I

I Micro, Small & Medium enterprises

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Q. 1. What are MSMES_?
Ans. MSMEs are the growth engine of new
India, they've proved essential in
this_ age of economic development that we'
re witness~ng around us. MSMEs have
siowiy helped revive the artisan class in the
far reaches of the country by providing
them with employment and in turn acc
ess to loans and other services. They
constantly support the up-gradation of
technology, infrastructure development
within the country, and have triggered
the modernization· of the country as a
whole.
Micro, Small and Medium Enterprises are
better known by the acronym MSM.t.
MSMEs are the backbone of the Indian
economy. Silently operating in different
areas across the country, more than 6 cror
e MSMEs have a crucial role to play in
building a stronger and seif-reliant India.
These small economic engines have a
huge impact on the country's GDP.
•
MSMEs contribute a staggering 30% to the
country's GDP, and aroung_ 45% ·of
the manufacturing output, and approx
imately 48% of the ·country's exports.
Additionally, more than 11 crore peopl'e are
employed in the MSME sector. They're
rightly referred to as the 'Backbone of the
country.' ' •
The MSME ministry in order to strengthen
the backbone of the country targets
,. to increc\Se its contribution towards GDP
by up to 50% by 2025 as India moves .
ahead to become a S5 trillion economy.
Q. 2. Explain MSME as per MSME Ac~, 200
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Ans. New Definition of MSMEs (effective
from 1st July 2020)
The criterion of defining MSME ent~rpri
ses was based on the MSMED Act,
2006. It was different for manufacturing and
services units, it was also very low in
terms of financial lim.its (i.e. Investment
amount). Since then, the economy has
und~gone significant changes. .
i new composite formula of classification for
manufacturing and service units
has been notified, Now, there is no differen
ce between the manufacturing an IHl
service sectors.
•
. The government of India maqe a propos
al to redefine MSM·Es by the Micro,
S~ ll and.Medium Enterprises Developmen
t (Amendment) Bill, 2018, to clas~ify
them as manufacturing or service-providi
ng _enterprises. Under this bill, there
would be no need for frequent inspections
to chec
to be made in the plan~ and machinery nee k the required investments needed
ded. Also, the operations of MSMEs
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52 AMAR : Business Organisation and Management

woul d be all owed to continue in• a transparent, non-discriminatory, and obJ·~·

'-'-llVe
manner.
The new criterion is based on the ~vestment Amount and
Turnover of the
enterprise.
Category investment limit (In Rs.) Turnover lhnit

Micro
Small
Medium
lcrore
10 crore
50 crore
(in Rs)
5 crore
50 crore
250 crore
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While computing the Turnover of the-MSME enterprise
exclude Exports turnover i.e. turnover with respect to expo
s, it is provisioned ta
rts will not be counted
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in the limits of turnover for any category of MSME units
whether micro, small .
medium. It is particularly important to note that the prov 01
ision of exc!uding the .
exports from the counting of turnover is going to encourag
e the MSMEs to export
more and more without fearing losing the benefits of an MSM
E unit. This is expected
lo exponentially add to exports from the c;ountry leadi
ng to more growth and
economic activity and creation of Jobs.
Union Ministry of Micro~ Small and Medium Enterprises
notification to notify the new definition and criteria of MSM has issued a Gazette
Es
new definition and criterion are effective from 1st July 2020 in the country. The
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Previous/ Old Definition of MSMEs : Micro, Small and
Medium Enterprises
(MSME), are small-sized business enterprises defined in
terms qf their investment.
Acc~rding to the _provisions of the. Micro, Small and
Medium Enterprises
Development (MSMED) Act, 2006 the MSMEs are classified
intQ two categories:
1._ Mcl;1lufacturing Enterprises
2. Service Enterpri_ses
1. Manufacturing Enterprises : The Manufacturing Ente
terms of investment in rprise is defined in

Enterprises Investment in plant & Machinery .

Micro Enterprises I
Investment does not exceed Rs. 25 lakh
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Small Enterpriese Investment is more than Rs. 25 lakh but does not
exceed Rs 5 crore i
Medium Investment is more than Rs. 5 Crore but does not
exceed Rs. 10 crore
Enterprises 10 crore '

2. Service Enterprises : The Service Enterprise is defined

in terms of investment
in equipment
.
Enterprises Investment in Equipment
Micro Enterprises Investment does not exceed Rs. 10 lakh
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 Micro, Small &Medium Enterprises , 53
Small Enterprises Investment.is more than Rs. 10 Lakh but does no
exceed Rs. 2 crore.
Medium Enterprises Investment is more than Rs. 2 Crore but does doe
not exceed Rs. 5 crore

Learn more about - What is A Small'Scale Enterprise?

'fypes Of Small. Scale
Industries (SSD &Business Registration Process .
Q. 3. What-are ~e objectives of and benefits of MSME
, Ans! The Objectiveof the MS~
E Act: The Micro, Small &Medium Enterprises
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Dev el~p men t (MSMED ) Act, 20~ facilitates the promotion, development and also
t enhances the competitiveness of micro, small and med ium enterprises and for
~ matters connected therewith and incidenta
l thereto.
Benefi~ of Registration ~s MSME (Udyam)
1..MSME enterprises can get finance facilities from Bank
s without
collateral requirements \

2. Schemes by the Central Government for the developm

~t of MSMEs
3. Subsidies and Government Schemes to promote spec
ific industries
4. Reservation of Products to be produced by MSMEs
onl)'
5. Concessipn/ ~ubventions on Bank interest and Deb
t servicing
6. Concession on Taxation
7'. Preference in procuring Government t~nders.
8. Stamp auiy ana uctroi oenerns, •
9. Concession in electricity bills
10. Reduced fees for J'rademark registration
11. Reservation policies to manufacturing/ productio
n sector enterprises IMI
'12. No more delayed payment troubl~ • •
n. 13. Time-bound resolution of disputes with Buyers throu
gh conciliation and
arbitration
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14. Reimbursement' of ISO Certification ex p~
15. Foreign Business Expo
16. Facllities fo! Upgradation of Technology used in the
industry.
Q. 4. Does the Government have a role jn stimulating
growth in the SME
sector? .
AM. '!1le government plays' a leading role in the prdvisiorTofan enabling envi-
ronment for businesses to thrive. One such way is thro
ugh the provision of incen-
tives to attract investments in the private sector, ffjf Sma
ll and micro enterprises
(SMEs) particularly require a host of incentives tQ enab
le them survive, given the
numerous constraints that affect their gr~wth. These
are some of the measures
that the government can take to promote growth of the
SME
Credit guarantees :-SMEs sometimes lack the required sector :
collateral to access loans
from financial institutions. Governments can hele by prov
iding partial guarantees
 54 AMAR : Business Organisation and Management

for loans taken by SMEs. In Kenya, the government

is currently amending th
Public Finance Management Act, 2012 to allow for cred
it guarantees to SMEs. ;
enacted into law, SMEs will be able to access loans to
expand their operations1
under an arr~gement where the government promises
to pay part of the loans
advanced in case of default. Financiers will also get
attracted to lend to SMEs
because of reduced risks.
.
Tax Incentives : To woo.investors in the SME sector, the gove
rnments can also
reduce or exempt such businesses from certairi taxes. Tax
incentives lead to growth
of SMEs as they allow them to channel most of their profi
ts back to the
egrowth of the business. For instance, in the wake of COV
ID-19 earlier in the year,
the government reduced rate of turnover tax from 3 per
cent to 1 per cent for all
micro, small and medium-sized enterprises.
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Doing Business with SM'Es: Government tenders frequently
have demanding
financial requirements o that make it difficult for SMEs to
qualify. The government
can relax its tender requirements and procurement
barriers in a bid to
accommodate SMEs. Trade and Industrialisation Cabinet
Secretary Betty Maina
recently announced at a post-budget forum that "the
government will ensure
SMEs supply goods that were previously being imported"
, with preference going
t to women, youth and persons living with disability. .
~arket: Governments can also help SMEs with the mark
•
eting of their products.
f f_Th1s can be done for example by organizing events such
SMEs to showcase their products. as expos which allow
Capa~ity buildin~ : Throu~~ capacity building programm
men~o'rsh1p as ~ell as linkages with academic institutions es such as trainings,
and organisations offering
support for business development, government-led capa
play a great role in modelling SMEs. city building programmes
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Research and Devel~pment : Governments can also fund
help benefit the growth of SMEs. They can do this for exam research that will
ple by giving grants to
universities an~ investing in technologic~l advancements
that support SMEs.
Imp rove men t of Infrastructure : When governm
ents improve on
infrastructure, it improves businesses. Governments shou
ld build and maintain
roads, airports, bridges, sea ports, energy transmission
lines, telecommunication
systems and any other infrastructure that promotes busin
~ss success.
Conclusion-In addition to the measures outlined, the gove
rnment can also
promote ease of doing business by doing away with burea
ucratic restrictions on
licensing and registration that make .it too tedious and
expensive for SMEs to
formally register. The fact that over 79% of SMEs are oper
ating informally makes it
harder for them to get the much-needed support. Estim
ating ~e!_r contribution to
the'economy may also prove complex.
Q. 5. Discuss dif!erent schemes available for MSM
R?
Ans. Introduction
• The 'Make in India' initiative and the 'Atmanirbhar Bhar
at Ab~iyaan' _(Self
Reliant India Campaign) have played a key role In prom
oting business
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Micro, Small & Medium Enterprises 55

and local PH manufacturing In tbe country, giving special thrust to Micro,

Small and Medium Enterprises (MSIMEs), 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 goveming-b,9dy for MSMEs In the
country, i.e., the Ministry of-Micro, Small and Miedium Enterprises (M/o
MSMEs) also has numerous schemes In place to support the budding
manufacturing units across the country.
2. Pm Employement Generation Programe and other credit support Schmes
• 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.
• C~edit Guarantee Trust Fund for Micro &Small Enterprises (CGTMSE) •
Establish~d-by M/o·MSME and Small industries Development Bank of India
(SIDBI) to provide collateral free loans (up to INR 1 er) to Individual Micro·
and Small Enterprises (MSEs).
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• . Interest Subsidy Eligibility Certificate (ISEC)-The scheme was introduced
as a funding mechanism for khadi programme undertaken by khadi
institution~ in the couritry. 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.
Devolpm'ent 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 In
dustries (SFURTI)
3. Coir Vikas Yojana (CVY)
4. Expo; t Market Promotion (EMP)
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5. Domestic Market Promotion (DMP)
6. Trade and Industry Related Functional Support Services (TIRFSS)
7. Welfare Measures Wradhan Mantri Suraksha'
Blma 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
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& Zero Effect (ZED) practices in manufacturing done by Indian M$MEs.
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AMAR : Business Organisation and Managem ent -

ent of India (Go)) provides up to 80% subsidy

Under th scheme, the Govemm
toMSMEs.
• 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 Manufac turing Competi tiveness Program me (NMCP) • An
umbrella scheme which aids MSMEs through the following sub schemes:
1. Credit Linked Capital Subsidy for Technology Upgrada tion (CLCSS)
2. Financial Assistance on GSl Barcodes for Micro Enterprises
3. Lean Manufacturing Competitiveness for MSMEs
4. Design Clinic for Design Expertise to MSMEs
~- Technology and Quality Upgradation S_upport to MSMEs
6. Entrepre neurial and Managerial Develop ment ·of SMEs through
Incubators •
7. Enabling Manufacturing Sector to be Competitive through Quality
Management Standards (QMS) and Quality Technology Tools (QTI)
8. Building Awareness on Intellectual Property Rights (lPR)
• 5. Other schmemes and programmes
• The M/o MSME also covers many other aspects such as Marketin g
&Promotion, Skill Development, Infrastructure Develop ment and Policy
Research for providing a wholistic framework of schemes to aid MSMEs.
This includes the f?llowing:
1. Marketing Promotion Schemes
2. Entrepreneurship and Skill Development Program me
3. Infrastructure Development Programme
4. Scheme of Surveys, Studies and Policy Research
5. National SC-ST-HUB
6. Scheme of Information, Education and Commun ication
7. Scheme of Fund for Regeneration of Traditional Industrie s (SFURTI)
8. A Scheme for Promoti on of Innovati on, Rural Industri es and
Entrepre neurship (ASPIRE)