONER: MICRO, SMALL AND
MEDIUM ENTERPRISES

Formerly known as Small Industries Service Institute (SISI). Office of

the Development Commissioner (MSME), functions as the nodal
development agency under the Ministry of Micro, Small and Medium
Enterprises. It provides spectrum of services to the MSME sector. These
include facilities for testing, tool making, training for entrepreneurship
development, preparation of project and product profiles, technical and
managerial consultancy, assistance for exports, pollution and energy
audits etc.
Office of DC (MSME) provides economic information services and
advises government in policy formulation for the promotion and
development of small scale industries. The office has recognised the
changed environment and is currently focusing on providing support in
the fields of credit, marketing, technology and infrastructure to MSMEs.
It functions as a catalyst for growth of MSMEs in the country.
FUNCTIONS OF DEVELOPMENT COMMISSIONER (MSME)
 Advising the Government in policy formulation for the promotion and
development of MSMEs.
 Providing techno-economic and managerial consultancy, common
facilities and extensions services to MSMEs.
 Providing facilities for technology up-gradation, modernisation, quality
improvement and infrastructure.
 Developing human resources through training and skill up-gradation.
 Providing economic information services.
 Maintaining a close liaison with the Central Ministries, Planning
Commission, State Governments, Financial Institutions and other
Organisations concerned with development of MSMEs.
 Evolving and coordinating Policies and Programs for development of
MSMEs as ancillaries to large industries.
POTENTIALS IN MSME’S
The prospectus of this sector are explained as under-
 Employment generation- There are numerous possibilities in the field
of manufacturing and service rendering of MSME’S. In recent year, the
MSMEs are generating different and ample amount of employment in
the field of retail and manufacturing sector. The rate of employment
generation extended more by promoting the Indian MSMEs.
 Customer satisfaction oriented- The MSMEs produce goods according
to the needs or expectations of the customers. Primarily, the MSMEs
manufacture goods considering the taste and preferences, liking and
disliking of the local consumer. So, the MSMEs can be more customer
satisfaction oriented.
 Minimization of regional imbalance- The MSMEs can be a good
vehicle to minimize or remove the regional imbalances. The rural areas
of the nation can equally developed through the running of MSME
units in such areas. The MSMEs will utilize the work force of rural
areas and lead to the removal of regional imbalance.
 Enhancement of export- The MSMEs can be a mean to enhance the
export of India. There will be a great demand of Indian product at
international level of market. The Indian items like –dari, kaleen, wooden
items and other hand- made souvenir articles demanded in the world.
 Attraction to the foreign investment –Though, the Indian MSMEs are the
booming field and the growth rate and return on investment is
satisfactory. This sector is more responsive than other sector of economy.
Therefore, this sector might be a source to attract foreign investment in
India.
India benefited immensely from experience of several countries, especially in
the field of technology.
However, the rich Indian experience gained in the last sixty years in the
MSME sector could also be of equal use for both developing as well as
developed countries. Some of the areas that offer ample opportunities for
cooperation in the MSME sector are:
 Fee-based consultancy services and training in the following areas:
i) Capacity Building of Entrepreneurs and Technical Manpower of
SMEs;
ii) Policy & Institutional Framework for SME Promotion,
Development and Enhancing Competitiveness;
iii) Entrepreneurship Development; and
iv) Business Development Services.
 Establishment of Turnkey Projects for setting up manufacturing MSMEs on
commercial terms.
 Skill up-gradation programmes in selected areas such as Sheet-Metal
Technologies, Wool Processing & Weaving, Leather Technology, Plastic
Technology, Wood Working, etc.
 Conducting surveys and studies to identify the tooling and related
skill requirements in specific areas or regions like
hilly/backward/indigenous.
 Providing turnkey assistance to set up Tool Rooms & Training
Centres.
 Providing consultancy to existing manufacturing SME in upgrading
their production facilities, selection of machine tools, design
consultancy for tools, moulds, dies, jigs & fixtures, etc.
 Providing specialized/tailor-made training courses for specific target
groups.
 Providing consultancy to existing training institutes in course design
and curriculum development including trainers training programmes.
 Assistance in product design, tool design and manufacturing of
intricate tooling.
 High precision tools, moulds, dies, jigs & fixtures etc. as per
design/specifications of local industry.
 Product development & rapid prototyping services.