Micro and small enterprises in India and the government's role
MSMEs are classified under the MSMED Act 2006 on a composite of investment and turnover. Government supports them through SIDBI, NSIC, KVIC and targeted schemes.
MSME definition in words
- The MSMED Act 2006 first defined micro, small and medium enterprises by investment alone, with separate limits for manufacturing (plant and machinery) and services (equipment).
- From 1 July 2020 a composite test applies: an enterprise must stay within both an investment ceiling and a turnover ceiling for its category.
- The same ceilings now apply to manufacturing and services enterprises.
- Export turnover is excluded when turnover is counted, so exporting does not push a unit out of its category.
- The ceilings have been raised more than once; check the latest notification instead of memorising figures.
- Order by size: micro (smallest), small, medium.
Institutions
| Institution | Set up | Role |
|---|---|---|
| Ministry of MSME | 2007 | Policy and schemes, through the Office of the Development Commissioner (MSME) and field offices |
| SIDBI | 1990 (SIDBI Act 1989); HQ Lucknow | Principal financial institution for MSMEs: refinance, direct lending, Fund of Funds for Startups; parent of MUDRA |
| NSIC | 1955 | Raw material assistance, marketing support (tenders, exhibitions), Single Point Registration for government purchases, technical services |
| KVIC | Statutory body under the KVIC Act 1956; set up 1957 | Promotes khadi and village industries; national nodal agency for PMEGP |
| District Industries Centres | 1978 | Single-window support for small units at district level |
| NIMSME, Hyderabad | National institute | Training, research and consultancy for MSMEs |
Major schemes (roles only)
| Scheme | Year | Purpose | Run by |
|---|---|---|---|
| CGTMSE | 2000 | Guarantee cover so that banks lend to micro and small enterprises without collateral | Trust set up by the Government of India (now the Ministry of MSME) and SIDBI |
| SFURTI | 2005 | Clusters for traditional industries and artisans | Ministry of MSME through KVIC and the Coir Board |
| PMEGP | 2008 | Credit-linked subsidy to set up new micro enterprises; merged PMRY and REGP | KVIC (national nodal agency), state KVIBs, DICs, banks |
| Public Procurement Policy for MSEs | 2012 | Government buyers must source a set share of purchases from micro and small enterprises | Central ministries and public sector enterprises |
| TReDS | RBI framework, 2014 | Online discounting of MSME invoices drawn on large buyers | RBI-authorised platforms |
| PMMY (MUDRA) | 2015 | Loans to income-generating micro units in categories Shishu, Kishore and Tarun (Tarun Plus added in 2024); MUDRA refinances lenders | MUDRA Ltd (a SIDBI subsidiary) with banks, NBFCs and MFIs |
| Startup India | 16 January 2016 | DPIIT recognition, self-certification, tax benefits for eligible startups, Fund of Funds for Startups managed by SIDBI | DPIIT |
| Stand-Up India | April 2016 | Bank loans for greenfield units to SC/ST and women entrepreneurs | Scheduled commercial banks; SIDBI runs the portal |
| PM Vishwakarma | 2023 | End-to-end support for traditional artisans and craftspeople | Ministry of MSME |
Delayed payments and ease of doing business
- Under section 15 of the MSMED Act, a buyer must pay a micro or small supplier within the agreed period, which cannot exceed 45 days from acceptance of the goods or services (15 days if there is no written agreement); late payment attracts compound interest.
- Disputes go to the state's Micro and Small Enterprises Facilitation Council.
- The MSME Samadhaan portal (2017) lets units file delayed-payment complaints online.
- Other support: the GeM portal for government buying, ZED certification for quality, cluster development and technology centres (tool rooms).
Role of the government (summary)
| Area | Measures |
|---|---|
| Finance | Priority-sector lending by banks, CGTMSE, MUDRA, SIDBI refinance |
| Marketing | Public procurement policy, NSIC tenders and exhibitions, GeM |
| Technology and skills | Technology centres, ZED, EDPs, NIMSME |
| Infrastructure | Industrial estates and cluster programmes such as SFURTI |
| Ease of business | Udyam registration, self-certification, MSME Samadhaan, TReDS |
NET asks you to match institutions and schemes with their roles (SIDBI-MSME finance, NSIC-marketing and raw material, KVIC-PMEGP, CGTMSE-collateral-free guarantee) and to describe the composite investment-plus-turnover basis of MSME classification.
Typical MCQ: “Which body is the national nodal agency for PMEGP?” KVIC. Trap: SIDBI is the principal financier of MSMEs, not PMEGP's nodal agency.
Typical MCQ: “On what basis are MSMEs classified since July 2020?” A composite test of investment in plant, machinery or equipment and annual turnover, the same for manufacturing and services, with export turnover excluded.
Typical MCQ: “What does CGTMSE do?” It guarantees bank loans to micro and small enterprises so that they can be given without collateral.
SIDBI = Source of funds; NSIC = Network for markets and materials; KVIC = Khadi and PMEGP; CGTMSE = Collateral-free cover; MUDRA = Micro loans (Shishu-Kishore-Tarun).