VEER NARMAD SOUTH GUJARAT UNIVERSITY

COURSE: B.B.A

YEAR: F.Y. BBA-SEM –II

SUBJECT:MSME

Unit-1 Introduction to Small Scale IndustriesandEnterprise (25%)

Concept and definition of Micro, small and Medium enterprise, Inception of SMEs or filing of
Memoranda by MSMEs, Evolution of MSME, Classification, objectives and characteristics of Small
Scale Industries, Scope and trends of small enterprises in India, Small Scale Industries and Gandhiji,
Small Business - The Driving force for National Growth, Classification of Enterprises.
 MSME – An Introduction
MSME stands for Micro, Small, and Medium Enterprises. Headquartered in New Delhi, the Ministry
of MSME is a branch of the Indian Government, which is the apex body for the formulation and
administration of rules, and laws, pertaining to micro, small, and medium-sized enterprises in the
country.

Having created 11 crore job opportunities in India while contributing to the GDP by 29%, we can say
that MSMEs are the heart of the Indian economy.

MSME definition
On 13th May, Wednesday, the center officially revised the MSME definition.
In October 2019, Union Minister Nitin Gadkari had said that the revised definition of micro, small,
and medium enterprises may grant a unified description for all things related to taxation, investment,
and more. The changed definition was to be implemented via an amendment that would further refine
the business scenario for Indian enterprises. The Union Cabinet had approved the amendment to
change the criteria to classify MSMEs from “investment in plant and machinery” to “annual
turnover.”

On 13th May 2020, Finance Minister Nirmala Sitharaman added the additional principle of turnover
along with the investment.

Filing of Entrepreneurs Memorandum

Memoranda means a form that is required to register MSMEs.
Registration of an MSME online
Businesses who want to avail benefits announced by the Government for MSMEs will need to
register their business on the „Udyog Aadhaar Memorandum (UAM) portal‟. The registration
process is quite simple and free for every user.
Follow the below steps to register your business online:
1. Visit the UAM portal where you will be required to fill a form.
2. If you are registering your business as an MSME for the first time, click on the
first link on the page or simply click here to open the form.

3. Enter the Aadhaar Number and Name and click on „Validate & Generate OTP‟.

4. Once verification is done, you will have to fill in the PAN details. You can select the No option
if you don‟t have a PAN card yet.

5. Post this, you will have to fill the form having field numbers 5-24.
 6. At the end of the form, an OTP request will be sent to your phone again.
Enter the OTP and verification code to submit the form successfully.

7. After successful registration, a “Thank You” message will appear with a Registration
Number. Keep that number handy for future
 8. Once the application form is submitted, it can take 2-3 days for the
approvaland registration to complete.
9. If the application gets approved, the registration will be done
and the MSME certificate will be delivered to you via email.
Please note that the MSME registration on the government portal is free of cost.

How to register an MSME without Aadhaar Card?

First of all, the applicant who doesn‟t have an Aadhaar card according to the
section-3 act. Till the time the individual receives the Aadhaar, UAM
registration shall be filed by the respective DIC or MSME-DE for the enterprise
or business.
Meanwhile, the individual can provide the below documents as an
alternative for identification.
 Aadhaar enrolment copy
 Aadhaar enrolment request copy
 Anyone of the following: Voter Id, passport, driving
license, PAN card, employee ID, and bank passbook

Benefits of MSME registration

Registration of your MSME is not mandatory. If you choose to register, then

your business can enjoy an excise exemption scheme from direct taxes, avail
special schemes from banks custom made for MSMEs and many more.
Also, registered businesses with an MSME certificate will benefit from various
government departments, including electricity.
Here are some of the benefits:
 Lowest interest rates on bank loans
 Avail tax rebates customised for MSMEs credit for Minimum
Alternate Tax (MAT)
 Very easily accessible credit for MSMEs
 Reimbursement of ISO Certification
 Avail special rebates and concessions on patents and industry set-ups
 One time settlement fee for the amount unpaid
 Government preference to MSMEs
 Concession in electricity bills
 Get credit guarantee schemes from the Government
 Special consideration on International Trade fairs
 Bar code registration subsidy
 Support from your state government

Documents required for MSME registration

 Aadhar number
 PAN number
  Address of the business
 Bank account number
 The basic business activity
 NIC 2-digit code (National Industrial Classification)
 Investment details (Plant/equipment details)
 Turnover details (as per new MSME definition)
 Partnership deed
 Sales and purchase bill copies
 Copies of licenses and bills of purchased machinery
EVOLUTION OF MSMEs
From small scale industries to MSMEs
Micro, Small and Medium Enterprises (MSMEs) in India have evolved considerably since
independence. From being referred to merely as the Small Scale Industries (SSI) sector in the 60s and
70s, the MSME sector has progressed in scale and in the scope of business activities over the years.

The MSME sector remains a key driving force for India‟s complete transition from an agrarian
economy to an industrialised one.
The basis of distinction between the large-scale, medium-scale and small-scale industries is generally
the size, capital resources and labour of the individual unit. The Micro, Small and Medium Enterprises
(MSME) sector has been recognized as engine of growth all over the world.
The definition of a small scale unit has evolved over the years and has undergone through a number of
modifications.

During the 1950s, the concept of an SSI unit referred to limit of Rs. 5 lakhs for capital investment and
to the level of employment at less than 50 persons, if using power and less than 100 persons without
the use of power.
Since 1960, the reference to the size of employment has been deleted and the limit on capital
investment is retained as the only cut off point.
In 1966, it was stated specifically that the term capital investment i.e. investment in fixed assets,
meant investment in plant and machinery between 1966 & 1985, the ceiling on capital investment in
small scale units has been revised upward as under:
1966 : Rs. 7.5 lakhs. 1974 : Rs. 10.00 lakhs. 1980 : Rs. 20.00 lakhs. 1985 : Rs. 35.00 lakhs.
The concept of small scale units was modified.
In 1977, small units with a capital investment up to Rs. 1 lakh each (Raised to Rs. 2 lakhs in July
1980) in plant and machinery and located in small towns and villages, were singled out as units
belonging to the tiny sector. Since the 1970s, a separate mention of ancillary units has been made. The
ceiling on capital investment in ancillaries was Rs. 15 lakhs in 1974. This was raised to Rs. 25 lakhs in
1980 & to Rs. 45 lakhs in March 1985.

The definition of small- INVESTMENT LIMITS ADDITIONAL

scale industries has CONDITIONS
undergone changes over
the years in terms of
investment limits in the
following manner: -
YEAR
1950 Upto Rs 5 lacs in fixed Less than 50/100 persons
assets with or without power
1960 Upto Rs 5 lacs in Plant & No condition
Machinery
 1966 Upto Rs 7.5 lacs in Plant No condition
& Machinery
1975 Upto Rs 10 lacs in Plant & No condition
Machinery
1980 Upto Rs 20 lacs in Plant & No condition
Machinery

OBJECTIVES OF MSME
 Industrialization of the State.
 Development of Micro, Small and Medium Scale Industries.
 Attract investment to uplift the industrial and social economy of the State.
 Modernize and strengthen the industrial units of the State to make them globally competent.
 Creation of conducive atmosphere for the industries for enabling them to compete at national/
international levels.
 Create industry friendly atmosphere and suitable policies for development of the industries.
 Help and coordinate between industry and other agencies & act as a facilitator.
 Creation of Basic Infrastructure for Industrial Development.
 Creation of job opportunities through Self Employment Schemes.
 Train and develop the entrepreneurship skills among the educated unemployed youth.
 Encourage Educated unemployed youth to opt for self employment.
 Revival of sick/closed industrial units.

Features of Ministry of MSME

 Works for the welfare of artisans and workers

 Provides credit limit or funding support from banks
 Promotes entrepreneurship development and skill upgradation via specialized training centers
 Supports technology upgradation, infrastructural development and modernization
 Offers assistance for improved access to domestic and export markets
 Provides modern testing facilities and quality certification
 Supports packaging, product development and design intervention

SCOPE AND TRENDS OF MSMES IN INDIAN ECONOMY

Since its formation, the MSME segment has proven to be a highly dynamic Indian economy sector.
MSMEs produce and manufacture a variety of products for both domestic as well as international
markets. They have helped promote the growth and development of khadi, village, and coir
industries. They have collaborated and worked with the concerned ministries, state governments,
and stakeholders towards the upbringing of rural areas.

MSMEs have played an essential role in providing employment opportunities in rural areas. They
have helped in the industrialization of these areas with a low capital cost compared to the large
industries. Acting as a complementary unit to large sectors, the MSME sector has enormously
contributed to its socio-economic development.

MSMEs also contribute and play an essential role in the country‟s development in different areas
like the requirement of low investment, flexibility in operations, mobility through the locations, low
rate of imports, and a high contribution to domestic production.
With the capability and capacity to develop appropriate local technology, provide fierce competition
in domestic and international markets, technology-savvy industries, a contribution towards creating
defense materials, and generating new entrepreneurs by providing knowledge, training, and skill up-
gradation through specialized training centers.

Across the globe, MSMEs are accepted as a means of economic growth and for promoting equitable
development. They are known to generate the highest rate of growth in the economy. MSMEs have
driven India to new heights through requirements of low investment, flexible operations, and the
capacity to develop appropriate native technology.

1. MSMEs employ around 120 million persons, becoming the second-largest employment
generating sector after agriculture.

2. With approximately 45 lac units throughout the country, it contributes about 6.11% of GDP
from manufacturing and 24.63% of the GDP from service activities.

3. MSME ministry targets to increase its contribution towards GDP by up to 50% by 2025 as
India moves ahead to become a $5 trillion economy

4. Contributing around 45% of overall Indian exports

5. MSMEs promote all-inclusive growth by providing employment opportunities, especially to

people belonging to weaker sections of the society in rural areas.

6. MSMEs in tier-2 and tier-3 cities help in creating opportunities for people to use banking
services and products, which can amount to the final inclusion of the contribution of MSMEs
for the economy.

7. MSMEs promote innovation by providing an opportunity to budding entrepreneurs to help

them build creative products hey and thereby boost competition in business and fuel the
growth.

The Indian MSME sector provides silent support to the national economy and acts as a defense
against global economic shock and adversities. Hence, we can say that India is propelling towards a
robust global economy through a silent revolution powered by MSMEs. With all these
developments, there is a huge potential for MSMEs toenter the international markets and create an
upsurge in the employment opportunities for India. It also provides an opportunity for the sector to
go international and market its „Made in India‟ brand in order to explore more opportunities and
enhance possibilities globally.

ECONOMIC THOUGHTS OF GANDHIJI:

Gandhiji's views on economics were simple and straight forward which would make India
economically self sufficient, manufacturing and satisfying its own needs in domestic market, home-
grown ways. This would not only improve the composition of the rural economy of India, it had also
demoralized the British economic motives of the exploitation of Indian people. The ethics of
economic self sufficiency were spread all over India by Gandhiji during the colonial period.
Gandhiji‟s great approach of Self reliance and Swadeshi is playing a significant role for the
improvement of human beings. He presented a very useful model for economic development in
India (Please refer Gandhian Model for Industrial Development on next page). Gandhiji saw the
importance of the rural economy and thought that poverty could be eased by stimulating village
economies of agriculture and labour intensive production by using simple technologies on a ground
level. Gandhiji wanted to re-establish India from the lowest level.

The term Swedeshi which is used by Gandhiji consists to promoting and stimulating indigenous
industries like small scale and cottage industry of Khadi, Handloom spinning and weaving mills. He
imposed small scale and cottage industry in India which would beneficial to Indian economy
because these industries are based on family labour and low investment. Raw material is easily
available in villages from agricultural products like cotton, food and many other crops. So this
would lead indigenous market.

Gandhiji gives pressure on the growth of the rural industries like khadi, handlooms, sericulture and
handicrafts. Gandhiji was of the opinion that large-scale industries are capital intensive which would
result in concentration of wealth in the hands of few. If small scale industries introduced then people
would never face the problem of production and external market.

Small scale industries play major role in Indian economy as it is a source of Employment generation.
Only small-scale industries can solve the problem of unemployment because small- scale industries
use labour intensive technique. The small-scale industries gives equal distribution of income and
wealth. This is mainly due to the fact that small scale industries are wide-ranging as compared to
large scale industries and are having larger employment potential.

These industries have more capability to generate or attract innovation. They provide abundant
opportunities for the advancement of technology. The entrepreneurs of small industries play a
deliberate role in expansion of new innovation and goods. It also make transfer the technology easy
from one to the other. As a result, the economy collects the benefits from small units.

In Nutshell

The small-scale and cottage industries would be given a deliberate place in our planned economy
towards the fulfilment of the socio economic objectives of Gandhiji‟s particularly in achieving
equitable and sustainable growth. So there is need to move back to Gandhian economic ideology
who was always in favour of Swadeshi and self- reliance of villages. It can generate employment for
Indian youth in the country that is in search of job. So India should adopt the economic mode and
idea of Gandhiji that totally favours today‟s Indian economy as India‟s balance of payment is
unfavourable. India's import is more than its export since last few years. The products which are
imported by India is highly technology based. on the other hand , if India adopt his ideas of self
sufficiency and „Swadeshi‟, it will never face these types of problems. So, India must need to go
back to Gandhian economic ideology.
Gandhian Model for Industrail Development
How Indian Economy depends on MSME (Small Business)

Micro, Small and Medium Enterprises (MSME) have become one of the most significant sectors
in the Indian economy lately and for all the good reasons. Its contribution to the country‟s Gross
Domestic Product has been significantly higher than others and it stands at around 6 per cent.
Besides, the sector accounts for 33 per cent of the merchandise exports. This is the reason why
this sector is often called as the growth engine of the Indian economy.
One of the pillars of Indian Economy
Indian economy basically depends on two sectors, agriculture and manufacturing. While
the first has largely remained unorganized since the beginning, the latter too has not been
so till recently. Manufacturing is handled by both small and big industries. In a large
number of cases, these small enterprises feed raw material or semi-finished raw material
to the big ones. For example, Maruti Suzuki, the largest Indian automobile manufacturer
procures finished automobile parts from several small enterprises and assembles them in
its vehicles. Thus, the existence of a lot of big players largely depend on SMEs. Thus, it
can be said that the real players in the Indian economy are the small enterprises and they
hold a prominent position.
1. Indian Economy Depends A Lot on MSMEs
 Contribution of MSMEs to the economy is immense. Not only do they contribute to the
bigger picture like GDP, they also help solve workforce employment crisis to a large
extent. So, what is there in MSMEs that makes them so dependable and unshakable.
 First, it is their nature of having a strong ground-connect. Having connection to the roots
and having direct connection with the workforce is unique MSMEs. This gives boost to
the economy and provides it the necessary support.
 Secondly, it is their nature to adapt to the changes. Small industries are driven by a mix
of sustenance and profit motives. They do not hesitate to bring changes in the process if
they are assured that it would positively impact their production. Besides, being highly
savvy to changes, Small businesses are the most flexible and one of the most change-
driven enterprises in the Indian economy.
 On the other hand, these are a lot of excellent opportunities available for the MSMES.
The Indian economy offers them a lot of scope to settle and grow. This has all been
possible following the demand for products and services which are satisfactorily fulfilled
by MSMEs only.
 Another great characteristic of Small Business which enables them to that the country‟s
economy could depend on them is that despite having informal sources of funding, the
small and medium enterprises do their best to perform based on the available resources.
They often, or say in most of the cases fall short of resources but they try to manage the
situation with small credits arranged from personal or collaterals, if available. As per an
estimate, around 90 per cent of the MSMEs depend on informal sources of credit and
funding and this percent is much higher than expected. Thus, if an economy has such a
driving force behind it which is determined to do whatever it can play their role, then that
economy is sure to have a bright future.
 2. Significant role of MSMEs in the emergence of the Indian economy
Indian economy evolved just like other economies. In the beginning, there
were these small enterprises which gradually took the shape of big
industries. Then, there were also the big industries setup during the colonial
period. If we see the bigger picture, the journey of the development of Indian
economy is similar to the journey of the development of MSMEs.
Classification of MSME

Revised Classification applicable w.e.f 1st

July 2020

Composite Criteria: Investment in Plant & Machinery/equipment and Annual

Turnover

Classification Micro Small Medium

Investment in Investment in Investment in

Plant and Plant and Plant and
Manufacturing
Machinery or Machinery or Machinery or
Enterprises and
Equipment: Equipment: Equipment:
Enterprises
Not more than Not more than Not more than
rendering Services
Rs.1 crore and Rs.10 crore and Rs.50 crore and
Annual Turnover ; Annual Turnover ; Annual Turnover ;
not more than Rs. not more than Rs. not more than Rs.
5 crore 50 crore 250 crore