In an diverse, developing country like India, which faces a lot of challenges, the Micro-Small and Medium Enterprises (MSMEs) deserve special attention because of their contribution to the Indian economy is very significant. MSME are small sized entities which are backbone of Industrial Development in Indian Economy. 

MSMEs provide largest portion of work after agriculture in the Indian economy, as they create work to an enormous number of unskilled and semi-skilled individuals, contributing to exports, raising manufacturing sector production and extending support to bigger industries by providing raw material, basic goods, completed parts and components, and so forth.

The Micro, Small and Medium Enterprises Development Act, 2006 shall come into force from 2nd October, 2006. Vide notification No. S.O. 1154(E) dated 18th July, 2006, in the official Gazette of India,

Definitions of Micro, Small & Medium Enterprises as per MSME Act, 2006

As per the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes i.e. 

Original Definition of MSMEs (as per MSMED Act 2006

Note: The investment in plant and machinery is the original cost excluding land and building and other items specified by the Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E) dated 05.10.2006.

Investments will no longer describe MSMEs. 

In October 2019, Union Minister Mr. Nitin Gadkari had said that the revised definition of micro, small, and medium enterprises may give a bound together description for everything identified with tax collection, investment, and more

The Union Cabinet had affirmed the amendment to change the standards to classify MSMEs from “Investment in Plant and Machinery” to “Annual Turnover.”

On 13th May 2020, Finance Minister Mrs. Nirmala Sitharaman included the additional principle of turnover alongside the investment. She said the new definition will realize numerous advantages that will help MSMEs to develop in size.

So, the distinction between manufacturing and services has been done away 

Existing and Revised Definition of MSME

Existing MSME Classification
Criteria: Investment in plant and machinery or Equipment
Manufacturing EnterprisesNot exceeding Rs.25.LakhsMore than Rs.25 lakhs but does not exceed Rs.500 lakhsMore than Rs.500 lakhs but doesn’t exceed Rs.1000 lakhs
Service EnterprisesNot exceeding Rs.10 LakhsMore than Rs.10 lakhs but doesn’t exceed Rs.200 lakhsMore than Rs.200 lakhs but doesn’t exceed Rs.500 lakhs

Revised MSME Classification
Criteria: Investment and Annual Turnover
Manufacturing & Service EnterprisesInvestment upto Rs.1 Crore and Turnover less than Rs.5 CroreInvestment upto Rs.10 Crore and Turnover upto Rs.50 CroreInvestment upto Rs.20 Crore and Turnover under Rs.100 Crore

Explanation 1.-For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded.

Importance and Role of MSME 

  • MSME makes enormous scope of employment because Enterprises that are engaged in MSME require low money to fire up new business. Besides, it makes a huge open door for the unemployed individuals to get a job
  • Monetary soundness regarding Growth by contribution of MSME to Manufacturing, Exports, and Employment 
  • The comprehensive development is at the highest point of the motivation of Ministry for Medium, and Small sized enterprises for quite a long while. Then again, poverty and deprivation are a hindrance to the advancement of India
  • MSME can begin with limited resources inside the control of the owner. Despite what might be expected, a large corporation requires an expert for each departmental working because of complex hierarchical structure. While a small enterprise doesn’t have to employ an external specialist for its management. The proprietor can oversee himself
  • The mark activity by the Prime Minister of India “Make in India” has been made simple with MSME. It is taken as a backbone in making this dream a chance. Likewise, the administration has guided the financial institution to loan more credit to enterprises in the MSME division

Objectives of MSME

  • Providing e-infrastructure for delivery of e-services
  • Promotion of electronics hardware manufacturing and IT-industry
  • Enabling creation of Innovation/ R&D Infrastructure in emerging areas of ICT&E/Establishment of mechanism for R&D translation
  • Providing support for development of e-Skills and Knowledge network
  • Securing India’s cyber space
  • Promoting the use of ICT for more inclusive growth
  • Enhancing India’s role in Global Platforms of Internet Governance.

Registration Process of MSME

  1. To do the registration the small and medium scale industry owner needs to fill a single form which he can do online just as offline.
  1. If a person needs to do registration for more than one industry then additionally he/she can do individual registration.
  1. To do the registration he/she needs to fill a single form which is available at the website of MSME
  1. The document required for the registration is Personal Aadhar number, Industry name, Address, Bank Details and some regular data. 
  1. In this, the individual can give self-certified declarations. 
  1. There are no registration fees required for this procedure. 
  1. Once the detail-filled and uploaded you would get the registration number.

Documents Required for MSME Registration

The entity has to submit the following Documents 

Sl No.ParticularDocument Requored
1Business Address ProofIf the premise is selfLease Deed or Property Tax ReceiptMunicipal License, if available in the business name or Proprietor’s name, Partner or Director of the business,
If the premise is rented No Objection CertificateUtility Bill or document evidencing the Landlord’s Ownership
2Copies of Sale Bill and Purchase BillA copy of sale bill related to each end product that it will supply for each raw material that it will purchase
3Partnership Deed/ MoA and AoAPartnership Firm Partnership deed.Registration certificate, if registered
Company copy of Memorandum of Association copy of Articles of AssociationCertificate of Incorporationcopy of the resolution passed in General Meeting, the copy of Board Resolution authorizing a director to sign the MSME application.
Copy of Licenses and Bills of Machinery Purchasedcopy of industrial license which is to be obtained by giving an application to Govt. of Indiaall bills and receipts related to purchase and installation of Plant and Machinery 

Advantages of MSME Registration 

1. Due to the MSME registration, the bank loans become less expensive as the loan fee is low around 1 to 1.5%. Much lower than interest on regular credits. 

2. There are different Tax rebates offered to MSME. 

3. It likewise permitted credit for Minimum Substitute Tax (MAT) to be carried forward for as long as 15 years rather than 10 years 

4. There are numerous Government tenders which are only open to the MSME Industries. 

5. They get easy access to credit. 

6. Once registered the cost getting a patent, or the cost of setting up the industry reduces the same number of rebates and concessions are available

7. Business registered under MSME are given higher preference for Government License and certification.

8. There is a One Time Settlement Fee for non-paid amounts of MSME.

MSME Contribution in Employment Generation 

Source: Ministry of MSME Annual Report 2017-18

MSME Contribution in Employment Generation 

Source: Ministry of MSME Annual Report 2017-18

Employment Share by Genders

Source: Ministry of MSME Annual Report 2017-18

Challenges Faced by MSME

  • A large portion of the unregistered MSMEs would overwhelmingly get registered.
  • Need to improve the seriousness of the overall MSME sector.
  • Outdated technology is a major obstacle coming in the method of development for Small Businesses.it Decrease in productivity and limited expansion hampers the capacity of SMEs to get credit from banks.
  • Limited capital and information.
  • Ineffectual marketing technique. 
  • Non availability of skilled labour at affordable costs 
  • Catch up with different government offices to determine issues because of absence of labor and information and so on 
  • Inefficient utilization of resources/manpower.

This aren’t over yet, to be continued I hope you people found it useful in terms of MSME basic concept. So we will be coming soon with part-2 of the same in which we will cover the Polies and announcements made by Government for Promoting MSME. So, stay tuned….

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