T.Y.B.Com. Eco. Sem.

V Saumil’s
11. MSME SECTOR

Introduction:
 The small scale sector has played a very significant role in the socio-economic development
of India, which is now referred to as the Micro and Small Enterprises (MSE) sector.
 Since independence, small scale units have been defined on the basis of the labour force
criteria and the fixed capital investment criteria.
 Units have been categorized as small, medium and tiny enterprises.
 Some of them use technologically advanced methods of production while others continue to
use traditional methods. Most of them are labour intensive.
 In 2006, the government introduced a new definition of the sector through the passing of
the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. According to
the Act, enterprises have been categorized units into those engaged in manufacturing and
those providing or rendering services. Both categories have been further classified as
micro, small and medium on the basis of their investments in plants and machinery (for
manufacturing enterprises) or in equipment (for enterprises providing or rendering
services).
 Investment and Turnover criteria in Manufacturing Enterprises and Enterprises Rendering
Services as per MSMED Act:

Revised Classification w.e.f. July 1, 2020 :

Classification: Micro: Small: Medium:

Investment in plant
and machinery / Not More than Not More than Not More than
equipment: Rs. 1 Crore Rs. 10 Crore Rs. 50 Crore

Annual Turnover: Not More than Not More than Not More than
Rs. 5 Crore Rs. 50 Crore Rs. 250 Crore

Q.1. Explain the significance of the MSME Sector.

Ans: With the passing of the Micro, Small and Medium Enterprises Development (MSMED) Act in
2006, the enterprises have been categorized units into those engaged in manufacturing and
those providing or rendering services. Both categories have been further classified as
micro, small and medium on the basis of their investments in plants and machinery (for
manufacturing enterprises) or in equipment (for enterprises providing or rendering
services). Following are the significance of MSME Sector:

 Contribution to GDP:
The number of registered MSMEs were 361.76 lakh according to the 4th All India Census
of MSME (2006-07). Manufacturing enterprises constitute 31.8 percent of the MSME
sector and service enterpirses account for 68.2 percent. According to the MSME Annual
Report 2017-18, the sector contributed 28.77% (manufacturing and services) to the total
GDP in 2015-16.

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 Employment Generation:
The MSME sector generally uses labour - intensive techniques of production and therefore
has the capacity to create more employment per additional
investment as compared to the large-scale sector. About 50% of MSMEs are owned by
underpriviledged groups. Employment in the small-scale sector has increased steadily
during the planning period. As per NSS 73rd round in 2015-16 employment in MSMEs have
been 11.1 crore jobs of 55% of jobs are in urban areas.

 Contribution to Exports:
The sector has been contributing to India's export earnings through traditional and non-
traditional items. About 93 per cent of the exports of this sector come from non-
traditional items like leather products, readymade garments, knitwear, sports goods,
processed food, chemical and allied products and engineering goods. The share of this
sector to total exports was about 10 per cent in the early 1970s, whereas it was 34% in
2015-16. In case of sports goods the sector's share to exports is 100%.

 Mobilisation of Capital and Entrepreneurial Skills:

Large- scale industries tend to get localised and concentrated in certain areas, whereas
MSMEs are more decentralised and are spread throughout the country. They can better
mobilise untapped and unused savings of the people. They can also effectively use the skills
of a large number of small entrepreneurs. These industries encourage competitiveness,
promote spirit of enterprise, risk- taking and innovation.

 Equitable Distribution of Income and Wealth:

It is argued that large-scale industries generally lead to increased income inequalities and
concentration of economic power. On the other hand MSMEs bring about more equitable
distribution of national income and wealth because the ownership pattern of these
industries is more widespread. They have higher potential to generate employment, leading
to income generation and better income distribution.

 Regional Dispersal of Industries:

The growth pattern of large- scale industries shows concentration in a few states like'
Maharashtra, West Bengal, Tamil Nadu and Gujarat. Besides, in each state they tend to get
localised in certain areas. On the other hand, MSMEs are more widely spread throughout
the country as many of them are set up to meet local needs and make use of locally available
resources. About 55% of registered MSMEs were located in rural areas.

 Support to Large- scale Industries:

A large number of MSMEs are ancillary units producing products that directly or indirectly
assist large-scale industries. The large-scale manufacturing; sector benefits from the
MSME sector through supply of components, spare parts, intermediate goods and supports
systems like processing and maintenance. Many small units produce goods on behalf of large
units through the system of loan- licensing.

 Social Impact:
MSMEs provide livelihood opportunities to people from varied socio-economic background,
thereby helping to reduce inequalities. Many traditional household industries support
artisans practicing and old traditional arts and crafts. They contribute immensely to
preserve the cultural heritage of India.

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Q.3. What are the government policies and for development of MSME Sector?
Ans: With the passing of the Micro, Small and Medium Enterprises Development (MSMED) Act in
2006, the enterprises have been categorized units into those engaged in manufacturing and
those providing or rendering services. Both categories have been further classified as
micro, small and medium on the basis of their investments in plants and machinery (for
manufacturing enterprises) or in equipment (for enterprises providing or rendering
services). Following are the government policies for development of MSME Sector:

 Ministry of Small Scale Industries & Agro and Rural Industries:

With a view to provide more focused attention on the development of the sector, the
Government of India created a new Ministry of Small Scale Industries & Agro and Rural
Industries in October 1999. Immediately after the formation of the ministry, a Mission for
the Millennium for small scale and village industries was announced. The mission provided a
future plan for the sector. The Ministry has been renamed as Ministry of Micro, Small and
Medium Enterprises in 2007. The Development Commissioner (MSME), functioning within
the Ministry, is the nodal development agency for the sector.

 Small Industries Development Bank of India (SIDBI):

SIDBI was set up on April 2, 1990 through an act of parliament. It was incorporated
initially as a wholly owned subsidiary of Industrial Development Bank of India. It was set up
with the aim to assist the growth and development of micro, small and medium-scale
enterprises in India. SIDBI has been providing refinance to state level Finance
Corporations, State Industrial Development Corporations and commercial banks against
their loans granted to small scale units. SIDBI enlarged is scope by introducing direct
assistance schemes to supplement the other available channels of credit flow to the small
industries sector. It is also providing support to micro-finance institutions for capacity
building. SIDBI has floated several funds and entities for the development of MSMEs.
Some of these are:
 Credit Guarantee Fund Trust for Micro and Small Enterprises: This fund provides
guarantees to banks for collateral-free loans extended to SMEs.
 SIDBI Venture Capital Ltd.: This is a venture capital company providing seed capital to
new SME start-ups.
 SME Rating Agency of India Ltd. (SMERA): SMERA provides composite ratings to
SME.
 India SME Asset Reconstruction Company (ISARC): ISARC was set up in 2009, as a
specialized company for looking into the problem of NPA in relation to SMEs.
 Schemes for Reducing Energy Consumption and Clean Technology: SIDBI offers
financial assistance for investments in energy efficiency projects to existing MSMEs. It
also offers financial assistance to MSMEs and clusters to invest in cleaner production
and emission reduction measures, waste management and Common Effluent Treatment
Plant (CETP) facilities.
 SMILE (SIDBI Make in India Soft Loan Fund for Micro, Small and Medium
Enterprises): Emphasis is to provide long tenure loans (Minimum Rs. 10 lakhs) to the
smaller units within MSME sector for expansion, modernisation and technology
upgradation.

 The Micro, Small and Medium Enterprises Development Act, 2006:

The Small and Medium Enterprises Development Bill 2005, which was enacted in June 2006
was renamed Micro, Small & Medium Enterprises Development Act, 2006.

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The Act aims at facilitating the promotion and development of small and medium
enterprises. One of its primary objectives of the Act is to make provisions for ensuring
timely and smooth flow of credit to small and medium enterprises. The earlier concept of
'Industries' has been changed to 'Enterprises' which have been-classified as:

i. Micro Enterprises:
An enterprises will be termed as ‘Micro’ if the investment in plant and machinery is not
more than Rs. 1 Crore or its annual turnover is not more than Rs. 5 crore.
ii. Small Enterprises:
An enterprises will be termed as ‘Micro’ if the investment in plant and machinery is not
more than Rs. 10 Crore or its annual turnover is not more than Rs. 50 crore.
iii. Medium Enterprises:
An enterprises will be termed as ‘Micro’ if the investment in plant and machinery is not
more than Rs. 50 Crore or its annual turnover is not more than Rs. 250 crore.

These are the common limits of investment and annual turnover which need to be
considered for all the manufacturing as well as service industry for treating the enterprise
as MSME.

 Recent Government Schemes and Programmes:

 Micro and Small Enterprises - Cluster Development Programme (MSE-CDP):
The Ministry of MSME has adopted the cluster development approach to promote micro
and small enterprises. A cluster is defined as the collection of enterprises producing
same or similar products or services or engaged in the same line of activities within an
identifiable area. Cluster approach is different from the Industrial Estate concept. The
latter is largely based on infrastructure development, whereas, cluster development
covers diverse areas like marketing, export promotion, skill upgradation and
infrastructure. Under the MSE-CDP, a total of 964 clusters have been covered to carry
out different forms of government interventions to promote MSEs.

 Credit Guarantee Trust Fund Scheme for Micro and Small Enterprises (CGTMSE):
The Scheme was launched in 2000 by the Government of India to make available
collateral-free credit to micro and small enterprises. Both existing and new enterprises
are eligible to be covered under the scheme. The GOI, Ministry of MSME and SIDBI
established a Trust named CGTMSE to implement the scheme. The corpus of the Trust
is being contributed to by GOI and SIDBI in the ratio of 4:1 respectively. The corpus is
Rs. 2477.78 Crores as of May 31, 2016.

 Scheme of Fund for Regeneration of Traditional Industries (SFURTI):

The Khadi and Village Industries Commission (KVIC) and the Coir Board are
implementing a scheme called the Scheme of Fund for Regeneration of Traditional
Industries (SFURTI). The scheme has been introduced all over India to generate
employment in rural areas. Under this scheme 29 khadi, 47 village industries and 21 coir
clusters have been made functional by providing them with improved equipment, common
facilities centers, business development services, training, capacity building and design
and marketing support, etc.

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 A Scheme for Promoting Innovation and Rural Entrepreneurs (ASPIRE):

It was launched in March 16, 2015 with the objective of setting up a network of
technology centers and incubation centers to accelerate entrepreneurship. The
Scheme also promotes start-ups for innovation and entrepreneurship in rural and
agriculture based industries.

 Udyog Adhar Memorandum (UAM):

The UAM scheme was notified in September 2015. The objective of the scheme is to
improve the ease of doing business for the MSMEs. Under the scheme entrepreneurs
just need to file an online entrepreneurs' memorandum to instantly get a unique Udyog
Adhar Number (UAN). The information sought is on self-certification basis and does not
require supporting documents. This has resulted in saving of time and simplification of
procedures for the MSME entrepreneurs.

 Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Upgradation:

The scheme was launched in October 2000 and revised in 2005. The scheme provides
15% capital subsidy (limited to maximum Rs.15 lakhs) for purchase of plant and
machinery. The maximum limit of eligible loan for calculation of subsidy under the
scheme is Rs. 100 lakhs. Presently more man 1500 well established improved
technologies under 51 sub sectors have been approved by the Scheme.

 Scheme for Market Development Assistance for MSME Exporters (MSME- MDA) -
The Scheme offers funding for participating in industrial fairs, study tours abroad,
trade delegations, publicity etc. to access and develop overseas markets.

 MSME SAMADHAAN - This deals with the problem of delayed payments by buyers to
MSME suppliers. In case of delayed payment beyond 45 days, MSMEs may approach the
MSME Facilitation Council.

 Stimulus for MSMEs under COVID-19 Relief Package:

Due the COVID-19 pandemic and the lockdown announced by the government the MSMEs
have been hit severely. In order to provide them with relief the Government of India
announced the following relief measures:

 Rs. 3 lakh crores Collateral free Automatic Loans for businesses including MSMEs:-
credit line to MSMEs from banks and NBFCs upto 20% of outstanding credit as of 29 th
February 2020 with 100% credit guarantee cover, cap on interest and 12 month
moratorium on principal repayment.

 Rs. 20,000 crore subordinates debt for stressed MSMEs to provide equity to MSMEs
who are NPAs. Government will provide a support of Rs. 4,000 crore to CGTMSE for this
purpose.

 A fund of funds will be set up with a corpus of Rs. 10,000 crore to provide equity
funding for MSMEs with growth potential and viability.

 The government will disallow global tenders upto Rs. 200 crore in government
procurement to protect MSMEs and other Indian businesses from global competition.

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 E-market linkage for MSMEs to be promoted to act as a replacement for trade lairs and
exhibitions.

 Fintech will be used to enhance transaction based lending using the data generated by
the e-marketplace.

 Faster settlement of dues - MSME receivables from the government and the CPSEs to
be released within 45 days.

 Under Pradhan Mantri Garib Kalyan Package (PMGKP), payment of 12% of employer and
12% employee contributions was made into EPF accounts of eligible establishments. This
support will continue till August 2020.

 Special measures under Atmanirbhar Bharat Abhiyan: The government will provide Rs.
20,000 crores subordinate debt for stressed MSMEs. This will include government
support of Rs. 4,000 crore to Credit Guarantee Trust for Micro and Small Enterprise.

In conclusion we can say that the vast network of institutions and policies that has been
created by the government for the small-scale sector has brought mixed results. The
growth of the sector has been; very significant in terms of contribution to industrial
production and exports. Employment generation capacity of the modern small sector is
declining due increasing capital intensity and there is capacity under-utilisation and
sickness. Most of the benefits provided by the government to the sector have been taken
advantage of by modern small-scale units and the traditional units in the unorganized sector
have been left more or less untouched by government assistance.

However, after economic reforms, the response of the small-scale sector to the policy
initiatives have been positive and encouraging. Reforms have brought better profitability,
better capacity utilization and cost competitiveness. The sector has shown remarkable
capability to adjust to the reform programmes with reasonable-degree of flexibility.

OBJECTIVE QUESTIONS:

A. Choose the correct answer and rewrite the statement:

1. In 1999, the investment limit of the small scale unit was determined at
(a) 251akh (b) 50 lakh (c) 1 crore (d) 5 crore
2. The MSME Act was passed in
(a) 2005 (b) 2002 (c) 2008 (d) 2006
3. According to the MSME Act, micro manufacturing units are classified as those with
investment limit of
(a) 25 lakh (b) 50 lakh (c) 1 crore (d) 75 lakh

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4. ________units in the________sector have an investment range between 2 crore and 5

crore.
(a) Medium, manufacturing (b) Micro, manufacturing
(c) Small, service (d) Medium, service
5. A separate ministry for small industries was set up in
(a) 1991 (b) 1999 (c) 2007 (d) 2005
6. _______is the nodal development agency for the MSME sector.
(a) Divisional Commissioner MSME
(b) Development Commissioner MSME
(c) Directorate General MSME
(d) Development Council MSME

7. ______is a SIDBI initiative that provides capital to new SME start- ups
(a) ISARC (b) Credit Guarantee Fund Trust (c) CLCSS
(d) SIDBI Venture Capital Ltd.

8. ________is not a SIDBI initiative.

(a) ICRA (b) SMERA (c) CGFT (d) ISARC

Ans: (1) - (c), (2) - (d), (3) - (a), (4) - (d), (5) - (b), (6) - (b), (7) - (d), (8) - (a).

B. State whether the following statements are true or false with reasons:
1. MSMEs are, by and large, labour intensive.
2. The MSME Act categorises units into tiny and small.
3. According to the MSME Act, service providing units are not a part the MSME sector.
4. SFURTI was launched to promote hightech industries.
5. Majority of MSME exports originate from the non-traditional units.
6. SIDBI is only a refinancing agency and does not provide direct assistance to small units.
7. The CLCSS helps technology upgrade.
8. MSME-MDA provides marketing assistance to MSME units.
9. MSME SAMADHAAN helps marketing of products.

Ans: True: 1, 5, 7, 8. // False: 2, 3, 4, 6, 9.

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