The Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act, 2006)
1. Introduction
- The Micro, Small, and Medium Enterprises Development Act (MSMED Act, 2006) was enacted to promote, develop, and enhance the competitiveness of Micro, Small, and Medium Enterprises (MSMEs).
- Came into force on 2nd October 2006.
- Objective: Strengthening MSMEs through improved credit flow, infrastructure, skill development, technology upgradation, and market assistance.
2. Key Definitions under the Act
(a) Classification of Enterprises (as per MSMED Act, 2006)
Enterprises are classified based on investment in plant & machinery for manufacturing and investment in equipment for service enterprises.
| Category |
Investment in Manufacturing Enterprises |
Investment in Service Enterprises |
| Micro |
Up to ₹25 lakh |
Up to ₹10 lakh |
| Small |
₹25 lakh - ₹5 crore |
₹10 lakh - ₹2 crore |
| Medium |
₹5 crore - ₹10 crore |
₹2 crore - ₹5 crore |
- New Classification (MSME 2020 Revision):
- Introduced Annual Turnover Criteria along with investment.
- Removed distinction between manufacturing and service enterprises.
| Category |
Investment in Plant & Machinery/Equipment |
Annual Turnover |
| Micro |
Up to ₹1 crore |
Up to ₹5 crore |
| Small |
Up to ₹10 crore |
Up to ₹50 crore |
| Medium |
Up to ₹50 crore |
Up to ₹250 crore |
3. National Board for MSMEs
- Established under Section 3 of the Act.
- Objective: Oversee MSME policy and recommend measures for their development.
- Composition:
- Chairperson: Union Minister in charge of MSMEs.
- Vice-Chairperson: Minister of State/Deputy Minister.
- Members: State Ministers, MPs, Secretaries from various ministries, financial institutions, and industry representatives.
4. MSME Registration (Udyam Registration)
- Voluntary registration, but recommended for availing benefits.
- Enterprises file a Memorandum (Udyam Registration Certificate) with the authority.
- Can be done online via Udyam Registration Portal.
- Provides access to government schemes, subsidies, and bank loans.
5. MSME Promotion and Development Measures (Chapter IV)
(a) Credit Facilities (Section 10)
- RBI Guidelines: Banks must prioritize lending to MSMEs.
- Collateral-free loans under Credit Guarantee Fund Scheme for MSMEs (CGTMSE).
- Interest subvention schemes for lower interest rates.
(b) Procurement Preference Policy (Section 11)
- Government agencies must procure a percentage of goods/services from MSMEs.
- Public Procurement Policy 2012: 25% of government procurement should be from MSMEs (including 3% from women-owned MSMEs).
(c) Skill Development and Technology Upgradation
- Support for MSME clusters, R&D, and innovation.
- Technology Centres and Incubation Programs.
6. Delayed Payments to MSMEs (Chapter V)
- Section 15: Buyers must pay MSMEs within 45 days.
- Section 16: Interest on delayed payments at three times the RBI bank rate.
- Section 18: MSME Facilitation Council established for resolving disputes.
- Section 22: Large businesses must disclose pending MSME payments in annual financial statements.
7. MSME Closure (Section 25)
- Simplified exit process for MSMEs.
- Enables faster closure in case of financial difficulties.
8. Miscellaneous Provisions (Chapter VI)
- Penalties (Section 27): Non-compliance results in fines up to ₹10,000.
- Jurisdiction (Section 28): Metropolitan Magistrate or First-Class Magistrate.
- Power to Make Rules (Sections 29 & 30): Central & State Governments can frame rules.
9. Recent Updates & Current Affairs
(a) MSME Sector Growth & Government Initiatives
- Emergency Credit Line Guarantee Scheme (ECLGS)
- Launched during COVID-19 to provide collateral-free loans.
- Extended till March 2024.
- Raising and Accelerating MSME Performance (RAMP) Program (World Bank-funded).
- SAMADHAN Portal: Helps MSMEs recover delayed payments.
(b) Budget 2023-24 Provisions for MSMEs
- ₹9000 crore allocated for revamped credit guarantee scheme.
- Vivad Se Vishwas I: Relief for MSMEs in government contracts.
- Priority Sector Lending (PSL): Increased lending to MSMEs.
(c) MSME Digitalization Initiatives
- TReDS (Trade Receivables Discounting System): Enables MSMEs to receive early payments from buyers.
- Udyam Assist Platform: Helps informal micro enterprises get formal recognition.
(d) MSME Export Growth
- Exports Contribution: ~45% of India’s exports.
- PLI Schemes: Encourage MSMEs to participate in global value chains.
10. Key Takeaways for UPSC Prelims
✅ MSMED Act, 2006 regulates MSMEs in India.
✅ Updated MSME Classification (2020) includes investment & turnover criteria.
✅ Udyam Registration is required for government benefits.
✅ Delayed Payment Provisions: Buyers must pay MSMEs within 45 days, else interest at 3 times RBI rate.
✅ Government Procurement Policy: 25% of procurement from MSMEs (including 3% from women).
✅ Recent Schemes: ECLGS, RAMP, TReDS, MSME Digitalization.
✅ Budget 2023-24: ₹9000 crore for MSME credit scheme, tax reliefs, and formalization measures.
