Objectives

 After study of the unit, we shall be able to understand.

– The concept of Micro, Small and Medium Enterprises.

– And their development in India

Introduction

 With the advent of planned economy from 1951 and the subsequent
industrial policy pursued by Government of India, both the planners and
the Government earmarked a special role for the small scale industries
and medium scale industries in the Indian economy.

 The policy for Small, Tiny and Village Enterprises of August 1991 laid the
frame work for the government support in the context of liberalization.
Aim of MSMEs

 It can be observed that MSMEs in India have met the expectations of the
Government in this respect MSMEs developed in a manner, which made
it possible for them to achieve the following objectives:
– High contribution to .
– Significant export earnings.
– Low investment domestic production.
– Operational Flexibility.
– Mobility.
– Low intensive imports.
– Capacities to develop an appropriate indigenous technology.
– Import substitution.
– Contribution towards defense production.
– Technology oriented industries.
– Competitiveness in domestic and export markets.
Some limitations of MSMEs

 Low capital base.

 Concentration of functions in one/two persons.

 Inadequate exposure to international environment.

 Inability to face impact of WTO regime.

 Inadequate contribution towards R&D.

 Lack of professionalism.
Some Significant Contribution
towards Technology by MSMEs.

 Food processing
 Chemicals and pharmaceuticals.
 Electro-medical equipment.
 Leather and Leather goods.
 Bio-engineering.
 Plastic products.
 Agriculture Inputs.
 Engineering, Electrical, Electronics.
 Textiles and Garments.
 Meat products.
 Sports goods.
 Computer software, etc.
Micro, Small and medium Enterprises.
Development (MSMED) Act, 2006.

 The Government of India vide its notification dated 16.6.2006 enacted

an Act named “Micro, Small and Medium Enterprises Development Act,
2006” (MSMED Act, 2006). This Act has been made effective from
20October, 2006 as per the notification dated 18 July, 2006. In this Act,
the word ‘Enterprises’ replaces the word ‘Industry’.

 ‘Enterprises’ means an industrial undertaking or a business concern or

any other establishment engaged in the manufacture or production 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 providing or rendering of any services.
Contd….

 Description of Micro, Small and Medium, Sectors.

Enterprises Manufacturing Sector Services Sector

Micro Where the Investment in plant and Where the Investment in
machinery does not exceed Rs. 25 equipment does not exceed
Lakh. (Currently called as Tiny Sector) Rs. 10 lakh.(Currently called
as SSSBEs)
Small Where the Investment in plant and Where the investment in
machinery is more that Rs. 25 lakh but equipment is more that Rs.
does not exceed Rs 5 crore 10 lakh but does not exceed
Rs 2 crore.
Medium Where the Investment in plant and Where the investment in
machinery is more that Rs. 5 crore but equipment is more that Rs. 2
does not exceed Rs. 10 crore. crore but does not exceed
Rs. 5 crore.
Policy Package For MSMEs-Credit/Finance

 Credit is one of the critical inputs for the promotion and development of
MSMEs. Some of the features of the existing credit policy and those
evolving for the MSMEs are:
– Credit to the MSMEs is part is part of the Priority Sector Lending Policy of
banks. For the public private sector banks, 40% of the net bank credit (NBC) is
earmarked for the priority sector. For the foreign bank, however, 325 of the
NBC is earmarked for the priority sector, of which 1 % is earmarked for the
MSME sector.

– The SIDBI is the principal financial institution for promotion, financing and
development of the MSME sector. SIDBI’s operations are in the areas of –
Refinance assistance, Direct lending, Development and support services.

– At the state level, State Financial Corporations (SFCs) and twin-function State
Industrial Development Corporations (SIDCs) are the major sources of long-
term funds.
Contd..
– Commercial banks are important channels of credit dispensation to the sector
and play a pivotal role in financing the working capital requirements, besides
providing term loans.

– Recognizing the importance of easy and adequate availability of finance in

suitable growth of the MSME sector, the Government has announced a “Policy
Package for Stepping up Credit to MSMEs”, with the objective of doubling the
flow of credit to this sector within period of five years and the banks have been
accordingly.

– The banks have also been directed that each rural and semi-urban branch
should provide credit cover to at least five new micro/small/medium enterprises
including agro-rural industries and artisans per year.

– Efforts are on the put in place limited liability Partnership Act so as to provide a
thrust to MSMEs in their move towards corporatization.
Delayed Payment

 The MSEMED Act has provisions to safeguard the interests to SMEs by

putting penalty clauses n delayed payments. When the buyer of goods fail
to make the payment of the amount to the supplier within a period of forty-
five days, the buyer shall be liable to pay compound interest tio the
supplier on the amount with monthly interest at three times of the bank
rate.

 The act also has provisions for the establishment of MSE facilitation
council for dispute resolution within a framework in ninety days.
Performance Rating System

 As per the scheme approved by the Government of India and

Launched in April, 2005 for performance and credit rating of
manufacturing MSEs, the National Small Industries Corporation
(NSIC) empanels credit rating agencies for rating of small enterprises
engaged in manufacturing activities.

 The rating scheme aims at helping theme in accessing credit from

banks faster and at competitive terms.
Summary

– In this session you have learnt:

– The MSMEs fulfill not only the economic objectives but also the
social needs.

– The Micro, Small and Medium Enterprises Development Act, 2006

was enacted in 2006 which has redefined micro, medium and small
enterprises in both the manufacturing and services sectors.

– The act has provisions for penalty for delayed payments so as to

protect MSMEs.