Module-3

The MSME classification, revised in June 2020, is based on investment in plant and machinery
or equipment for manufacturing enterprises and turnover for service enterprises. The categories
are as follows:

Micro enterprises: Investment less than Rs. 1 crore and turnover less than Rs. 5 crore.

Small enterprises: investment less than Rs.10 crore and turnover less than Rs.50 crore.

Medium enterprises : investment less than 50 crore and turnover less than Rs.250 crore.

Types of MSME

According to the Micro, Small and Medium Enterprises Development (MSMED) Act 2006,
MSMEs are of 2 types:

 Manufacturing Enterprises: Business enterprises that are involved in the manufacturing of

goods, as stated under Schedule I of the IDRA 1951, are categorised as MSMEs.
Additionally, all business enterprises that contribute value to the finished products by making
use of plants and machinery also come under MSMEs.
 Service Enterprises: Business enterprises that provide services and come under the category
of ‘enterprises’ as stated in the MSMED Act are service enterprises and come under
MSMEs. Note that individual service providers do not qualify as service enterprises.
Importance of MSME in the Economic Development of India

1. Employment Generation

MSMEs serve as significant sources of employment, particularly in economically disadvantaged

regions. They provide opportunities for both skilled and unskilled labour, thereby contributing to
job creation and reducing unemployment rates.

2. Promotion of Entrepreneurship

MSMEs foster entrepreneurship by providing a platform for individuals to start and grow their
businesses with relatively low investment requirements. They encourage innovation and
creativity, driving economic dynamism and fostering a culture of entrepreneurship within the
society.

3. Regional Development

MSMEs play a crucial role in regional development by establishing businesses in remote or

underdeveloped areas, thereby promoting balanced economic growth across different regions.
They decentralise economic activities, reducing the concentration of industries in urban centres
and spreading economic opportunities to rural and semi-urban areas.

4. Export Promotion

MSMEs contribute significantly to export promotion by manufacturing a wide range of goods

and services for international markets. They often specialise in niche products and cater to
specific market demands, enhancing the country's export competitiveness and widening its global
market reach.

5. Diversification

MSMEs contribute to economic diversification by operating in various sectors such as

manufacturing, services, agribusiness, and technology. They reduce the reliance on a single
sector or industry, thereby enhancing the resilience of the economy to external shocks and
market fluctuations.
6. Innovation

MSMEs are hotbeds of innovation, constantly developing new products, processes, and
technologies to stay competitive in the market. They drive technological advancements, improve
productivity, and facilitate the adoption of innovative practices across industries, contributing to
overall economic growth and development.

7. Reduction of Income Disparities

MSMEs play a crucial role in reducing income disparities by providing opportunities for wealth
creation and income generation among diverse sections of society.

8. Support for Large Industries

MSMEs often serve as suppliers and subcontractors to large industries, providing them with
essential goods, components, and services. They contribute to the value chain of large industries
by offering specialised products, customised solutions, and cost-effective services.

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.

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.

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.

Registration process of MSME in india

MSME registration in India is mandatory for any business to start functioning legally. The
registration process is free of cost, paperless, based on self-declaration, and is differentiated into
two main categories: manufacturing and service enterprises.

The Union Cabinet, headed by Prime Minister Narendra Modi, has formally revised the MSME
classification.

What Is MSME Registration?

The government of India offers MSME registration to the industries classified as Micro, Small,
and Medium Enterprises (MSMEs) to assist them in receiving benefits that will help establish
and grow their businesses.

Obtaining the MSME registration is not obligatory; however, it can be advantageous as it

provides a range of benefits related to setting up the business, taxation, credit facilities, loans,
and more. You can complete MSME registration online in the comfort of your home through the
Udyam registration portal.

Classification of MSME is based on Turnover and Investments as below:

Updated MSME Definition and Criteria in 2024

Type of enterprise Investment Turnover

Micro Rs 1 crore Rs 5 crore

Small Rs 10 crore Rs 50 crore

 Medium Rs 50 crore Rs 250 crore

MSME Registration Eligibility

Manufacturing, service industries, wholesale, and retail trade that fulfil the MSME classification
criteria of annual turnover and investment can apply for MSME registration.

The following entities or company types are eligible for MSME registration:

1. Individuals, startups, business owners, and entrepreneurs

2. Private and public limited companies

3. Sole proprietorship

4. Partnership firm

5. Limited Liability Partnerships (LLPs)

6. Self Help Groups (SHGs)

7. Co-operative societies

8. Trusts

Documents Required for MSME Registration

Before you start the registration process, please ensure that these MSME registration documents
are available to minimize delays.

Aadhaar Number

An Aadhaar card is required for MSME registration as proof of identity and address.

PAN Number

A PAN card is necessary to verify the tax details of the business owner for MSME registration.

Address of the Business

Business address proof is essential for MSME registration to validate the location of the
business.
Bank Account Number

A bank account statement is required for MSME registration to verify the financial transactions
of the business.

The Basic Business Activity

A description of the basic business activity is needed for MSME registration to understand the
nature of the business.

NIC 2-Digit Code

NIC 2-digit code helps to categorize the business activity for MSME registration.

Investment Details (Plant/Equipment Details)

Investment details are necessary for MSME registration to assess the infrastructure of the
business.

Turnover Details (As per New MSME Definition)

Turnover details are required for MSME registration to determine the scale of the business.

Partnership Deed

A partnership deed is essential for MSME registration if the business operates as a partnership.

Sales and Purchase Bill Copies

Sales and purchase bill copies are required for MSME registration to validate business
transactions.

Copies of Licences and Bills of Purchased Machinery

Licences and bills of purchased machinery are essential for MSME registration to ensure
regulatory compliance and infrastructure investment.
MSME Registration Fees

The Udyam Registration process does not require any registration fees. The entire process is
completely free of cost for entrepreneurs.

Schemes supported to MSME in india

1.Make in India

 The ‘Make in India’ initiative and the ‘Atmanirbhar Bharat Abhiyaan’ (Self
Reliant India Campaign) have played a key role in promoting business and local
manufacturing in the country, giving special thrust to Micro, Small and Medium
Enterprises (MSMEs), also referred to as the backbone of Indian economy.

 The central government has also taken immediate response measures in the form
of the Atmanirbhar Bharat Package to ensure continuity of businesses during
the COVID-19 pandemic.

 Along with these measures, the main governing body for MSMEs in the country,
i.e., the Ministry of Micro, Small and Medium Enterprises (M/o MSMEs) also
has numerous schemes in place to support the budding manufacturing units across
the country.

2.PM EMPLOYMENT GENERATION PROGRAMMES AND OTHER CREDIT

GUARANTEE SCHEMES

 Prime Minister Employment Generation Programme (PMEGP) - Setup with an

aim to create employment opportunities for MSMEs in the country, the PMEGP is
implemented by Khadi and Village Industries Commission (KVIC) at the national
level while at the state and districts level, it is implemented by State KVIC
 Directorates, State Khadi and Village Industries Boards (KVIBs), District
Industries Centres (DICs) and banks.

 Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE) -
Established by M/o MSME and Small Industries Development Bank of India
(SIDBI) to provide collateral free loans (up to INR 1 cr) to individual Micro and
Small Enterprises (MSEs).

 Interest Subsidy Eligibility Certificate (ISEC) - The scheme was introduced as a

funding mechanism for khadi programme undertaken by khadi institutions in the
country. It mobilises funds from banking institutions with an aim to fill the gaps
between availability of funds from budgetary sources and the actual fund
requirements.

3. DEVELOPMENT OF KHADI, VILLAGE AND COIR INDUSTRIES

 Several schemes have been launched for the development of MSMEs operating
under the Khadi, Village and Coir Industries in the country. These include the
following:

1. Market Promotion & Development Scheme (MPDA)

2. Revamped Scheme of Fund for Regeneration of Traditional Industries
(SFURTI) -
3. Coir Vikas Yojana (CVY)
4. Export Market Promotion (EMP)
5. Domestic Market Promotion (DMP)
6. Trade and Industry Related Functional Support Services (TIRFSS)
7. Welfare Measures (Pradhan Mantri Suraksha Bima Yojana (PMSBY)

4.TECHNOLOGY UPGRADATION AND QUALITY CERTIFICATION

 Financial Support to MSMEs in ZED Certification Scheme - Supporting the

‘Make in India’ initiative, the aim of the scheme is to inculcate Zero Defect &
Zero Effect (ZED) practices in manufacturing done by Indian MSMEs. Under the
scheme, the Government of India (GoI) provides up to 80% subsidy to MSMEs.
  A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship
(ASPIRE) – The main objectives of the scheme are to:

1. Create new jobs

2. Promote entrepreneurship
3. Boost economic development at grass root level
4. Facilitate innovative business solutions
5. Promote innovation

 National Manufacturing Competitiveness Programme (NMCP) - An umbrella

scheme which aids MSMEs through the following sub schemes:

1. Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)

2. Financial Assistance on GS1
Barcodes for Micro Enterprises
3. Lean Manufacturing Competitiveness for MSMEs
4. Design Clinic for Design Expertise to MSMEs
5. Technology and Quality Upgradation Support to MSMEs
6. Entrepreneurial and Managerial Development of SMEs through Incubators
7. Enabling Manufacturing Sector to be Competitive through Quality
Management Standards (QMS) and Quality Technology Tools (QTT)
8. Building Awareness on Intellectual Property Rights (IPR)

5. OTHER SCHEMES AND PROGRAMMES

 The M/o MSME also covers many other aspects such as Marketing & Promotion,
Skill Development, Infrastructure Development and Policy Research for providing
a wholistic framework of schemes to aid MSMEs. This includes the following:

1. Marketing Promotion Schemes

2. Entrepreneurship and Skill Development Programme
3. Infrastructure Development Programme
4. Scheme of Surveys, Studies and Policy Research
5. National SC-ST-HUB
6. Scheme of Information, Education and Communication
7. Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
8. A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship
(ASPIRE)
Rules and Regulations of Government for manufacturing enterprises in india.
Here are some rules and regulations that manufacturing enterprises in india and must follow.

1.GST Registraion: All businesses in india must register for GST, which covers the entire
supply chain from the vendor to the customer.

2.Environmental laws:the environment act,1986 governs environmental laws in india.

3.Industrial license: Industrial license is required before setting up an industry in certain

categories.

4.Fire safety certificate:Every business must get fire safety clearance from the relevant fire
department.

5.Shops and establishment license.A shop and establishment license is required to legally run
any shop or establishment in india.

6.Employee provident fund registration: Manufacturing establishments employing twenty or

more people must register for EPF.

7.The contract labour act,1970 :This act regulates the employment of contract labour in any
establishment.

8. Factories Act, 1948: This act stipulates the enforcement of safety at work place by the chief
inspector of factories in the respective states.

Problems faced by MSME in India

The MSME, or the micro, small and medium enterprises are vital constituents of the Indian
industrial sector. They contribute significantly to the GDP and export earnings besides meeting
the social objectives of developing backward areas, reducing regional disparities, and providing
employment opportunities to millions of people across the country. Despite this, MSMEs in
India suffer from the problems of financial assistance, lack of business expertise, and
technological obsolescence. Indian SMEs are also facing tough competition from their global
counterparts due to liberalization, redundant manufacturing strategies and uncertain market
scenarios.

1. Financial assistance – The most common problem that all small-scale businesses have faced,
and are still facing is of credit. MSMEs struggle to obtain financial assistance due to several
factors like absence of collateral, lengthy paperwork, and lack of trust in loan repayment
capabilities. These obstacles remain despite the government’s conscious effort to provide easy
credit line to MSMEs. To help your business overcome this, IndusInd Bank offers hassle-
free MSME loans at attractive interest rates. Entrepreneurs can enjoy doorstep banking,
customized product, comfortable repayment tenure, and much more.

2. Marketing – Increasing marketability of productsis a difficult task not just for MSMEs, but
for large-scale businesses as well. Inconsistence and sporadic marketing efforts yield no results.
When it comes to small-scale businesses, the lack of resources – time, money, and skilled
employees make it impossible to increase visibility and generate quality leads. To help MSMEs
overcome this, the NSIC (National Small Industries Corporation (NSIC) under the Ministry of
MSME organizes frequent workshops to train enterprises in online and offline marketing of their
products and services.

3. Technology – Majority of the MSMEs in India operate on stale and obsolete technology
which obstructs them from keeping up with the new age world. This is despite the fact, that India
is said to have the third largest pool of technologically trained manpower. Adoption of new
technology and training employees with these technological up gradations is not only difficult,
but also costly – especially for manufacturing businesses where the scope is not just in terms of
software, but also in terms of production units. While lack of access to IT education is partly
responsible for the technological gap, the biggest factor is lack of awareness which reduces
willingness to investment in advanced tech solutions.

4. Upskilling – Skilled employees are essential for growth of businesses. Multi-national

companies (MNCs) understand this and keep on-the-job training at the centre of their
functioning. Unfortunately, small-scale enterprises fail in upskilling their manpower,
unknowingly taking a hit.

5. Business expertise – While entrepreneurs may have subject matter expertise relevant to their
goods and services, they might lack the business acumen needed to run an enterprise smoothly.
These include funding & financing, tracking sales, managing input & output costs, etc.
6. Procurement of raw material – The prices of raw materials have increased manifold,
especially since the beginning of the Covid-19 pandemic. For MSMEs in the manufacturing
sector, the procurement of raw material is extremely important to continue operations. However,
lack of bulk orders, credit facilities and transportation of raw material make the procurement
tedious. To eliminate these limitations, the NSIC runs a ‘Raw Material Assistance Scheme’
which helps small businesses by financing the purchase of raw material – both indigenous and
imported.

7. Hiring – MSMEs struggle to hire skilled and competent manpower. Lack of name recognition
of the company reduces the talent pool from which MSMEs can hire employees as there are
fewer responses to job postings by small-scale businesses. Even after finding the right candidate
from this small pool, MSMEs lose the right candidate due to inability to offer competitive salary,
job security and career development opportunities similar to larger organizations.

8. Innovation – The rate of changes is accelerating rapidly. The role of creativity and innovation
has increased in this change process for survival. Businesses are becoming knowledge-based and
their success & survival is directly related to their creativity, innovation, discovery and
inventiveness. MSMEs will have to learn and imbibe the process of innovation in their day to
day working to remain competitive.

9. Stiff competition from giant businesses – Indian MSMEs are finding it difficult to sell their
products in the

domestic and international markets because of increasing competition. Small-scale enterprises

face a tough competition from their global counterparts due to liberalisation, as well as from
domestic giants due to their immense scale of operation. While the government does run
protective schemes for such small-scale enterprises, the competition remains one-sided by and
large.

10. Overall management – Inadequate management skills hamper business expansion and often
cause non-competitiveness of small enterprises. A successful business must be able to grow
workforce, cater to diverse customer needs, manage inventory, deal with new competitors, keep
the supply chain running and sustain the company’s culture. More often than not, entrepreneurs
undermine the importance of effective management and face numerous hurdles when the
business expands at the later stage. To help your enterprise manage its finances batter,

MSME Sector in india

The MSME sector has become a key driver of India's economy,

fostering entrepreneurship and creating significant employment opportunities with low capital
investment. It plays a vital role in the country's inclusive industrial development,
complementing large industries as ancillary units.

Despite its contributions, the MSME sector grapples with significant challenges, including
access to finance, technology adoption, and global market competitiveness.

What are MSMEs

 About: MSME stands for Micro, Small and Medium Enterprises. MSMEs are
businesses that produce, process, and preserve goods and commodities.

o These are broadly classified based on their investment in plant and machinery for
manufacturing or equipment for service enterprises, as well as their annual turnover.

 MSME Regulation in India: In 2007, the Ministry of Small Scale Industries and
the Ministry of Agro and Rural Industries merged to form the Ministry of Micro,
Small, and Medium Enterprises.

o This ministry develops policies, facilitates programs, and monitors implementation to

support MSMEs and aid in their growth.

o The Micro, Small, and Medium Enterprises Development Act of 2006 addresses
various issues affecting MSMEs, establishes a National Board for MSMEs, defines
the concept of "enterprise," and empowers the Central Government to enhance
MSME competitiveness.
What is the Significance of MSMEs in India’s Growth

 GDP Contribution and Employment Generation: MSMEs currently contribute

approximately 30% to India's Gross Domestic Product (GDP), playing a crucial role in
driving economic growth.

o Als, MSMEs are labor-intensive and play a vital role in creating employment
opportunities across various sectors. They currently provide employment to over 11
crore people in India.

o For instance, the textile industry, which is dominated by small-scale units, employs a
significant number of workers in activities like spinning, weaving, and apparel
manufacturing.

 Contribution to Manufacturing Output: MSMEs contribute significantly to the country's

manufacturing output, particularly in sectors like food processing, engineering, and
chemicals.

o For example, the Agra footwear industry, which is primarily composed of MSMEs,
accounts for 28% of India's footwear exports.

 Export Promotion: Currently MSMEs contribute nearly 45% of India's total

exports. Their diverse product range, often catering to niche markets, strengthens India's
presence in the global trade arena.

o The Indian handicraft sector, which is dominated by small-scale artisans and

enterprises, has a global market and generates significant export revenue for the
country.

 Rural Industrialization: MSMEs play a pivotal role in driving rural industrialization and
promoting inclusive growth.

o The Khadi and Village industries sector, consisting of small-scale units, has been
instrumental in providing employment opportunities in rural areas and empowering
local communities.
 Innovation and Entrepreneurship: The MSME sector fosters innovation and
entrepreneurship, as it is often easier for small businesses to adapt to changing market
conditions and introduce new products or services.

o For instance, the startup ecosystem in India (third largest in the world), which is
largely driven by MSMEs, has given rise to numerous innovative solutions across
various sectors, such as e-commerce and fintech.