The MSME sector has emerged as a dynamic sector of the Indian economy over the last five

decades. MSMEs contribute enormously to the socio-economic development of the country.

MSME have a large share of jobs, production and exports. The primary responsibility of
promotion and development of MSMEs is of the State Governments. However, the
Government of India, supplements the efforts of the State Governments through various
initiatives.
Ministry of Agro and Rural Industries and Ministry of Small Scale Industries have been

to direct and govern the establishment, registration and functioning of

MSMEs.
As per the report of Ministry of Micro Small and Medium Enterprises, Government of India;
MSME sector is serving numerous benefits towards the inclusive growth of Indian economy.
Major contribution of MSMEs is as follows:
1. It provides opportunities at comparatively lower cost;
2. It helps in industrialization of rural and backward areas;
3. Reduce Regional imbalances through the optimum utilization of their resources;
4. More equitable distribution of national income and wealth;
5. Major partner in the process of inclusive growth.

Definition of MSME:
The Micro Small and Medium Enterprises have been defined under MSME Act, 2006.
According to the Act, MSME have been broadly classified in two categories:
1. Enterprises engaged in the manufacturing and production of goods pertaining to any
industry;
2. Enterprises engaged in providing or rendering services
The manufacturing enterprises have been further defined in terms of investment in plants and
machinery wherein the service enterprises have been defined in terms of their investment in
equipment. The further classification of manufacturing and service enterprises can be seen
below.
Legal Framework on MSMEs
The conceptual and legal framework for small scale and ancillary industrial undertakings is
derived from the Industries Development and Regulation Act, 1951. The Act provided the
necessary powers to the Central Government to amend the provisions of this act from time to
time so as to encourage small scale and ancillary undertakings. The Small and Medium
Enterprises Development Bill 2005 which was en

development of small and medium enterprises. Various notifications issued by the Central
Government from time to time relating to increase in slap rate of investments in plant &
Machinery for manufacturing enterprises and equipments in service enterprises provides a
clear cut proof that the economy of our country is striving towards achieving the economies
of scale by increasing the volume of production of goods. The Micro, Small and Medium
Enterprise Development Act, 2006 (MSMEDA) extends the scope to accomplishes many
long -standing goals of the government and stakeholders in the MSME sector including the
service sector.
Micro,
GDP, 45 percent of the manufacturing output and 40 percent of the exports. They provide the
largest share of employment after agriculture. They are the nurseries for entrepreneurship and
innovation. They are widely dispersed across the country and produce a diverse range of
products and services to meet the needs of the local markets, the global market and the
national and international value chains.

As per Ministry of Small Scale industries notification dated 5th day of October, 2006, the
investment in Plant and Machinery referred to in respective limits is the Original Price,
irrespective of whether the plant and machinery are new or second handed, shall be taken into
account provided that in the case of imported machinery, the following shall be included in
calculating the value, namely;

i. Import duty (excluding miscellaneous expenses such as transportation from the port to the
site of the factory, demurrage paid at the port);
ii. Shipping charges;
iii. Customs clearance charges; and
iv. Sales tax or value added tax.

Further, as per the said notification, the following are excluded while calculating the
investment in Plant and Machinery:-

i. Equipment such as tools, jigs, dyes, moulds and spare parts for maintenance and the cost of
consumables stores;
ii. Installation of plant and machinery;

iii. Research and development equipment and pollution controlled equipment

iv. Power generation set and extra transformer installed by the enterprise as per regulations of
the State Electricity Board;

v. Bank charges and service charges paid to the National Small Industries Corporation or the
State Small Industries Corporation;

vi. Procurement or installation of cables, wiring, bus bars, electrical control panels (not
mounded on individual machines), oil circuit breakers or miniature circuit breakers which are
necessarily to be used for providing electrical power to the plant and machinery or for safety
measures;

vii Gas producers plants;

viii. Transportation charges (excluding sales-tax or value added tax and excise duty) for
indigenous machinery from the place of the manufacture to the site of the enterprise;

ix. Charges paid for technical know-how for erection of plant and machinery;

x. Such storage tanks which store raw material and finished produces and are not linked with
the manufacturing process; and

xi. Fire fighting equipment.

Further, investment in Land, Building, Vehicles, Furniture and fixtures, Office Equipment etc
shall not be considered in determining the threshold limit of plant and machinery or
Equipment as the case may be.