The MSME or Micro, Small, Medium Enterprises for long had demanded for a single comprehensive law which will ease the challenges for small businesses by easing rules and regulations.  In addition, groups like the Abid Hussain Committee (1997) and the Study Group led by Dr. S.P. Gupta (2000) recommended creating a proper legal framework for the small sector to free it from having to abide by numerous laws and regulations. 

While small-scale industries have remained crucial to the economy, small-scale services have recently emerged as a key sector that contributes significantly to the economy and employs millions of people. The natural transition of small businesses to medium-sized businesses in a rapidly expanding economy like ours need to be fostered through proper policy interventions and legal frameworks. That’s why the Micro, Small and Medium Enterprises Development Act of 2006 was created and a separate Ministry of MSME was set-up by the government with these goals in mind.  

What is the MSMED Act, 2006? 

The MSMED Act, 2006 aims at facilitating the promotion, development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. A significant change has occurred with the enactment of the Micro, Small, and Medium Enterprises Development Act 2006, extending the ability to support Medium Enterprises while also including services in the definition of MSMEs. 

The Micro, Small and Medium Enterprises (MSME) are divided into two groups in compliance with the provisions of the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006:  

Manufacturing Enterprises: 

Companies that produce or manufacture goods for any of the industries listed in the First Schedule of the Industries (Development and Regulation) Act, 1951. Investment in plant and machinery is how the manufacturing industry is defined. 

Service Enterprises: 

The businesses that participate in offering or rendering services and are categorized based on investment in equipment. 

What are the features of the MSMED Act? 

The MSMED Act, 2006 offered the first-ever legal framework for recognizing the idea of an ‘enterprise’ (both manufacturing and services), as well as for combining the three levels of these enterprises, namely micro, small, and medium-sized. 

The important features of this Act are: 

• Creation of dedicated funds for the growth and promotion of the MSME. 
• Increase in the level of competitiveness amongst the MSMEs  
• Notification of initiatives or plans to support the expansion of MSMEs. 
• Adoption of modern procedures and policies for MSME loans. 
• Preference to goods & services provided by micro and small businesses for government contracts. 
• Simplification of the procedure of business termination for all three types of enterprises.

What is the main purpose of the MSMED Act? 

The Act seeks to promote the growth and development of small and medium-sized businesses while boosting their competitiveness by: 

• Ensuring that ‘small enterprise’ and ‘medium enterprise’ have legal meanings.
• Making provisions for the creation of the National Small and Medium Enterprises Board, a high-level forum with participation from all interested parties for reviewing policies and offering suggestions. 

ESTABLISHMENT OF BOARD: 

The National Board for Micro, Small, and Medium Enterprises, formed under section 3 of the MSMED Act of 2006, is referred to as the “Board.” The Board’s headquarters are in New Delhi. 

ESTABLISHMENT OF ADVISORY COMMITTEE: 

An advisory committee may be established by notification from the central government. 

Who are covered under the MSMED Act, 2006? 

All types of businesses, including Proprietorships, Hindu Undivided Families, Associations of people, Co-operative societies, Partnership firms, Companies, or Undertakings, can apply for MSME registration and become eligible for the MSMED Act’s benefits. 

Any individual who wishes to create a micro, small, or medium-sized business may do so by submitting the necessary paperwork to the authority designated by the State Government under subsection (4) or the Central Government under subsection (3) of the Act or apply online. 

Provisional Registration: During the pre-investment stage, a unit is given provisional MSME registration to allow it to take the appropriate actions for MSME loan applications, land or an industrial set, water, power, or telephone connections, among other things. 

• Permanent / Final Registration: A provisionally registered industrial unit must apply for a permanent or final MSME registration when it is prepared to begin production. An industrial unit that is already operational is qualified to apply for permanent registration without first completing the provisional registration procedures. 
• The MSMED Registration/Entrepreneurs Memorandum (EM) Number assigned by a competent body should be mentioned or written on the letterheads of Micro and Small Enterprises, supply order sheets, invoices, bills, and other pertinent documents to maintain the identification of being an MSE supplier. 

What are the benefits of the MSMED Act, 2006? 

A micro or small business can profit from a number of things by filing a memorandum with the District Industries Center (DIC) in its neighborhood, including:  

• Easy access to MSME loans from banks without the need of any collateral. 
• Preference in obtaining government tenders. 
• Benefits from Stamp Duty. 
• Cost reduction in electricity bills. 
• Reservation policies for manufacturing/production through mediation and arbitration. 
• Reimbursement of ISO Certification Expenses. 

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.  

MSME, you might have heard it in the news or in a discussion with your colleagues – but what really are MSMEs? 

MSMEs are micro, small, and medium-sized businesses that work in the service industry or the production, processing, manufacturing, and preservation of goods. According to the provisions of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006, MSMEs can be categorized into two sectors – Manufacturing Enterprise & Service Enterprise. The Government announced revisions to the definition of an MSME, where turnover rather than an investment will define an MSME, with the goal of creating five crore additional job opportunities in the MSME sector. 

Here’s how the Government of India classifies MSMEs: 

 
Indian MSMEs employ over 11.10 crore people across a variety of businesses. In manufacturing alone, it employs 3.6 crore people while actively contributing 45% to India’s manufacturing output. It is also a major contributor to exports, accounting for around 40% of India’s total exports. <2>  

Why are MSMEs so important? 

India is home to the world’s third-largest pool of small and medium-sized enterprises. According to Narayan Rane, the Union Minister of MSME, the country’s MSME sector accounts for almost 30% of India’s GDP. These businesses, spread across the country, are the backbone of Indian economy – driving growth, employment, exports and productivity.  

As per the Central Statistics Office, Ministry of Statistics & PI, the share of the MSME manufacturing in All India manufacturing gross value output during the year 2018-19 and 2019-20 were 36.9% and 36.9% respectively.  Furthermore, as per the Directorate General of Commercial Intelligence and Statistics, the share of MSME related products to all India exports during 2019-20 and 2020-21 stood at 49.8% and 49.5% respectively. 
 
The success of MSMEs is crucial to the success of Make in India, an initiative by the Government of India to encourage companies to manufacture their products in India. The Make in India campaign was launched by Prime Minister Narendra Modi on 25th September 2014 with an aim to transform India into a global manufacturing hub. By providing finance for MSMEs, the campaign aims at creating employment opportunities and boosting economic growth. 

Why India is betting big on MSMEs? 

The Government of India is aiming to double its economy to $5 trillion by 2025. To realize this goal, MSME has come out as a major employment generator and therefore countless career opportunities can be created for the young enthusiastic population of India.  

To give you an idea, the micro sector has around 630.52 lakh enterprises, which employed 1076.19 lakh people – accounting for around 97% of total employment in the industry. The small sector with 3.31 lakh and the medium sector with 0.05 lakh estimated MSMEs employed 31.95 lakh (2.88%) and 1.75 lakh (0.16%) people of total employment in the MSME sector, respectively. <3> 

While providing employment to a large section of the population and contributing significantly to the country’s exports, MSMEs also play an important role in the development of existing infrastructure. 

The significant impact of Indian MSMEs 

By now, you have an idea why Micro, Small and Medium Enterprises (MSMEs) are crucial to the Indian economy. So, let’s take a look at the big impact of the MSME sector: 

• Achieving export targets: With the help of MSMEs, India Inc wants to reach the target of $400 Billion by FY23 and realize the challenging target of $1 trillion in exports by 2027.    
• Driver of change: Women entrepreneurs are going from strength to strength with 20.73% of proprietary MSMEs being owned by a female. And to top it off, the socially backward groups owned almost 66.27% of MSMEs.   
• Innovation and entrepreneurship: SMEs are known for their innovative products and processes. They are also responsible for a large part of the country’s startup ecosystem. 
• Fostering growth in backward and underdeveloped regions: A large number of SMEs are located in rural and backward areas which promotes economic activity and create employment opportunities in these regions. 
• Reducing costs and increasing competitiveness: MSMEs are an important part of the supply chain for many large companies and play a vital role in ensuring the timely delivery of goods and services.  

That’s why the Ministry of Micro, Small, Medium Enterprises plans to develop the MSME sector further by providing finance for MSMEs and increasing its share in exports as well as its contribution to the GDP. If you are planning to venture into entrepreneurship with an MSME then raising capital acts as a speed breaker in your journey, therefore Ministry of MSME regularly comes with different financing schemes at regular intervals whereas IndusInd Bank also provides attractive loan offering specially designed for MSMEs.

Conclusion 

Over the past 50 years, the Micro, Small, and Medium-Sized Enterprises (MSME) sector has grown to be one of India’s liveliest and most dynamic economic segments. Since it encourages entrepreneurship and creates a lot of job opportunities, it significantly helps the economic and social growth of the nation. 

Given their importance, it is vital that the government continues to support MSMEs through policy measures such as easier access to credit and enhanced protection from bankruptcy. This will enable them to continue playing a key role in driving India’s economy forward.  

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.