MICRO,SMALL AND MEDIUM ENTERPRISES

-An analytical study of law, practice and procedure-

 CHAPTER – I

INTRODUCTION

-BACKGROUND:-

The composition of the Indian economy is rapidly

changing from a dominant agrarian economy at

the time of independence, Indian economy had

evolved and has presently placed the nation at

the doorstep of economic super power Dom.

These are not windfall benefits or something that

has come by the nation’s way through luck. It was

the era of planned economy in the first couple

of decades that has helped India to achieve its

present status. As part of the great British

Empire, India always held its crowning position,

not merely by its size and population, but by

its contribution through economic means, first

to the East India Company and later to the

English rulers. The rich mineral wealth of India,

the climatic diversity leading to opportunities to

grow a wide range of agricultural inputs to power

the industrial revolution and the subservient

nature of its people were the key factors behind

the position held by India. The labour was cheap

as well as skilled enough to tap for the plantations

of the Empire across the globe.

The system of education that was given by the

British to India and later sustained in independent

India was another notable feature.

The initial plan periods, apart from setting

up many large scale industrial establishments,

generated many technocrats who took to

entrepreneurship. Many industrial estates were set

up in the country, with development of

infrastructure, common facilities, providing the

entrepreneurs with assistance, guidance and

inputs of various kinds. These initiatives of the

Government in the post-independence era saw the

setting up of many Small Scale Industries (SSI),

which were linked to major industries and formed

a sound platform for capital investment from

the private sector, tapping technical skills of

hundreds of graduates and generating millions

of jobs across various fields. The economy

was steered from an agrarian one to an industrial

economy. The primary sector gave way to the

secondary manufacturing sector as the dominant

component of Indian economy.

The small scale industries (SSI) constitute an

important segment of the Indian economy in terms

of their contribution to the country’s industrial

production , exports, employment and creation of

an entrepreneurial base. The Government

established the Ministry of Small Scale Industries

and Agro and Rural Industries on 14-10-1999 as

the nodal Ministry for formulation of policies and

Central sector programme/schemes , their

implementation and related co-ordination to

supplement the efforts of the states for promotion

and development of these industries in India.

With the advent of the twenty first century, the

knowledge power of the nation had other

contributions to offer, in the form of services

support to the entire world. Be it the software

segment or other soft skills like the outsourcing

of processing and knowledge skills. If any

developed nation needs to update their records or

educate their children, the support now comes

from India. India has become a BPO-centric

economy. Thus the tertiary sector of the economy

has risen to the front in the current decade,

completing the evolution of India as an

economic power house.

In this background of the economic phase, we

need to analyse the present state of Small and

Medium Enterprises (SME) sector. The SME

sector in India is no longer the dominant SSI

sector as it was in the 60s and 70s, but a mature

SME sector, with components of manufacturing,

trade and services equally competing and

contributing to the SME pie.

With globalization, there were fears that the

SSI sector in India will face very adverse

conditions. The sickness in this sector was

always a worrying factor. Even now, if any

industrial estate across the nation is surveyed, a

chunk of the sheds in the estates would be found

closed with unused and rusting machinery. The

liberalization era brought in by the early 90s was

expected to further challenge the viability of the

SSI units in the country. But the adaptability,

flexibility and suppleness of the SSI sector

combined with the new material management

concepts adopted by the industry majors for

maintaining near zero inventory, have given fresh

lease of life to this sector.

SSIs or the manufacturing component of the SMEs

in India continues to be vibrant. There are

various verticals within this sector which are

performing to their potential. Global pressures

arising out of the WTO guidelines, IPR regime,

etc. are indeed affecting this sector. Be it in the

textile area or the pharmaceutical sector or the

food processing segment, the manufacturing

SMEs are constantly meet with beneficial as well

as adverse pressures on different counts. The

internal efficiencies and the adaptability of the

sector keep them alive. If India has to become

a global manufacturing hub, the manufacturing

SMEs need to become highly conscious of the

quality standards, update their skills in

technology management and break away from the

shackles of a protected environment of subsidy

and quota ‘raj’

Trade and services are also part of the SMEs. But

the definition of an SME as spelt out by the

parliamentary act and other guidelines issued by

various governing bodies, link SMEs to

investment in plant and machinery, which shuts

out the vast trade and services segment of the

SMEs. Take the case of trade - it is no longer

the street corner kirana merchant who is

dominating trade in the country. Even retail

trade has become highly organized with the mall

culture taking firm root in India. If you take other

elements of trade, be it the dealer networks of

various FMCGs or the automobile

manufacturers or any other sector-specific trade,

the maturity of the market is such that trade has

become a strong link in a much bigger value

chain. The role of SMEs in trade is

substantial and the policy makers can no longer

ignore this fact by linking the definition of SMEs

to the investment in plant and machinery.

If an island nation like Singapore is having such a

large share in the global economy, it is mainly

because of the share of global trade that the city

state has captured. India, with its vast coastline,

long maritime history and well respected legal

framework can become a big trade hub too. The

East India Company set shop in India to tap

the mineral and other resources of the nation.

Even now, the iron ore in India is attracting

substantial investment in India. Trade and export

of iron ore has made the small town of Bellary

into a gold mine for investors. But, if India has to

develop into a major trade hub, with the strong

SME base in this sector, it has to go beyond

mere exploitation of its natural resources for

export. Located logistically in a convenient

position between the west and the far-east, India

can gain a lot from the trade segment too.

Infrastructure at our ports should improve to tap

this potential. Even our present estimates for

augmentation of these capacities do not reckon

the needs for becoming a global transit point for

trade but has been projected only for supporting

our global trade. The planners need to factor in

the possibilities of India becoming a global transit

point in trade and provide infrastructure support

for the same.

Services sector, as we saw earlier, is presently

booming. The outsourcing concept has taken such

deep roots that most of the back end tasks of

offices in the western world are presently being

done in India. The legal and ethical standards

have to keep pace with these developments, to

instill the necessary confidence in the user world,

for sustaining the growth in the outsourcing

services. In addition to the above externally

driven growth in the services sector, India has

other potential for SMEs in the services

sector. Tourism is still not fully exploited by

us; healthcare is an area which offers tremendous

potential for growth from both internal and

external demand; education too is outpacing as a

service sector with both Indian schools of repute

establishing their credentials globally and world

leaders in various educational fields setting

shop in India to cater to the teaming middle class

population of the country. The potential for SMEs

in India in the services sector is vast with very

little exploitation of the financial sector so far.

Within the SME sector, there is a wide diversity.

Whichever way we define them, there is a wide

range of enterprises that constitute the SMEs.

Their behaviour, needs, and characteristics are

all different. In fact, there is very little

homogeneity in this sector that is clubbed

together as SMEs. To understand them better

and to evolve policies and strategies towards

the SMEs, the sector needs to be dissected into

groups that behave in similar ways. There is a

large chunk of micro enterprises at the bottom of

the SME pyramid. Be it the street corner trader or

the small lathe operator or the taxi owner

providing logistic link, these micro enterprises

are omnipresent. The micro enterprises are not

easily amenable to regulation, quality standards

or other measures for assessment of their role in

the economy. They do not follow any standard

accounting practices. Their records and balance

sheets are not very reliable. This micro-enterprise

market is huge and yet poses great challenge to

anyone dealing with the SMEs. In well developed

nations like the US, UK, Japan, etc. there are

credible credit bureaus that give information on

any kind of SME. In these countries, financial

institutions do not distinguish between the

individual behind a micro enterprise and the

micro enterprise. His personal credit history is

reckoned to assess the financial needs of the

enterprise. Products designed for micro

enterprises by banks and financial institutions are

not very different from personal banking

products. The annual income or cash flow guides

the decision making process and not much

importance is given to the balance sheet of such

enterprises.

The SME pyramid has the Small Enterprises (SEs)

above this segment. These SEs have more credible

financial information. Even then, decisions on

these SEs are backed by information from

business bureaus. The audited financial

statements too can be relied upon. In respect

of SEs, banks and financial institutions build

strong credit scoring models, based on statistical

methods and the risks are handled through such

scoring methods.

At the top end of the pyramid lies the

Medium Enterprises (MEs) or the “Emerging

Corporates”, some banks would prefer to call

them. The MEs behave more like bigger

corporates. They have strong financial systems

that can be relied upon. Often, they have public

investments, and proper corporate governance put

in place. Such MEs cannot be addressed through

scoring models but would need individual credit

assessment like any other corporate loan products.

The MEs avail multiple facilities from the

financial institutions and often banks need to

work out structured products for the MEs as

in the case of larger corporates.

Banks in India which have been comfortable to

lend against the asset build up of the SMEs, as the

most preferred means, need to realize that the

SMEs are just not SSIs called differently. While

the SSIs still have asset buildup in the form

of raw material, stock-in-process, finished

goods, etc., the other segments of the SMEs are

not amenable to similar treatment.

 The Nayak Committee

thumb rules cannot be extended across the board

to all the SMEs. As the SMEs in India mature, the

requirements for the banks and financial

institutions are (i) stabilization of credible credit

bureaus (ii) establishment of identities of

businesses and individuals (iii) building of strong

statistical scoring models (iv) understanding

cash flows of the SMEs and (v) capturing the

cash flow cycle appropriately.

As the Indian economy is poised for healthy

growth and with India on the way to becoming an

economic superpower, the SMEs are also placed

on the path of high growth trajectory. But the

policy makers need to unshackle the SMEs from

the quota regime and nurture the sector to grow

on its strengths. Likewise the banks and financial

institutions need to put the history of their

dealings with the SSI sector behind and evolve

methodologies of capturing the cash flow cycle of

SMEs to handle their accounts and not merely

depend upon the asset buildup. The

manufacturing, trade and services sectors need to

be dealt with distinctly by the policy makers

and their growth potential properly harvested

for the benefit of the economy.

-EMERGENCE OF MSMED ACT.2006:

There was a longstanding demand from

entrepreneurs, small industry associations and

related stakeholders for a single comprehensive

legislation. The process of economic

liberalisation and market reforms while exposing

the Indian MSEs to increaseing levels of domestic

and global competition, has also opened up

attractive possibilities of access to larger markets

and of stronger and deeper linkages of MSEs with

larger enterprises.

Since

independence, government has taken many

initiatives to support MSMEs including

establishing organizations like Small Industries

Development Organization (SIDO), National

Small Industries Corporation (NSIC) and policy

guidelines like reservation of products for

exclusive manufacture by MSMEs, access to bank

credit on priority basis, relief on excise for small-

scale units, reservation of certain items for

exclusive purchase from SMEs. In early 1990s, a

technology development and modernization fund

by Small Industries Development Bank of India

(SIDBI) was established along with setting up of

testing centres by Government and industries

associations. More emphasis was given on tool

rooms with latest equipment and machinery to

cater to tooling requirements of MSMEs. A

Delayed Payment Act was also enacted for

ensuring prompt payment to MSMEs from large

industries. Another highlight of MSME policy

during this period was Integrated Infrastructure

Development (IID) Scheme for setting up

industrial estates exclusively for SMEs. In

October 1999, a separate Ministry for the SMEs &

Agro Rural Industries was established. This was

followed by an announcement of a comprehensive

policy package for MSMEs in August 2000 in

which emphasis was laid on technological up-

gradation, infrastructural development and

assistance in marketing. In 2006, Indian

Government introduced Micro, Small & Medium

Enterprises Development Act, 2006. Section 11 of

this Act contains provision for notification of

purchase preference policies for goods and

services provided by SMEs, in ministries and

departments, including public sector

undertakings.
 At present, a procurement policy for Indian

MSMEs is at a consultative draft stage which

seeks a mandatory 20% share of MSMEs

manufactured goods in all Government/PSU

purchases over a period of three years. Despite all

these incentives, MSMEs are not able to fully

utilize the benefit of government schemes due to

following main reasons:

 Most of these enterprises are not aware about

the Government departments and schemes

meant for them.

 There is general lack of coordination among

government departments regarding

beneficial schemes.
Government efforts to promote and support SME

sector are appreciable however some basic

problems of this sector like collection of

payments, workers’ problems, marketing of goods

are so endogenous in nature that solutions are to

be found out by SMEs internally.

Initiatives and measures taken by the

Government during the year to enable MSEs

enhance their competitive strength, address the

challenges of competition and avail of the

benefits of the global market.

The “Micro, Small and Medium

Enterprises Development (MSMED) Act, 2006” is

the first Act for micro, small and medium

enterprises which, inter alia, provides for

establishment of a statutory National Board for

Micro, Small and Medium Enterprises, filing of

memoranda, measures for promotin, development

and enhancement of competitiveness of micro,

small and medium enterprises, credit facilities,

procurement preference and provisions related to

delayed payments to micro and small enterprises.

Micro, Small and Medium Enterprises

(MSMEs), including khadi and village/rural

enterprises are credited with generating the

highest rates of employment growth and

account for a major share of industrial

production and exports. They also play a key

role in the development of economies with

their effective, efficient, flexible and

innovative entrepreneurial spirit. The socio-

economic policies adopted by India since the

Industries (Development and Regulation) Act,

1951 have laid stress on MSMEs as a means to

improve the country’s economic conditions.

Summarily the main

reasons behind the enactment of MSMED Act

are as under:

1)Need for a New Law

2)Small Scale Industrial Undertaking had

no legal backing except few provisions

sections of Industrial (Development And

Regulation) Act, 1951.

3)Different Issues related to SSIs dealt by

multiple laws.

4)Need for a single legislation pointed out by

different committees and voiced by Industry

associations, many Committees & Associations.

5)Absence of any statutory consultative and

recommendatory body.

6)Most of the policies such as purchase

preference policy, registration of SSI , etc., not

having statutory basis.

7)Need to strengthen laws to check delayed

payments.

8)Need to provide a statutory basis to credit

availability for the sector

9)Simplification of registration process

10) Need to define the MSME concept

11) Need to promote the service sector

12) Need for facilitating closure

13) Government policy as well as credit policy

has so far concentrated on manufacturing units in

the small scale sector. The lowering of trade

barriers across the globe has increased the

minimum viable scale of enterprises. The size of

the unit and technology employed for firms to be

globally competitive in now of a higher order.

The definition of small scale sector needs to be

wire visited and the policy should consider

inclusion of services and trade sectors within its

ambit. In keeping with global practice, there is

also a need to broaden the current concept of the

sector and include the medium enterprises in a

composite sector of Small and Medium

Enterprises (SMEs).

Thus the necessary Notifications/Rules,

etc. under the Act have been notified by the

Central Government and MSMED Act, 2006

came into effect from 2 n d october, 2006.

MSMED Act was notified to address policy

issues affecting MSMEs as well as the coverage

and investment ceiling of the sector. The salient

features of the Act include:

 Setting up of a National Board for MSMEs

 Classification of enterprises
  Advisory Committees to support MSMEs

 Measures for promotion, development and

enhancement of MSMEs

 Schemes to control delayed payments to

MSMEs

Enactment of rules by State Governments to

implement the MSMED Act, 2006 in their

respective States

The Ministry of Small Scale Industries and Agro

and Rural Industries was first created on 14th

October 1999 and, on 6th September 2001, further

bifurcated into two separate ministries, namely,

the Ministry of Small Scale Industries and the

Ministry of Agro and Rural Industries.

Subsequent to enactment of “Micro, Small and

Medium Enterprises Development Act, 2006” by

the Parliament, the President under Notification

dated 9 t h May, 2007 has amended the Government

of India (Allocation of Business) Rules, 1961.

Pursuant to this amendment, Ministry of Agro and

Rural Industries and Ministry of Small Scale

Industries were merged into a single Ministry,

namely, “Ministry of Micro, Small and Medium

Enterprises.” This Ministry designs policies and

promotes/ facilitates programmes, projects and

schemes and monitors their implementation with a

view to assisting MSMEs and help them scale up.

Considering the importance of the MSME sector

in the overall growth of the economy, the Indian

Prime Minister announced the setting up of a

Task Force on MSMEs in August 2009.

Accordingly, a Task Force was set up in

September 2009 under the chairmanship of the

Principal Secretary to Prime Minister to look into

the issues and concerns of the MSME sector in a

holistic manner. The Report submitted in January

2010 provided a roadmap for the development and

promotion of the MSMEs in the country. It

recommends an agenda for immediate action to

provide relief and incentives to the MSMEs,

accompanied by institutional changes and

detailing of program to be achieved in a time

bound manner. In addition, it suggests setting up

of appropriate legal and regulatory structures to

create a conducive environment for

entrepreneurship and growth of MSMEs in the

country. The Task Force has laid emphasis on

timely implementation of the recommendations

and has set up a system for its continuous

monitoring in the Prime Minister’s Office. A

Council on MSMEs under the chairmanship of

Hon’ble Prime Minister has been constituted to

lay down the broad policy guidelines and review

development of the MSME sector. The Task

Force in its Report has also stressed on the need

for strengthening the technological capabilities of

the MSMEs and recommended setting up of a

‘Technology Fund’ for supporting MSMEs to

undertake technology up-gradation, acquisition,

adaptation and innovation to enable them to move

up the value chain.

 CHAPTER : II

CLASSIFICATION OF INDUSTRIES

( NOW ENTERPRISES )

A business (also known as enterprise or firm) is

an organization involved in the trade of goods,

services, or both to consumers. Business plan and

Business model determine the outcome of an

active business operation. Businesses are

predominant in capitalist economies, where most

of them are privately owned and administered to

provide service to its customers. Businesses may

also be not-for-profit or state-owned. A business

owned by multiple individuals may be referred to

as a company, although that term also has a more

precise meaning.

Forms of Business Organization:

1)Sole Proprietorship:

The vast majority of small businesses start out as

sole proprietorships.  These firms are owned by

one person, usually the individual who has day-

to-day responsibility for running the business.  

Sole proprietorships own all the assets of the

business and the profits generated by it.  They also

assume complete responsibility for any of its

liabilities or debts.  In the eyes of the law and the

public, you are one in the same with the business.

Advantages of a Sole Proprietorship-

• Easiest and least expensive form of ownership to

organize.

• Sole proprietors are in complete control, and

within the parameters of the law, may make

decisions as they see fit.

• Profits from the business flow-through directly

to the owner’s personal tax return.

• The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship

• Sole proprietors have unlimited liability and are

legally responsible for all debts against the

business.  Their business and personal assets are

at risk.

• May be at a disadvantage in raising funds and

are often limited to using funds from personal

savings or consumer loans.

• May have a hard time attracting high-caliber

employees, or those that are motivated by the

opportunity to own a part of the business.

• Some employee benefits such as owner’s

medical insurance premiums are not directly

deductible from business income (only partially

as an adjustment to income).

2)Partnership :

As per section 4 of the Indian partnership Act,

1932 ,in the partnership there is relationship

between persons who have agreed to share the

profits of a business carried on by all or any of

them acting for all.

In a Partnership, two or more people share

ownership of a single business.   Like

proprietorships, the law does not distinguish

between the business and its owners.   The

Partners should have a legal agreement that sets

forth how decisions will be made, profits will be

shared, disputes will be resolved, how future

partners will be admitted to the partnership, how

partners can be bought out, or what steps will be

taken to dissolve the partnership when needed;

Yes, its hard to think about a “break-up” when the

business is just getting started, but many

partnerships split up at crisis times and unless

there is a defined process, there will be even

greater problems.  They also must decide up front

how much time and capital each will contribute,

etc..According to an agreement between the

parties constituting the partnership is the sine qua

non of the legal relationship of the partners and

the very concept of partnership is founded on the

1
agreement between the persons. An agreement of

Partnership may be by word of mouth initially but

it should have been subsequently reduced into

writing. 2

1 Mohan L al Shyam L al , i n r e (1942) 10 IT R 219 ( AII ) ;

Banyan & Ber r y v DCIT ( 1996) 222 I T R 831( GUJ)
2 R.C. Mi t t er & S ons v CI T( 1959) 36 I T R 194 (SC)
A firm cannot become partner with any firm or

individual. 1 Hindu undivided family may become

 2
partner through its Karta. If the Karta dies , the

partnership is legally dissolved. 3

Advantages of a Partnership-

• Partnerships are relatively easy to establish;

however time should be invested in developing

the partnership agreement.

• With more than one owner, the ability to raise

funds may be increased.

1 Dul i chand Laxm i nar ayan v CI T AI R 1956 SC 354 ; Kyl asa

S ar abhai ah v CI T AI R 1965 SC 1411
2 Chandr akant Mani l al v CI T AI R 1992 SC 66
3 CIT v S et h Govi nd Ram Sugar Mi l l s (1965) 57 IT R 510
( S C)
• The profits from the business flow directly

through to the partners’ personal tax return.

• Prospective employees may be attracted to the

business if given the incentive to become a

partner.

• The business usually will benefit from partners

who have complementary skills.

Disadvantages of a Partnership-

• Partners are jointly and individually liable for

the actions of the other partners.

• Profits must be shared with others.

• Since decisions are shared, disagreements can

occur.

• Some employee benefits are not deductible from

business income on tax returns.

• The partnership may have a limited life; it may

end upon the withdrawal or death of a partner.

Types of Partnerships that should be

considered:

1. General Partnership:

Partners divide responsibility for management and

liability, as well as the shares of profit or loss

according to their internal agreement.   Equal

shares are assumed unless there is a written

agreement that states differently.

2. Limited Partnership and Partnership with

limited liability:

“Limited” means that most of the partners have

limited liability (to the extent of their investment)

as well as limited input regarding management

decision, which generally encourages investors

for short term projects, or for investing in capital

assets.  This form of ownership is not often used

for operating retail or service businesses.  

Forming a limited partnership is more complex

and formal than that of a general partnership.

3. Joint Venture Acts like a general partnership,

but is clearly for a limited period of time or a

single project.  If the partners in a joint venture

repeat the activity, they will be recognized as an

ongoing partnership and will have to file as such,

and distribute accumulated partnership assets

upon dissolution of the entity.

3) Corporations:

A Corporation, chartered by the state in which it

is headquartered, is considered by law to be a

unique entity, separate and apart from those who

own it.  A Corporation can be taxed; it can be

sued; it can enter into contractual agreements.  

The owners of a corporation are its shareholders.  

The shareholders elect a board of directors to

oversee the major policies and decisions.   The

corporation has a life of its own and does not

dissolve when ownership changes.

Advantages of a Corporation-

• Shareholders have limited liability for the

corporation’s debts or judgments against the

corporation.

• Generally, shareholders can only be held

accountable for their investment in stock of the

company.  (Note however, that officers can be

held personally liable for their actions, such as

the failure to withhold and pay employment taxes.

• Corporations can raise additional funds through

the sale of stock.

• A Corporation may deduct the cost of benefits it

provides to officers and employees.

• Can elect S Corporation status if certain

requirements are met.  This election enables

company to be taxed similar to a partnership.

Disadvantages of a Corporation-

• The process of incorporation requires more time

and money than other forms of organization.

• Corporations are monitored by federal, state and

some local agencies, and as a result may have

more paperwork to comply with regulations.

• Incorporating may result in higher overall

taxes.  Dividends paid to shareholders are not

deductible from business income; thus this

income can be taxed twice.

4)Limited Liability Company (LLC):

The LLC is a relatively new type of hybrid

business structure that is now permissible in most

states.  It is designed to provide limited liability

features of a corporation and the tax efficiencies

and operational flexibility of a partnership.  

Formation is more complex and formal than that

of a general partnership.
The owners are members, and the duration of the

LLC is usually determined when the organization

papers are filed.  The time limit can be continued

if desired by a vote of the members at the time of

expiration.  LLC’s must not have more than two

of the four characteristics that define

corporations;  Limited liability to the extent of

assets; continuity of life; centralization of

management; and free transferability of ownership

interests.

5) Hindu Undivided Family:

A joint hindu Family consists of all persons

lineally descended form a common ancestor and

includes their wives and unmarried daughters

;while a Hindu coparcenary is a much narrower

body including only those persons who acquire by

birth n interest in the joint or coparcenary

property. 1 Only one member or coparcener cannot

form an HUF. 2

Under the MSMED Act 2006, the earlier, rather

limited, concept of ‘Industries’ has been widened

to that of ‘Enterprises’. The Act marks a shift in

1 Gowli Buddanna v CIT(1966)60 ITR 293 (SC) 2

Krishna Prasad v CIT (1974) 97 ITR493(SC)

the approach towards the small sector from an

“industrial undertaking oriented approach” to an

“enterprise oriented” approach. The Statement of

Objects and Reasons of the Bill notes that “The

world over, the emphasis has shifted from

“industries” to “enterprises”. In view of this,

section 2 (e) of the Act defines “enterprise” as

under:

“Enterprise” means an industrial

undertaking or a business concern or any other

establishment, by whatever name called, engaged

in the manufacture or production of goods, in

any manner, pertaining to any industry specified

in the First Schedule to the Industries

(Development and Regulation) Act, 1951 or

engaged in providing or rendering of any service

or services”.
Enterprises have been classified broadly into two

categories, namely enterprises engaged in the

manufacture/production of goods pertaining to

any industry; & enterprises engaged in

providing/rendering of services. Enterprises have

been defined in terms of investment in plant and

machinery/ equipment (excluding land &

building) as below:

Definition of MSM Enterprises

Investment in plant and

machinery/equipment (excluding land and

building)
 Manufacturing Service Enterprises

Enterprise
Micro Up to Rs. 25 lakh Up to Rs. 10 lakh
Small More than Rs. 25 More than Rs. 10 lakh

lakh and up to Rs. and up to Rs. 2 crore

5 crore
Medium More than Rs. 5 More than Rs. 2 crore

crore and up to and up to Rs. 5 crore

Rs. 10 crore
In brief:

Notwithstanding anything contained in section

11B of the Industries (Development and

Regulation) Act, 1951(65 of 1951), the Central

Government may, for the purposes of this Act, by

notification and having regard to the provisions of

sub-sections (4) and (5), classify any class or

classes of enterprises, whether proprietorship,

Hindu undivided family, association of persons,

co-operative society, partnership firm, company

or undertaking, by whatever name called,--

(a) in the case of the enterprises engaged in the

manufacture or production of goods

pertaining to any industry specified in the

First Schedule to the Industries

(Development and Regulation) Act,

1951(65 of 1951), as-

(i) a micro enterprise, where the

investment in plant and machinery does

not exceed twenty-five lakh rupees;

(ii) a small enterprise, where the

investment in plant and machinery is

 more than twenty-five lakh rupees but

does not exceed five crore rupees; or

(iii) a medium enterprise, where the

investment in plant and machinery is

more than five crore rupees but does not

exceed ten crore rupees;

(b) in the case of the enterprises engaged in

providing or rendering of services, as--

(i) a micro enterprise, where the

investment in equipment does not exceed

ten lakh rupees;

(ii) a small enterprise, where the

investment in equipment is more than ten

 lakh rupees but does not exceed two crore

rupees; or

(iii) a medium enterprise, where the

investment in equipment is more than two

crore rupees but does not exceed five

crore rupees.

Explanation 1-For the removal of doubts, it is

hereby clarified that in calculating the investment

in plant and machinery, the cost of pollution

control, research and development, industrial

safety devices and such other items as may be

specified, by notification, shall be excluded.

Explanation 2-It is clarified that the provisions of

section 29B of the Industries (Development and

Regulation) Act, 1951(65 of 1951), shall be

applicable to the enterprises specified in sub-

clauses (i) and (ii) of clause (a) of sub-section (1)

of this section.

Businesses Reserved for Micro, Small and

Medium Enterprises:

Reservation means that units producing the

reserved items cannot go beyond a stipulated cap

on investment in plant and machinery.

With a view to providing to the small scale

industries opportunities for technological

upgradation, promotion of exports and economies

of scale, items reserved for exclusive manufacture

by the small scale industries have been deserved

from time to time. The process of reservation of

items for production exclusively by the small

scale sector started in 1967.

The issue of reservation/dereservation of product

is examined on a continual basis by an Advisory

Committee on Reservation.
Annexure
 Annexure

LIST OF ITEMS RESERVED FOR PURCHASE

FROM MICRO AND SMALL ENTERPRISES:

Sl No. Item Description

1. AAC/& ACSR Conductor upto 19 strands
2. Agricultural Implements
a. Hand Operated tools & implements
b. Animal driven implements
3. Air/Room Coolers
4. Aluminium builder's hardware
5. Ambulance stretcher
6. Ammeters/ohm meter/Volt meter (Electro magnetic
upto Class I accuracy)
7. Anklets Web Khaki
8. Augur (Carpenters)
9. Automobile Head lights Assembly
10. Badges cloth embroidered and metals
11. Bags of all types i.e. made of leather, cotton,
canvas & jute etc. including kit bags, mail bags,
sleeping bags & water-proof bag
12. Bandage cloth
13. Barbed Wire
14. Basket cane (Procurement can also be made from
State Forest Corpn. and State Handicrafts
Corporation)
15. Bath tubs
16. Battery Charger
17. Battery Eliminator
18. Beam Scales (upto 1.5 tons)
19. Belt leather & straps
20. Bench Vices
21. Bituminous Paints
22. Blotting Paper
23. Bolts & Nuts
24. Bolts Sliding
25. Bone Meal
26. Boot Polish
27. Boots & Shoes of all types including canvas shoes
28. Bowls
29. Boxes Leather
30. Boxes made of metal
31. Braces
32. Brackets other than those used in Railways
33. Brass Wire
34. Brief Cases (other than moulded luggage)
35. Brooms
36. Brushes of all types
37. Buckets of all types
38. Button of all types
39. Candle Wax Carriage
40. Cane Valves/stock valves (for water fittings only)
41. Cans metallic (for milk & measuring)
42. Canvas Products :
a. Water Proof Deliver, Bags to spec. No. IS -
1422/70
b. Bonnet Covers & Radiators Muff. to spec. Drg. Lv
7/NSN/IA/130295
43. Capes Cotton & Woollen
44. Capes Waterproof
45. Castor Oil
46. Ceiling roses upto 15 amps
47. Centrifugal steel plate blowers
48. Centrifugal Pumps suction & delivery 150 mm. x
150 mm
49. Chaff Cutter Blade
50. Chains lashing
51. Chappals and sandals
52. Chamois Leather
53. Chokes for light fitting
54. Chrome Tanned leather (Semi-finished Buffalo &
Cow)
55. Circlips
56. Claw Bars and Wires
57. Cleaning Powder
58. Clinical Thermometers
59. Cloth Covers
60. Cloth Jaconet
61. Cloth Sponge
62. Coir fibre and Coir yarn
63. Coir mattress cushions and matting
64. Coir Rope hawserlaid
65. Community Radio Receivers
66. Conduit pipes
67. Copper nail
68. Copper Napthenate
69. Copper sulphate
70. Cord Twine Maker
71. Cordage Others
72. Corrugated Paper Board & Boxes
73. Cotton Absorbent
74. Cotton Belts
75. Cotton Carriers
76. Cotton Cases
77. Cotton Cord Twine
78. Cotton Hosiery
79. Cotton Packs
80. Cotton Pouches
81. Cotton Ropes
82. Cotton Singlets
83. Cotton Sling
84. Cotton Straps
85. Cotton tapes and laces
86. Cotton Wool (Non absorbent)
87. Crates Wooden & plastic
88. (a) Crucibles upto No. 200
(b) Crucibles Graphite upto No. 500
(c) Other Crucibles upto 30 kgs.
89. Cumblies & blankets
90. Curtains mosquito
91. Cutters
92. Dibutyl phthalate
93. Diesel engines upto 15 H.P
94. Dimethyl Phthalate
95. Disinfectant Fluids
96. Distribution Board upto 15 amps
97. Domestic Electric appliances as per BIS
Specifications :-
- Toaster Electric, Elect. Iron, Hot Plates,
Elect. Mixer, Grinders Room heaters &
convectors and ovens
98. Domestic (House Wiring) P.V.C. Cables and Wires
(Aluminium) Conforming to the prescribed BIS
Specifications and upto 10.00 mm sq. nominal
cross section
99. Drawing & Mathematical Instruments
100.Drums & Barrels
101. Dust Bins
102. Dust Shield leather
103.Dusters Cotton all types except the items required
in Khadi
104. Dyes :
 a. Azo Dyes (Direct & Acid)
b. Basic Dyes
105. Electric Call bells/buzzers/door bells
106. Electric Soldering Iron
107.Electric Transmission Line Hardware items like
steel cross bars, cross arms clamps arching
horn, brackets, etc
108. Electronic door bell
109. Emergency Light (Rechargeable type)
110. Enamel Wares & Enamel Utensils
111. Equipment camouflage Bamboo support
112. Exhaust Muffler
113. Expanded Metal
114. Eyelets
115.Film Polythene - including wide width film
116. Film spools & cans
117. Fire Extinguishers (wall type)
118. Foot Powder
119. French polish
120. Funnels
121. Fuse Cut outs
122. Fuse Unit
123.Garments (excluding supply from Indian Ordnance
Factories)
124. Gas mantels
125. Gauze cloth
126. Gauze surgical all types
127. Ghamellas (Tasllas)
128. Glass Ampules
129. Glass & Pressed Wares
130. Glue
131. Grease Nipples & Grease guns
132. Gun cases
133. Gun Metal Bushes
134. Gumtape
135. Hand drawn carts of all types
136. Hand gloves of all types
137. Hand Lamps Railways
138. Hand numbering machine
139.Hand pounded Rice (polished and unpolished)
140. Hand presses
141. Hand Pump
142. Hand Tools of all types
143.Handles wooden and bamboo (Procurement can
also be made from State Forest Corpn. and State
Handicrafts Corporation)
144. Harness Leather
145. Hasps & Staples
146. Haver Sacks
147. Helmet Non-Metallic
148. Hide and country leather of all types
149. Hinges
150. Hob nails
151. Holdall
152. Honey
153. Horse and Mule Shoes
154. Hydraulic Jacks below 30 ton capacity
155.Insecticides Dust and Sprayers (Manual only)
156. Invalid wheeled chairs.
157. Invertor domestic type upto 5 kvA
158. Iron (dhobi)
159. Key board wooden
160. Kit Boxes
161. Kodali
162. Lace leather
163. Lamp holders
164. Lamp signal
165. Lanterns Posts & bodies
166. Lanyard
167. Latex foam sponge
168. Lathies
169. Letter Boxes
170. Lighting Arresters - upto 22 kv
171. Link Clip
172. Linseed Oil
173. Lint Plain
174. Lockers
175. Lubricators
176. L.T. Porcelain KITKAT & Fuse Grips
177. Machine Screws
178. Magnesium Sulphate
179. Mallet Wooden
180. Manhole covers
181. Measuring Tapes and Sticks
182. Metal clad switches (upto 30 Amps)
183. Metal Polish
184.Metallic containers and drums other than N.E.C.
(Not elsewhere classified)
185. Metric weights
186. Microscope for normal medical use
187. Miniature bulbs (for torches only)
188. M.S. Tie Bars
189. Nail Cutters
190. Naphthalene Balls
191. Newar
192. Nickel Sulphate
193. Nylon Stocking
194. Nylon Tapes and Laces
195. Oil Bound Distemper
196. Oil Stoves (Wick stoves only)
197. Pad locks of all types
198. Paint remover
199. Palma Rosa Oil
200. Palmgur
201. Pans Lavatory Flush
202.Paper conversion products, paper bags, envelops,
Ice-cream cup, paper cup and saucers & paper
Plates
203. Paper Tapes (Gummed)
204. Pappads
205. Pickles & Chutney
206. Piles fabric
207. Pillows
208. Plaster of Paris
209.Plastic Blow Moulded Containers upto 20 litre
excluding Poly Ethylene Terphthalate (PET)
Containers
210. Plastic cane
211. Playing Cards
212. Plugs & Sockets electric upto 15 Amp
213. Polythene bags
214. Polythene Pipes
215. Post Picket (Wooden)
216. Postal Lead seals
217. Potassium Nitrate
218. Pouches
219. Pressure Die Casting upto 0.75 kg
220. Privy Pans
221. Pulley Wire
222. PVC footwears
223. PVC pipes upto 110 mm
224.PVC Insulated Aluminium Cables (upto 120 sq.
mm) (ISS:694)
225. Quilts, Razais
226. Rags
227. Railway Carriage light fittings
228. Rakes Ballast
229. Razors
230. RCC Pipes upto 1200 mm. dia
231. RCC Poles Prestressed
232. Rivets of all types
233. Rolling Shutters
234. Roof light Fittings
235. Rubber Balloons
236. Rubber Cord
237. Rubber Hoses (Unbranded)
238.Rubber Tubing (Excluding braided tubing)
239. Rubberised Garments Cap and Caps etc
240. Rust/Scale Removing composition
241. Safe meat & milk
242. Safety matches
243.Safety Pins (and other similar products like paper
pins, staples pins etc.)
244. Sanitary Plumbing fittings
245. Sanitary Towels
246.Scientific Laboratory glasswares (Barring
sophisticated items)
247. Scissors cutting (ordinary)
248.Screws of all types including High Tensile
249. Sheep skin all types
250. Shellac
251. Shoe laces
252. Shovels
253. Sign Boards painted
254. Silk ribbon
255. Silk Webbing
256. Skiboots & shoes
257. Sluice Valves
258. Snapfastner (Excluding 4 pcs. ones)
259. Soap Carbolic
260. Soap Curd
261. Soap Liquid
262. Soap Soft
263. Soap washing or laundary soap
264. Soap Yellow
265. Socket/pipes
266. Sodium Nitrate
267. Sodium Silicate
268. Sole leather
269. Spectacle frames
270. Spiked boot
271.Sports shoes made out of leather (for all Sports
games)
272.Squirrel Cage Induction Motors upto and including
100 KW440 volts 3 phase
273. Stapling machine
274. Steel Almirah
275. Steel beds stead
276. Steel Chair
277. Steel desks
278. Steel racks/shelf
279. Steel stools
280. Steel trunks
281. Steel wool
282.Steel & aluminium windows and ventilators
283. Stockinet
284. Stone and stone quarry rollers
285. Stoneware jars
286. Stranded Wire
287. Street light fittings
288. Student Microscope
289. Studs (excluding high tensile)
290. Surgical Gloves (Except Plastic)
291. Table knives (Excluding Cutlery)
292. Tack Metallic
293. Taps
294. Tarpaulins
295. Teak fabricated round blocks
296. Tent Poles
297.Tentage Civil/Military & Salitah Jute for Tentage
298.Textiles manufacturers other than N.E.C. (not
elsewhere classified)
299. Tiles
300. Tin Boxes for postage stamp
301. Tin can unprinted upto 4 gallons capacity (other
than can O.T.S.)
302. Tin Mess
303. Tip Boots
304. Toggle Switches
305. Toilet Rolls
306. Transformer type welding sets conforming to
IS:1291/75 (upto 600 amps)
307. Transistor Radio upto 3 band
308. Transistorised Insulation - Testers
309. Trays
310. Trays for postal use
311. Trolley
312. Trollies - drinking water
313. Tubular Poles
314. Tyres & Tubes (Cycles)
315. Umbrellas
316. Utensils all types
317. Valves Metallic
318. Varnish Black Japan
319. Voltage Stablisers including C.V.T's
320. Washers all types
321. Water Proof Covers
322. Water Proof paper
323. Water tanks upto 15,000 litres capacity
324. Wax sealing
325. Waxed paper
326. Weighing Scale
327. Welded Wiremash
328. Wheel barrows
329. Whistle
330. Wicks cotton
331.Wing Shield Wipers (Arms & Blades only)
332. Wire brushes and Fibre Brushes
333. Wire Fencing & Fittings
334. Wire nails and Horse shoe nails
335.Wire nettings of gauze thicker than 100 mesh size
336. Wood Wool
337. Wooden ammunition boxes
338. Wooden Boards
339. Wooden Box for Stamps
340.Wooden Boxes and Cases N.E.C. (Not elsewhere
classified)
341. Wooden Chairs
342. Wooden Flush Door Shutters
343. Wooden packing cases all sizes
344. Wooden pins
345. Wooden plugs
346. Wooden shelves
347. Wooden veneers
348. Woollen hosiery
349. Zinc Sulphate
350. Zip Fasteners
 CHAPTER : III

APEX CONSULTATIVE BODY WITH WIDE

REPRESENTATION OF STAKEHOLDERS

1)NATIONAL BOARD FOR MSME-

MSMED Act-2006 provides for establishment of

National Board for Micro, Small & Medium

Enterprises (NBMSME) and its functions etc.

Accordingly, to give effect to the formation of

NBMSME, Rules were notified on 26th September

2006 which provided procedure of establishment

of the Board, term of the members other than ex-

officio members limited to two years, manner of

filling the vacancies, procedure to be followed for

convening of meetings and discharge of functions

by the members of the Board, etc.

The National Board for Micro, Small &

Medium Enterprises (NBMSME) was established /

notified for the first time on 15th May 2007

consisting of 47 members including Chairman,

Vice Chairman and Member Secretary in

accordance with the Sub Section 1 of Section 3 of

MSMED Act, 2006 and National Board for Micro,

Small & Medium Enterprises Rules, 2006. The

Minister in-charge of Ministry of MSME is ex-

officio Chairman of the National Board.

Salient Features of the NBMSME:

» NBMSME is consisting of 47 members (18

Ex-officio members and 29 members- the tenure

of members is for two years from the date of

notification).

» Has statutory backing.

» Provides representation to all

sections/segments including Associations of

Micro, Small and Medium manufacturing and

service enterprises, women enterprises, Central

Ministries, States representing different regions

of the country, trade unions, etc.

» Quarterly meeting of the Board mandatory as

per MSMED Act, 2006 - the Board has met six

times from the date of its establishment.

Under the new Act, action have been initiated for

constitution of the National Board for Micro,

Small and Medium Enterprises, which will be

headed by the Central Minister In Charge of

MSMEs and will consist of members from

(i) MPs

(ii) Representatives of Central Ministries

(iii) State Governments

(iv) UT Administration, RBI, SIDBI, NABARD

(v) Associations of MSMEs including women

(vi) Persons of eminence and

(vii) Central Trade Union Organisations.

National Board for Micro, Small and Medium

Enterprises will have a statutory status as against

non-statutory SSI Board. It will be mandatory to

hold quarterly meetings of National Board.

- Functions of the National Board for MSMEs will

be to-

(i) examine the factors affecting the promotion

and development of MSMEs and review the

policies and programmes of the Central

Government in this regard

(ii) make recommendations on matters referred to

as above or any other matter referred to it by the

Central Government

(iii) advise the Central Government on the use of

Fund or Funds constituted under section 12 of the

MSMED Act.
2)ADVISORY COMMITTEE-

As per the provisions of MSMED Act, 2006, the

Central Government has already constituted an

Advisory Committee, for a period of two years

with effect from 27th September, 2006, which is

headed by Union Secretary In-Charge of MSMEs.

The other members are Union Secretaries of

Ministry/Department of Commerce, Food

Processing Industries,Labour and Employment,

Revenue,Advisor (VSI), Planning Commission,

Secretaries (dealing with micro, small and

medium enterprises), of the State Governments of

Andhra Pradesh, Assam, Uttar Pradesh, President,

Tamilnadu Association of Cottage and Tiny

Entrepreneurs, Chennai, President,Federation of

Indian Micro, Small and Medium Enterprises,

New Delhi and President, CII, New Delhi. Its

member secretary will be the Union Additional

Secretary and Development Commissioner (SSI),

New Delhi.

- Functions of Advisory Committee for MSMEs:

i)To examine matters referred by the NBMSME

concerning promotion and development of MSME

sector and enhancing its competitiveness.

ii)To provide advice to the Central Government

on issues related to the promotion, development

and enhancement of competitiveness of micro,

small and medium enterprises, covered under

Section 9 to 12 and Section 14 of the MSMED

Act, 2006, which include issues concerning Credit

Facilities, Procurement of Preference Policy,

Constitution and Administration of Funds, etc.

iii)To provide advice to the State Governments (in

case sought by any of them) on issues relating to

notifying any rule made to carry out the

provisions of the MSMED Act-2006 including the

composition of Micro, Small Enterprises

Facilitation Councils etc. as provided under

section 30.

iv)Recommend or advice Central Government or

State Governments or the Board, as the case may

be, in connection with the classification of a

class(es) of enterprises after taking into

consideration the level of employment,

investments, need of higher investment in plant

and machinery or equipment for technology

upgradation, employment generation and

enhanced competitiveness and international

standards for classification of small and medium

enterprises.
Annexure:
 CHAPTER: IV

Registration of Micro, Small and Medium

Enterprises

MSME Registration:

MSME stands for micro, small and medium

enterprises and any enterprise that falls

under any of these three categories can apply for

registration. MSME registration that falls under

the MSMED Act facilitates promotion and

development of enterprises and improves its

functioning. Any type of enterprise can apply for

SME registration. These includes proprietorship

enterprises, enterprises managed by Hindu

undivided family,enterprises run by association of

individuals, co-operative societies, partnership

firms and enterprises managed by companies or

undertakings etc. After registration, an enterprise

becomes eligible to get the benefits under the

MSMED Act.

There are two stages of registration-

provincial and permanent (final). An enterprise is

granted provincial registration when it is at a pre-

investment stage. After getting provincially

registered, an enterprise can apply for permanent

registration just before launching its production

facilities. However, an enterprise that is already

functioning need not have to apply for provincial

registration as it is eligible to apply for

permanent registration.

Enterprises falling under the three

categories (micro, small and medium) are further

categorized into two types of industries-

Manufacturing industry and Service industry.

The status of an enterprise under the MSMED Act

is determined according to the investment slab

under which an enterprise falls.

Benefits of MSME Registration in India:

The MSME registration process in India has been

conceptualized to provide maximum benefits to

all types of enterprises. After registration, any

enterprise becomes qualified to reap the benefits

offered under the MSMED Act. For example, after

provincial registration an enterprise can seek

financial credit and also other facilities like land,

industrial set-up, and water /electricity /

telephone connections.

After getting registered under a competent

authority, an enterprise is allotted a MSMED

registration/entrepreneurs memorandum (EM)

number. The concerned enterprise should get the

number printed on letter heads, invoices, bills,

supply order sheets and other necessary

documents. The EM number helps in

identification of MSE suppliers and in this case

an enterprise becomes an authorized MSE supplier

after registration.
GENERAL INSTRUCTIONS REGARDING

REGISTRATION:

 Memorandum is to be filed with the district

industries centre, by a micro, small or

medium enterprise, as the case may be, under

subsection (1) of section 8 of the micro, small

& medium enterprises development (msmed)

act, 2006.

 Three copies of memorandum for micro and

small enterprises and four copies for medium

enterprises should be filed\

 There is no fee for processing the

memorandum.
 Existing units should fill up only part ii of

the memorandum.

 In case of any change in the information, at

any point of time, please inform the details

within three month to dic.

 Write / type in block (capital) letters.

 Leave one blank box after each word.

 Fill up whichever is applicable.

 All codes other than pin code shall be filled

by the office.

 Form will be machine numbered by the

district industries centre.

Annexure: EM I
Annexure:EM II
Chapter V
 DELAYED PAYMENTS TO MICRO AND

SMALL ENTERPRISES

The Micro, Small and Medium Enterprises

Development Act, 2006 was passed in 2006 for

the promotion, development and enhancing the

competitiveness of micro, small and medium

enterprises and for matters connected therewith.

Chapter V of the Act specifically provides for

delayed payments to Micro and Small Enterprises.

The Act provides for constitution of Micro and

Small Enterprises Facilitation Council by State

Governments in their state for reference and

redressal of recovery of amount due.

Legal approach for an SME facing problem with

respect to delayed payments from their Buyers.

Any enterprises, whether proprietorship, Hindu

undivided family, association of persons, co-

operative society, partnership firm, company or

undertaking, -

(a) in the case of the enterprises engaged in the

manufacture or production of goods–

(i) a micro enterprise, where the investment in

plant and machinery does not exceed Rs.25 Lakh;

(ii) a small enterprise, where the investment in

plant and machinery is more than Rs.25 Lakh but

does not exceed Rs.5 Crores; or

(iii) a medium enterprise, where the investment

in plant and machinery is more than Rs.5 Crores

but does not exceed Rs.10 Crores.

(b) in the case of the enterprises engaged in

providing or rendering of services, as –

(i) a micro enterprise, where the investment in

equipment does not exceed

Rs.10 Lakhs;

(ii) a small enterprise, where the investment in

equipment is more than Rs.10 Lakhs but does not

exceed Rs. 2 Crores ; or

(iii) a medium enterprise, where the investment in

equipment is more than Rs. 2 Crores but does not

exceed Rs. 5 Crores.

In order to be eligible to take benefit of

facilitation council and qualify as supplier under

the Act, one should file Memorandum of Micro,

Small as the case may be with the authority as

may be designated by State Government.

Based on these draft rules the procedure is as

under :

1) Liability of buyer to make payment(Section 15)

Where any supplier, supplies any goods or

renders anyservices to any buyer, the buyer

shall make payment there for on or before the

date agreed upon between him and the

supplier in writing or, where there is no

agreement in this behalf, before the appointed

day:

Provided that in no case the period agreed

upon between the supplier and the buyer in

writing shall exceed forty-five days from

the day of acceptance or the day of deemed

acceptance.

2) Date from which and rate at which interest

is payable (Section 16)

Where any buyer fails to make payment of the

amount to the supplier, as required under

section 15, the buyer shall, notwithstanding

anything contained in any agreement between

the buyer and the supplier or in any law for

the time being in force, be liable to pay

 compound interest with monthly rests to the

supplier on that amount from the appointed

day or, as the case maybe, from the date

immediately following the date agreed upon,

at three times of the bank rate notified by the

Reserve Bank.

3) Recovery of amount due (Section 17)

For any goods supplied or services rendered

by the supplier, the buyer shall be liable to

pay the amount with interest thereon as

provided under section 16.

4) Reference to Micro and Small Enterprises

Facilitation Council (Section 18)

(1) Notwithstanding anything contained in

any other law for the time being in force, any

party to a dispute may, with regard to any

amount due under section 17, make a

reference to the Micro and Small Enterprises

Facilitation Council.

(2) On receipt of a reference under sub-

section (1), the Council shall either itself

conduct conciliation in the matter or seek the

assistance of any institution or centre

providing alternate dispute resolution

services by making a reference to such an

institution or centre, for conducting

conciliation and the provisions of sections 65

to 81 of the Arbitration and Conciliation Act,

1996(26 of 1996) shall apply to such a

dispute as if the conciliation was initiated

under Part III of that Act.

(3) Where the conciliation initiated under

sub-section (2) is not successful and stands

terminated without any settlement between

the parties, the Council shall either itself take

up the dispute for arbitration or refer to it any

institution or centre providing alternate

dispute resolution services for such

arbitration and the provisions of the

Arbitration and Conciliation Act,1996(26 of

1996) shall then apply to the dispute as if the

arbitration was in pursuance of an arbitration

 agreement referred to in sub-section (1) of

section7 of that Act.

(4) Notwithstanding anything contained in any

other law for the time being in force, the Micro

and Small Enterprises Facilitation Council or

the centre providing alternate dispute resolution

services shall have jurisdiction to act as an

Arbitrator or Conciliator under this section in a

dispute between the supplier located within its

jurisdiction and a buyer located anywhere in

India.

"If particular Act does not fulfill object of

legislature, then parliament can enact other Act

 for that purpose and same cannot be challenged

as unconstitutional." 1

"Council shall have power to act as an

Arbitrator if there is an arbitration

clause/agreement or contract between

parties." 2

(5) Every reference made under this section

shall be decided within a period of ninety

days from the date of making such a

reference.

1 Eden Expor t s Com pany r ep . by i t s Par t ner Mr s . Fai qua

S ham eel and Or s . vs . Uni on of Indi a ( UOI ) r ep . by i t s
S ecr et ar y , Mi ni st r y of Mi cr o , Sm al l and Medi um Ent er pr i ses
and Or s . ( 20 . 08 . 2010 - MADHC)

2 Wel spun Cor p. L td. vs. The Mi cr o and Sm al l ,

Medi um E nt er pri ses F aci l i t at i on Counci l , Punj ab and ot her s
( 13.12.2011 - P HHC)
5) Application for setting aside decree, award or

order (Section19):

MSMSED Act, 2006 nowhere provides the

procedure for setting aside of arbitral award.

However, section 34 of the Arbitration and

Conciliation Act, 1996 provides an arbitral award

made by an arbitral tribunal may be set aside by

the court on an application made by a party.

The award is not open to challenge on the ground

that the arbitrator has reached a wrong conclusion

or has failed to appreciate the facts. It has no

jurisdiction to sit in appeal and examine the

correctness of the award on merits with reference

to the materials produced before the tribunal or to

issue an order of injunction , which may result in

1
obstructing the proceedings before the tribunal.

No application for setting aside any decree,

award or other order made either by the

Council itself or by any institution or centre

providing alternate dispute resolution

services to which a reference is made by the

Council, shall be entertained by any court

unless the appellant (not being a supplier) has

deposited with it seventy-five per cent of the

amount in terms of the decree, award or, as

1 Deepak Mi t r a v Di st r i ct Judge , Al l ahabad 2000( 2) RAJ

112 ( AII )
 the case may be, the other order in the manner

directed by such court:

Provided that pending disposal of the

application to set aside the decree, award or

order, the court shall order that such

percentage of the amount deposited shall be

paid to the supplier, as it considers

reasonable under the circumstances of the

case subject to such conditions as it deems

necessary to impose.

6) Establishment of Micro and Small Enterprises

Facilitation Council (Section 20):

 The State Government shall, by notification,

establish one or more Micro and Small

Enterprises Facilitation Councils, at such

places, exercising such jurisdiction and for

such areas, as may be specified in the

notification.

7) Composition of Micro and Small Enterprises

Facilitation Council (Section 21)

(1) The Micro and Small Enterprise

Facilitation Council shall consist of not less

than three but not more than five members to

be appointed from among the following

categories, namely:--

(i) Director of Industries, by whatever name

called, or any other officer not below the

rank of such Director, in the Department of

the State Government having administrative

control of the small scale industries or, as

the case may be, micro, small and medium

enterprises; and

(ii) one or more office-bearers or

representatives of associations of micro or

small industry or enterprises in the State;

and

(iii) one or more representatives of banks

and financial institutions lending to micro

or small enterprises; or

(iv) one or more persons having special

knowledge in the field of industry, finance,

law, trade or commerce.

 (2) The person appointed under clause (i) of

sub-section (1) shall be the Chairperson of

the Micro and Small Enterprises Facilitation

Council.

(3) The composition of the Micro and Small

Enterprises Facilitation Council, the manner

of filling vacancies of its members and the

procedure to be followed in the discharge of

their functions by the members shall be such

as may be prescribed by the State

Government.

8) Requirement to specify unpaid amount with

interest in the annual statement of accounts

(Section 22)
Where any buyer is required to get his annual

accounts audited under any law for the time

being in force, such buyer shall furnish the

following additional information in his annual

statement of accounts, namely:--

(i) the principal amount and the interest due

thereon (to be shown separately) remaining

unpaid to any supplier as at the end of each

accounting year;

(ii) the amount of interest paid by the buyer

in terms of section 16, along with the

amounts of the payment made to the

supplier beyond the appointed day during

each accounting year;

(iii) the amount of interest due and payable

for the period of delay in making payment

(which have been paid but beyond the

appointed day during the year) but without

adding the interest specified under this Act;

(iv) the amount of interest accrued and

remaining unpaid at the end of each

accounting year; and

(v) the amount of further interest remaining

due and payable even in the succeeding

years, until such date when the interest

dues as above are actually paid to the small

enterprise, for the purpose of disallowance

as a deductible expenditure under section

23.
9) Interest not to be allowed as deduction from

income (Section 23)

Notwithstanding anything contained in the

Income-tax Act, 1961(43 of 1961), the

amount of interest payable or paid by any

buyer, under or in accordance with the

provisions of this Act, shall not, for the

purposes of computation of income under the

Income-tax Act, 1961, be allowed as

deduction.

10) Overriding effect (Section 24)

The provisions of sections 15 to 23 shall have

effect notwithstanding anything inconsistent

therewith contained in any other law for the

time being in force.

Overriding effect can be studied in reference

to decision made in Jay Engineering Works

Ltd. V Industry Facilitation Council,decided

by Supreme Court . In that case conflict was

between SICA, 1985 and Small Scale and

Ancillary Industrial Undertakings Act, 1993.

Since both Acts have “notwithstanding”

clauses, the ordinary rule followed by the

court is that the later act in time will prevail

1
over the older one. However, it is not the

seniority of the law alone which matters. The

ultimate conclusion would depend upon the

context of the laws. 2

 1 Allahabad bank v Canara Bank,2000

2 Shri sarwan singh v Shri Kasturi Lal AIR 1977 SC 265

11) Scheme for closure of business of micro,

small and medium enterprises (Section 25)

Notwithstanding anything contained in any

law for the time being in force, the Central

Government may, with a view to facilitating

closure of business by a micro, small or

medium enterprise, not being a company

registered under the Companies Act, 1956(1

of 1956), notify a Scheme within one year

from the date of commencement of this Act.

Some Relevant case laws of Delayed

Payments :

1. M / s Man Industries ( India ) Limited vs .

M / s Pragya Equipments Pvt . Limited and

another ( 13 . 09 . 2011 - MPHC ): Section

16 of Micro, Small and Medium Enterprises

Development Act, 2006 (the Act) - Whether

Appellant was entitled for award or not -

Award under challenge in present petition -

Held, it was evident that in award itself

there was a direction to Petitioner either to

deposit interest or to deposit interest as per

Section 16 of Act - From order impugned

herein it was evident that Court below had

not bothered to calculate interest as per

 option given to Petitioner in award -

Petition disposed off.

2. Asiatic Rubro Complex vs. Kerala Micro

and SmallEnterprises Facilitation Council

and Anr. (31.03.2008 - KERHC):

Facilitation Council has a statutory duty to

initiate conciliation and on its failure to

conduct arbitration as per Arbitration and

Conciliation Act, 1996.#Petitioners are SSI

Units engaged in manufacturing and supply

of products to KSRTC. When KSRTC failed

to make payments due to them, they

approached Kerala Micro and Small

Enterprises Facilitation Council to resolve

their dispute with KSRTC. The Council

dismissed the applications on the ground

that Petitioners had failed to raise a dispute

before the appropriate forum, viz., Civil

Court, though it found that the claim is

genuine. Petitioners challenged order of the

Council in writ petition and allowing the

writ petition, the learned Single Judge held

that the Council itself is established to

resolve disputes raised by small and

medium enterprises and the Council cannot

abdicate it's statutory duty by relegating the

parties to Civil Court. Allowing the writ

petition, the Court;Held A reading of

Section 18 shows that on receipt of a

reference made by the Petitioners in these

cases, the 1st Respondent is bound to

initiate conciliation in the matter either by

itself or by seeking assistance of any other

institution providing alternate dispute

resolution services. Sub-section (3)

provides that where the conciliation is

unsuccessful and stands terminated without

settlement between the parties, the Council

shall either by itself take up the dispute for

arbitration or refer it to any institution or

centre providing alternate dispute

resolution services for such arbitration in

terms of the provisions contained in the

Arbitration and Conciliation Act. A reading

of Ext.P-2 orders passed in these cases

shows that as against its duty to initiate

conciliation and on its failure arbitration in

terms of the Arbitration and Conciliation

Act, 1996, the 1 st Respondent has declined

to consider the matter on merits and

directed the Petitioners to pursue legal

course. This means that the Petitioners are

now relegated to pursue their claims before

a Civil Court. In my view, it is to avoid

taking recourse to Civil Court and for

settlement of disputes through the

mechanism of alternate dispute resolution

that the Act itself has been legislated. The

order now passed by the 1st Respondent

defeats the very purpose and object of the

Act and in fact it reflects abdication of

duties by the 1st Respondent.

3. K . S . R . T . C . vs . Union of India

( UOI ) ( 01 . 12 . 2009 - KERHC ): -

Validity of provision - Article 14 of the

Constitution of India - Section 19 of the

Micro, Small and Medium Enterprises

Development Act, 2006 and Arbitration and

Conciliation Act, 1996. It is decided that

"Provision shall not be said to be

unconstitutional if same is made as per

object of law."

4. J . M . C . Projects ( India ) Ltd . and Anr .

vs . Mechtech Engineers and Anr . ( 10 . 01

. 2011 - GUJHC ): Section 34 of the

Arbitration and Conciliation Act, 1996 and

Sections 16, 19 and 20 of Micro, Small and

Medium Enterprises Development Act,

2006 - Present petition filed against

direction to Petitioners to deposit 75% of

amount awarded by Arbitrator in favour of

Respondents - Whether in facts of present

case, requirement of pre deposit as

contained in Section 19 of Act, would apply

- Held, Section 19 of Act, covers not only

any decree, award or order passed by

Council or on reference made by Council,

but any decree, award or order passed by

any Court, institution or authority - Chapter

V of Act, deals with delayed payments to

micro and small enterprises - Section 15 of

Act, casts liability on buyer to make

payment to supplier of goods or services

within stipulated time - Section 16 of Act,

casts duty on buyer to pay compound

interest at three times of bank rate notified

by Reserve Bank, if such payment was not

made within time stipulated

notwithstanding any agreement or law for

time being in force - Section 18 of Act,

provides for reference to Micro and Small

Enterprises Facilitation Council established

under Section 20 of Act - Section 19 of

Act, requires deposit of 75% of amount of

decree, award or order pending proceedings

challenging such decree, award or order -

In result, petition dismissed.

5. R. S. Avtar Singh and Co. v Vindyachal

Air Products Pvt. Ltd. (29.01.2011-

MPHC): Order of trial Court holding that

Appellant had failed to comply with the

mandate contained in Section 19 of the

Pradesh Small and Medium Enterprises

Development Act, 2006 (the Act of ) and

had not deposited 75 percent of the amount

as per terms of the award - Objection filed

against order under Section 34 of the

Arbitration and Conciliation Act, 1996 (the

Act) rejected - Hence, present appeal -

Held, in Pradesh Small and Medium

Enterprises Development Act, 2006 (the

Act of 2006) was an act to provide for

facilitating the promotion and development

and enhancing the competitiveness of

micro, small and medium enterprises and

for the matters connected therewith -

Chapter V of the Act deals with the delayed

payments to micro and small enterprises -

Section 15 provided that where any supplier

supplies any goods or renders any service

to any buyer, the buyer should make

payment on or before every date or where

there was no agreement, before appointed

day - Section 16 of the Act of 2006

provided for date from which and a rate at

which the interest should be paid - Section

19 of the Act of 2006 provided that no

application for setting aside any

decree/award/order made by council should

 be entertained by Court unless Appellant,

not being a supplier, had deposited with it

75 percent of the amount in terms of the

decree/award/order as the case might be in

the manner directed by such Court - Appeal

disposed off.

6. Standard Industrial Engg. Co. v Bellary

Power (India)(P) Ltd. (2006) 69 SCL 54

(Kar): It was held that where provision of

the Interest on Delayed Payments to Small

Scale and Ancillary Industrial Undertakings

Act, 1993 are not inconsistent with the

Companies Act, 1956. And the petitioner

was thus allowed to file winding up petition

under the 1993 Act.

 Chapter:VI

Opportunities and Challenges for

MSMEs :

 Opportunities for MSMEs in India:

Small and Medium Enterprises (SME) play an

important role in the development of a country.

There are around 26 million MSME units in India,

of which 13 million are SMEs. SMEs contribute

nearly 45% share of manufactured output,

accounting for 40% in overall exports of the

country and providing employment to about 32

million people.

The performance of SMEs in India though

impressive comes next to China where this sector

provides employment to 94 million people with a

network of 37 million units.

India has registered a high economic growth (6-

9%) consistently over the last one decade. For the

sustainability of this kind of growth proper

nurturing of SME sector is imperative. The need

of the hour is to empower the SME Sector so that

it is able to take its rightful place as the growth

engine of the economy.

 Government of India has developed key

strategies to promote and support the MSME

sector to promote competitiveness, quality

upgrading, finance, technology, etc. This has

resulted in a dramatic positive change in the

sector. Over the years, this sector in India has

progressed from the production of simple

consumer goods to the manufacture of many

sophisticated and precision products like

electronics control systems, micro wave

components, electro medical equipment, etc.

MSMEs in India are considered to be important

members within the supply chain and are

established in almost all major sectors in Indian

industry such as:

• Food Processing

• Agricultural Inputs

• Chemicals & Pharmaceuticals

• Engineering; Electricals; Electronics

• Electro-medical equipment

• Textiles and Garments

• Leather and leather goods

• Meat products

• Bio-engineering

• Sports goods

• Plastics products

• Computer Software, etc.

Key characteristics of Indian MSMEs such as

high contribution to domestic production,

significant export earnings, low investment

requirements, operational flexibility, location

wise mobility, capacities to develop

appropriate indigenous technology, import

substitution, contribution towards defense

production, technology – oriented industries,

and competitiveness in domestic and export

markets help them tap opportunities in

various sectors.

The process of economic liberalization and

market reforms has exposed these enterprises

to increasing levels of domestic and global

competition. To combat competition, private

and public sector institutions, both at the

central and state levels are increasingly

undertaking cluster development initiatives.

Many other core industry sectors present

numerous opportunities for MSMEs. To help

the MSMEs tap these opportunities, the

government is looking at ways to facilitate,

incentivize and support the technology

transfer and provide other supportive

measures at individual as well as collective

levels. Linkages with Research &

Development Institutes, rewarding innovation

and new technology, creation of Technology

Development Fund, etc. are some of the

suggestions being considered at present. Few

of the opportunities presented by some of

these sectors are discussed below:

1)Railways:

Indian Railways has traditionally been a

bulk-buyer from the MSME sector.

Specifically, the potential for MSME

involvement is in areas of:

• Quality metal fabrication of mild steel and

mild stainless steel base, forging

• Polymers, plastics products, rubber gasket

• Specialty paints, floor cleaning chemicals

and deodorants

• Construction industries, products and

services

• Agro and food processing.

Other areas where SMEs / MSMEs can

participate significantly include:

• 50 World class stations planned by Indian

Railways

• 375 ‘Adarsh Stations’ –stations having basic

facilities such as drinking water, etc.

• Construction of Multi Functional Complexes

(MFCs)
- complexes having facilities like shopping,

food stalls, restaurants, book stalls, PCO /

STD / ISD / Fax booths, medical stores,

variety stores, budget hotels etc.

• Component supplies for the Dedicated

Freight Corridor Project

• Factories for new coaches, diesel and

electric locomotives, high speed bogies

• Electrification & overhead line equipment

• Safety & Security Systems

• Railways Hospitals upgradation etc

2) Defence:

India is one of the top 10 countries in the

world in terms of military expenditure. Indian

 defence companies hitherto catered to only

one buyer – the government. New defence

procurement policies in 2006 and 2008

changed that due to the mandatory offset

clause. The growth potential, coupled with

the procurement policy, creates a multi-

billion dollar opportunity for the Indian

private sector defence companies.

The increase in spending on defence procurements

as well as the requirement of offsets will open up

significant business opportunities for Indian

SMEs. To make the most of this increased

spending, SMEs can integrate themselves into the

supply chains of national and international

defence majors.

Indian SMEs have some inherent advantages

such as innovative capabilities in niche

manufacturing, ability to absorb new

technologies and lower overhead costs - while

the offset requirements propel global OEMs

to work in close coordination with SMEs. The

defence sector is thus emerging as a lucrative

market for the SMEs.

3) Automotive:
 The Indian automotive industry is one of

the fastest growing industries in the world

today – paralleled only by China. Although

the total output in the industry declined

marginally in 2008-09 as compared to 2007-

08, volumes have surged again in H2 of

2009-10 and prospects for the industry look

bright again. The Indian automotive industry

(OEMs and components) is concentrated in

certain regions of the country – the

traditional hub has been the National Capital

Region (NCR). Recently, there has been a

shift towards relocating the automotive

production to Pune, Chennai and Gujarat, as

these places offer better incentives to the

industry and also serve as better shipment

hubs for export purposes.

The government is leaving no stone

unturned in expediting and encouraging the

flow of investment into the automotive sector

and it is almost certain that the country’s

automotive output will increase in the years

to come.

The Indian government has been aggressively

supporting the growth of MSMEs through

development of the industrial clusters,

industry-focused investment regions,

introduction of reforms and flexible labour

laws, promotion and development of MSMEs

through various innovation initiatives and

introduction of cluster development measures

to support and strengthen the growth of the

sector.

4)HEALTH SECTOR:

The long-awaited SME exchange meant to

provide access to equity capital to small and

medium enterprises is due for launch in early

2012.

Listing on the exchange gives better valuation

to SME companies, debt and equity ratios will

improve and the balance sheet will look much

healthier. From media reports it can be

observed that over 50 companies are looking

at listing on the SME exchange in the next

few months. Some sectors like pharma,

healthcare, retail and BFSI are doing pretty

well and hope to do even better in 2012.

The private health sector is erse, and ranges

from small-scale to large capital investments.

Investors need to be able to segment the

market. In recent years and across all regions

and areas of healthcare provision, the sector

is becoming more consolidated, organized,

and corporate. Striking evidence of this trend

is the recent rise in multinational health care

companies that are based in emerging

markets.

The health sector presents a growing and

untapped market opportunity for many

investors. There is demand for financing by

the full range of health care businesses–small

and large in scale, local and regional in

presence – signaling strong opportunities for

investors of all sizes.

The Indian pharmaceutical industry is now

discovering new opportunities of growth in

clinical research, contract research,

manufacturing and innovation opportunities.

Some of other opportunities that lie ahead

for Indian MSMEs in various sectors include:

 a) Metallurgy:

• Blast furnaces, sinter plants

• Steel melting shop equipment

• Boilers

• Switchgear and control gear

• Turbines, transformers and generators

b ) Dairy machinery:

• Evaporators

• Milk and cream deodorizers

• Milk refrigerators and storage tanks

• Spray dryers and heat exchanges

 b) Industrial machinery and machine

tools:

• Modern cement and textile machinery

• Material handling equipment

• Oil field equipment and services, mining

machinery

• Precision machine tools and renewable

energy equipment

c) Auto and auto ancillary:

• Auto ancillary SEZ/parks

• Assembling and manufacture of automobiles

• CNG kits for automobiles, industrial

automotive bearings
 • Manufacture of auto components for all

types of vehicles

• Automobile design centre

Many more lucrative opportunities

can be tapped by Indian MSMEs in the foundry

industry, electronics industry, chemicals industry,

leather industry, textiles industry etc. These

opportunities, amongst others, have arisen as a

result of increased government focus on the

MSME sector, bigger investments in R&D and

technology upgradation, thrust towards

international collaborations, imposition of anti-

dumping duty on competing nations etc.

Key challenges faced by Indian MSME sector

Despite its strategic importance in any

industrialization strategy, the opportunities that

the Indian landscape presents and its immense

potential for employment generation the MSME

sector confronts several challenges. They face

problems at every stage of their operation,

whether it is buying of raw materials,

manufacture of products, marketing of goods or

raising of finance. Some of the challenges Indian

MSMEs face have been briefly discussed below:

1)High cost of credit : Access to adequate and

timely credit at a reasonable cost is the most

critical problem faced by this sector. The

major reason for this has been the high risk

perception among the banks about this sector

and the high transaction costs for loan

appraisal.

2)Collateral requirements : Players in MSME

sector are not in a position to provide

collateral in order to avail loans from banks

and hence denied access to credit.

3)Limited access to equity capital : This is

common challenge faced by this sector in

spite of the fact that overall capital inflows

have witnessed significant increase in the

recent years. Absence of equity capital may

pose a serious challenge to development of

knowledge-based industries, particularly those

that are sought to be promoted by the first-

generation entrepreneurs with the requisite

expertise and knowledge.

4)Problems in supply to government

departments and agencies : Majority of

government tenders prescribe high eligibility

criteria such as annual turnover, past

experience etc which deters entity to MSME

sector

5)Procurement of raw materials at a

competitive cost : This is a growing

challenge faced by this sector as

procurement for raw materials is carried out

within local territory due to their financial

constraints and procurements are much

smaller in scale as compared to industry at

large.

6)Problems of storage, designing, packaging

and product display : MSMEs face problems of

storage, display and designs for their

products. Non availability of selling outlets

for their products is a serious constraint. In

addition, MSEs also face problem of

inadequate infrastructure for marketing of

their products to interior/ remote parts of the

country.
7)Lack of access to global markets : With the

liberalization and globalization of the Indian

economy, the small enterprises in India have

unprecedented opportunities on the one hand,

and face serious challenges, on the other.

While access to global market has offered a

host of business opportunities in the form of

new target markets, possibilities to exploit

technological advantage, etc., the challenges in

this process have flowed mainly from their

scale of operation, technological obsolescence,

and inability to access institutional credit and

intense competition in marketing.

8)Inadequate infrastructure facilities, including

power, water, roads, etc : To ensure

competitiveness of the MSMEs, it is essential

that the availability of infrastructure,

technology and skilled manpower are in tune

with the global trends. MSMEs are either

located in industrial estates set up many

decades ago or are functioning within urban

areas or have come up inan unorganized manner

in rural areas. The state of infrastructure,

including power, water, roads, etc. in such areas

is poor and unreliable.

9)Low technology levels and lack of access to

modern technology : The MSME sector in India,

with some exceptions, is characterized by low

technology levels, which acts as a handicap in

the emerging global market. As a result, the

sustainability of a large number of MSMEs will

be in jeopardy in the face of competition from

imports.

10)Lack of skilled manpower for manufacturing,

services, marketing, etc. : Although India has the

advantage of a large pool of human resources,

the industry continues to face deficit in

manpower with skills set required for

manufacturing, marketing, servicing, etc.

11)Absence of a suitable mechanism which

enables the quick revival of viable sick

enterprises and allows unviable entities to

close down speedily; and

12)Branding and Marketing : Due to very high

cost of business acquisition, Low media budget,

non participation in International events, the

MSME branding and visibility is extremely poor.

Chapter VII

MEASURES FOR PROMOTION,

DEVELOPMENT AND ENHANCEMENT OF

COMPETITIVENESS OF MICRO, SMALL AND

MEDIUM ENTERPRISES

 MEASURES TAKEN BY GOVERNMENT OF

INDIA

Ministry of Small Scale Industries is primarily

responsible for promotion and development of

SMEs in India, and has evolved several policies,

institutional and support measures, spread all over

the country, in order to enable SMEs to meet their

changing needs. Small Industries Development

Bank of India (SIDBI) has developed various

financing schemes. Ministry of Science and

Technology (DST, DBT, DSIR) has evolved

several measures and programmes for

technological assistance and development and

transfer of technologies for SMEs. Some of the

economic ministries such as Ministry of Textiles,

Department of Food Processing and Department

of Handicrafts etc. have also recently announced

initiatives for technical assistance in various

firms.

Some of the measures and new initiatives to

promote SMEs include:

SME development fund

 A specialized stock exchange for SMEs

 Encouragement for patenting and ISO

Certification
 SME venture capital fund

 National Commission for Small Industries

(informal sectors)

 SME development bill

 Credit Rating Agency

 Promoting special venture capital companies

and risk financing companies for SMEs

 Improve the working of credit guarantee and

export promotion institutions

 Progressively reduce protection measures and

simplify implementation policies and control

mechanisms

 SME Development Centres at SIDBI and IIFT

  Considering liberalizing FDI in SMEs and

encouraging their linkages with TNCs and

large companies

 Promoting industrial growth centres/clusters,

EOUs, district industry centres, business

incubators and business parks

 Market assistance and export promotion

 National Small Industries Corporation

 Small Industries Development Organization

 Limited Liability Partnership Bill 2006

The National Strategy for Manufacturing has

recognized the need for a focused project on

advance technology products and has

recommended the constitution of a special group

to study the potential for manufacture and export

of such products. It has also recommended the

establishment of technology parks around

institutions of higher technological learning on

the lines of those existing in USA. Another

important recommendation relates to setting up a

"Global Technology Acquisition Fund" to enable

Indian industry to acquire very high technology

intensive companies abroad. (National

Manufacturing Competitiveness Council, 2006)

The strategy suggests a cluster approach for

improving the manufacturing competence. New

and innovative approach to cluster development

should be adopted. Further, small scale sector

should be encouraged as breeding ground of

innovation and technology development where it

becomes the technology sources for large

companies. Towards this, government must

incentivize technology development in SMEs to

enhance their competitiveness. A National

Manufacturing Competitiveness Programme

(NMCP) is being developed which includes

objectives to support SMEs. A Design Clinic

approach is suggested to bring Indian

manufacturing sector and design expertise on to a

common platform and to provide expert advice

and cost effective solution, resulting in

continuous improvement and value addition for

existing products. Emphasis is also laid down to

enable SMEs to be competitive through quality

management standards and quality technology

tools. These are only some of the strategies

among those suggested in the Report.

NMCC seems to have prepared Rs. 1,000 crore

National Manufacturing Competitiveness

Programme for small and medium enterprises

jointly with Ministry of Small Scale Industries.

This aims to benefit over 10,000 firms in more

than 500 SME Clusters. The thrust of the plan is

towards technology infusion. The areas for

support include "lean" manufacturing, ICT,

technology and quality up gradation, increasing

number of tool rooms, encouraging patents and so

on.( Economic Times 2005). National Knowledge

Commission has also identified SMEs as a thrust

sector for education, skills upgradation, training

and ICT encouragement. Various studies have

shown that ICT and technology levels are higher

in internationalized SMEs in sectors such as food

processing, auto components, ICT, leather, to

engineering, garments etc. Compared to non-

exporting or domestic SMEs

Academic and R&D Organizations

Some of the engineering and technical institutions

such as IITs, National Institutes of Technology

and CSIR Research Laboratories, are also

providing R&D and technology related support

facilities and services to the SMEs including

training and skill development programs.

However, access to these facilities are generally

not easy, and often lack the business needs of

entrepreneurs. There are very limited start-up

enterprises based on technologies or intellectual

property from academic and R&D institutions.

Ministry of Small Industries and Development

Commissioner, have a wide network of technical,

design, training, pro-type development, testing

etc., facilities all over the country spread up to

district levels. But, these facilities need to be

modernized and tuned to emerging needs.

 Measures for promotion and development and

enhancement of competitiveness of MSME:

The Central Government may, from time to time,

for the purposes of facilitating the promotion

and development and enhancing the

competitiveness of micro, small and medium

enterprises, particularly of the micro and small

enterprises, by way of development of skill in

the employees, management and entrepreneurs,

provisioning for technological upgradation

marketing assistance or infrastructure facilities

and cluster development of such enterprises with

a view to strengthening backward and forward

linkages, specify, by notification, such

programmes, guidelines or instructions, as it

may deem fit.

The process of economic liberalization and

market reforms has exposed these enterprises to

increasing levels of domestic and global

competition. To combat competition, private and

public sector institutions, both at the central and

state levels are increasingly undertaking cluster

development initiatives.             

The Ministry of Micro, Small and Medium

Enterprises (MSME) is implementing the

promotional  schemes for the development of

micro, small and medium enterprises in the

country.

In March 2007, the Government announced a

comprehensive Package for the Promotion of

Micro and Small Enterprises, which comprises of

several proposals/schemes having direct impact

on the promotion and development of the micro

and small enterprises.

These, inter alia, include credit and fiscal

support, cluster-based development,infrastructure,

technology and marketing support. Capacity

building of MSME Associations and support to

women entrepreneurs are the other important

features of this Package.

1) Enhanced Credit Flow To The MSE   Sector:

For strengthening the delivery of credit to the

MSEs, the Government announced a 'Policy

Package for Stepping up Credit to Small and

Medium Enterprises (SME)' in August 2005 for

doubling the credit flow to this sector within a

period of five years. This has resulted in a

significant increase in the credit flow from Public

Sector Banks (PSBs) to the micro and small

enterprises (MSE) sector.      

2) Skill Development :

The Government has taken up skill development

as a high priority area through various measures

like enhancing the training capabilities of the

Tool Rooms, MSME Development Institutes and

other organization under the Ministry of MSME.

The agencies under the Ministry of MSME

conducted programmes for skill development for

nearly 1.8 lakh trainees during 2007-08 and the

targets set for 2008-09 is 3 lakh persons. The

Ministry of MSME provides all such trainings for

SCs/STs, free of cost.  Similar programmes are

also being organised for women and other weaker

sections of the society free of cost, besides

providing a monthly stipend of Rs.500/- per

month during the entire period of training.

3) National Manufacturing Competitiveness

Programme :

The Government has launched an all-India

campaign under the National Manufacturing

Competitiveness Programme (NMCP) for the

MSMEs, which has specific components that are

aimed at enhancing the competitiveness of the

enterprise in this sector. There are 10 components

of the NMCP, of which 4 have been made

operational. These are (i) Quality Management

Systems and Quality Technology Tools, (ii)

Building awareness on Intellectual Property

Rights, (iii) Support for Entrepreneurial and

Managerial Development of MSMEs, and (iv)

Marketing support/assistance to MSMEs. The

remaining 6 components are under various stages

of approval.
4) Credit Linked Capital Subsidy Scheme:

The Ministry of Micro, Small and Medium

Enterprises (MSME) is operating a Scheme

namely Credit Linked Capital Subsidy Scheme

(CLCSS) for Technology Upgradation of Micro

and Small Enterprises. The Scheme aims at

facilitating Technology Up-gradation of Micro

and Small Enterprises (earlier known as Small

Scale Industries). The Scheme was launched in

October, 2000 and revised from 29.9.2005. The

revised scheme aims at facilitating Technology

Upgradation of Micro and Small Enterprises by

providing 15% Capital Subsidy (limited to

maximum 15.00 lakh) for purchase of Plant &

Machinery. Maximum limit of eligible loan for

calculation of subsidy under the scheme is Rs.100

lakh. Presently, 884 technologies under 48

products/ sub-sectors have been approved under

the scheme. Since inception of the scheme, 15613

units have availed subsidy of Rs. 813 crores till

30.11.2011.

The Government launched the Credit Guarantee

Fund Scheme for Small Industries (now renamed

as Credit Guarantee Fund Scheme for Micro and

Small Enterprises) in August, 2000 with the

objective of making available credit to MSEs,

particularly Micro Enterprises, for loans up to Rs.

100 lakh without collateral/ third party

guarantees. The scheme is being operated by the

Credit Guarantee Fund Trust for Micro and Small

Enterprises (CGTMSE) set up jointly by the

Government of India and SIDBI.

The Scheme covers collateral free credit facility

(term loan and/ or working capital) extended by

eligible member lending institutions to new and

existing micro and small enterprises up to Rs. 100

lakh per borrowing unit. The guarantee cover

provided is up to 75% of the credit facility up to

Rs.50 lakh with an incremental guarantee of 50%

of the credit facility above Rs.50 lakh and up to

Rs.100 lakh (85% for loans up to Rs. 5 lakh

provided to micro enterprises, 80% for MSEs

owned/ operated by women and all loans to NER).

One time guarantee fee of 1.5% of the credit

facility sanctioned (0.75% for NER including

Sikkim) and Annual Service Fee of 0.75% is

collected from the Member Lending Institutions

(MLIs).

As on 30th November 2011, there were 125

eligible lending institutions registered as MLIs of

the Trust comprising of 26 Public Sector banks,

19 Private Sector Banks, 67 Regional Rural Banks

(RRBs), 4 foreign banks and 9 other Institutions

viz Andhra Pradesh State Financial Corporation,

National Small Industries Corporation (NSIC),

North Eastern Development Finance Corporation

Ltd. (NEDFi), Delhi Financial Corporation,

Kerala Financial Corporation, Tamilnadu

Industrial Investment Corporation Ltd., Jammu &

Kashmir Development Finance Corporation Ltd.

(JKDFC), Export Import Bank of India (EXIM

Bank) and Small Industries Development Bank of

India (SIDBI).

As on 30th November 2011, cumulatively

6,98,365 proposals have been approved for

guarantee cover for a total sanctioned loan

amount of Rs.31642.11 crore.

5) MSE-Cluster Development Programme:

In the last few years, the Government has been

focusing on the strategy of Cluster Development

for development of the MSEs - through which

different clusters and concentrations of

enterprises are given the benefit of a whole

variety of interventions, ranging from exposure to

skill development, from credit to marketing and

from technological improvements to better

designs and products. About 412 clusters have

been approved for interventions under the scheme

(including 50 clusters for hard interventions, 152

clusters for soft interventions and 210 clusters for

diagnostic studies). 

Clusters are defined as sectoral and geographical

concentration of enterprises, particularly, small

and medium enterprises,faced with common

opportunities and threats which give rise to

external economies. Clustering and networking

has helped the small and medium enterprises in

boosting their competitiveness. India has over

400 SME clusters and about 2000 artisan clusters

that have created a conducive ground for the

development of inter-firm cooperation to promote

local production, innovation and collective

learning. It is estimated that these clusters

contribute 60 per cent of the manufactured

exports from India. Some of these cluster stories

and opportunities the clustering approach has

provided are discussed below:

Tirupur Garment Cluster

The Tirupur Garment Cluster story is one of

India’s most successful cluster stories. This

cluster consists of 2000+ apparel units

involved in several value chain activities like

knitting, dying and C.M.T. and contributes

significantly to both domestic and export

market. More than 50% cotton knitwear

exports from India are contributed by this

cluster. The cluster’s turnover is currently

estimated to be over Rs.11000 Cr.Majority of

the products produced by this cluster are

cotton based knitwear products for gents,

ladies and children. These products are

primarily focussed on summer and spring

garments.

Ahmedabad Pharmaceutical Cluster

The Ahmedabad Pharmaceutical cluster is

India’s most significant pharmaceutical cluster.

It commands a share of over 40% of Indian

drug production and contributes to over 17% of

total drug exports. This cluster includes

between 400 to 500 small, medium and large

pharmaceutical units around Ahmedabad and

its turnover is currently estimated to be around

Rs.8000 Crores.

Majority of the products in this cluster are the

pharmaceutical drug formulations and include

wide range of dosage forms including tablet,

capsule, liquid or orals and externals like

ointment, lotions and parenterals..

Chennai Leather Cluster

Tamil Nadu holds a place of prominence in

Indian Leather Industry. There are group of

leather clusters spread over in Chennai and

surrounding places like Ranipet, Ambur,

Pernambur, Vaniyambadi, Erode,

Tiruchirapalli and Dindigul.

The cluster size is currently estimated over

1000 small, medium and large units. This

cluster contributes to 42 % to India’s leather

exports which is estimated to be around Rs.

13000 Crores. Major focus of this cluster is

on finished leather and footwear and majority

 of the product units are 100 % Export

Oriented Units.

6) Credit Guarantee Scheme :

The Government has set up a Credit Guarantee

Fund to provide relief to those micro and small

entrepreneurs who are unable to pledge collateral

security in order to obtain loans for the

development of their enterprises. For making the

scheme more attractive to both lenders as well as

borrowers, several modifications have been

undertaken from time to time, including

enhancement in the loan limit from Rs.25 lakh to

Rs.50 lakh, reduction in one-time guarantee fee

from 2.5% to 1.5%. Efforts made to enhance the

awareness have led to increasing the coverage

from about 40,000 proposals (for loans of Rs.1000

crore) at the end of March 2004 to more than 1.20

lakh proposals (for loans of over Rs.3500 crore)

at the end of October 2008.

7)Fiscal Benefits :

The Government has worked towards enhancing

the level of fiscal incentives available to MSEs.

Under the General Excise Exemption Scheme,

exemption limit has been raised from Rs.1 crore

to Rs.1.5 crore and the turnover eligibility limit

to avail the exemption benefits has been enhanced

from Rs.3 crore to Rs.4 crore.   With effect from

1st April 2005, small service providers having a

turnover of up to Rs.4 lakh has been exempted

from service tax. This exemption limit has been

gradually raised to Rs.10 lakh. In order to

encourage small and medium enterprises to invest

and grow, the surcharge on all firms and

companies with a taxable income of Rs.1 crore or

less has been removed with effect from 1st April

2007.

8)ISO-9000/ ISO-14001/ HACCP Certification

Reimbursement Scheme:

The Government introduced an incentive scheme

for its technological up- gradation/quality

improvement and environment management. The

Scheme envisages one time   reimbursement of

charges for acquiring ISO-9000/14001/HACCP (or

its equivalent) certification to the extent of 75%

of the cost subject to a maximum of Rs. 75,000/-

in total.

The Scheme is an all India Scheme administered

by Development Commissioner (MSME), Ministry

of MSME, Govt. of India. The scheme has been

decentralized w.e.f. 1.4.2007 and Directors,

MSME Development Institutes have been

empowered to receive and make reimbursement to

the MSMEs following in their jurisdiction. The

Government has extended the Scheme upto the

11th Five Year Plan and the scheme has been

decentralized w.e.f. 1.4.2007.

Total 18002 number of units amounting to Rs.

88.92 cr. have been reimbursed since inception to

the scheme in 1994 & upto  November,  2008.

During 2008-09, about 900 units amounting to Rs.

3.76 cr. have been reimbursed upto November 08.

“Enabling Manufacturing Sector be

Competitive through Quality Management

Standards(QMS) and Quality Technology

Tools(QTT) – Rs. 40.0 Cr in 4 years†.

9) National Awards :

The Prime Minister Dr. Manmohan Singh

presented National Awards to the Micro, Small

and Medium Enterprises in New Delhi on 30

August, 2008. The Awards were in three

categories:

a) Outstanding Entrepreneurs of Micro, Small

and Medium Enterprises, Khadi and Village

Industries and Coir Industries;

b) Special awards to Women and SC/ST

Entrepreneurs and

c) Banks for excellence in Micro and Small

Enterprises Lending.

Total 80 Entrepreneurs got awards in

various categories. 27 Entrepreneurs received

awards from the Prime Minister, while Shri

Mahabir Prasad Union Minister for Micro, Small

and medium Enterprises presented awards to the

rest of the awardees. Besides, 50 entrepreneurs

have been given away Special Recognition

Awards in a State Level Function.  

10)MSME-EXPO 2008:

Micro, Small and Medium Enterprises Exhibition

was organized by the Office of the Development

Commissioner (MSME) during the IITF from 14-

27 November, 2008 in the Pragati Maidan, New

Delhi. Exhibits of Micro, Small and Medium

Enterprises from all over the country were

displayed. In addition to this, NSIC   also

exhibited the technical capabilities of the MSMEs

through TECH MART in IITF 2008. Products of

Khadi and Village Industries were exhibited by

the Khadi and Village Industries Commission

during IITF from 14-27 November, 2008.  

11)National Small Industries Corporation

Ltd.

National Small Industries Corporation, since its

inception in 1955 has been working with its

mission of promoting, aiding and fostering the

growth of micro & small enterprises. It has been

working to promote the interest of micro & small

enterprises and to enhance their competitiveness

by providing integrated support services under

Marketing, Technology, Finance and Support

services. Marketing Assistance   Scheme aims to

promote marketing efforts and enhance the

competency of the small enterprises. During the

year 2008-09, NSIC has organized / participated

in 19 exhibitions / trade fairs/ buyer-seller meets

upto September, 2008.  NSIC has also conducted

368 intensive campaigns / marketing promotion

seminars all over the country upto November,

2008.

Some other promotional initiatives are as under:

 Credit facilities(Section 10):

The policies and practices in respect of credit

to the micro, small and medium enterprises

shall be progressive and such as may be

specified in the guidelines or instructions

issued by the Reserve Bank, from time to

time, to ensure timely and smooth flow of

 credit to such enterprises, minimise the

incidence of sickness among and enhance the

competitiveness of such enterprises.

 Procurement preference policy(section 11):

For facilitating promotion and development

of micro and small enterprises, the Central

Government or the State Government may, by

order notify from time to time, preference

policies in respect of procurement of goods

and services, produced and provided by micro

and small enterprises, by its Ministries or

departments, as the case may be, or its aided

institutions and public sector enterprises.

 Funds (Section 12):

There shall be constituted, by notification, one or

more Funds to be called by such name as may be

specified in the notification and there shall be

credited thereto any grants made by the Central

Government under section 13.

 Grants by Central Government (Section 13):

The Central Government may, after due

appropriation made by Parliament by law in this

behalf, credit to the Fund or Funds by way of

grants for the purposes of this Act, such sums of

money as that Government may consider

necessary to provide.

 Administration and utilisation of Fund or

Funds (Section 14)

(1) The Central Government shall have the

power to administer the Fund or Funds in

such manner as may be prescribed.

(2) The Fund or Funds shall be utilised

exclusively for the measures specified in

subsection (1) of section 9.

(3) The Central Government shall be

responsible for the coordination and ensuring

timely utilisation and release of sums in

accordance with such criteria as may be

prescribed.
 Annexure:

Credit Link Capital Subsidy Scheme for

Technology Upgradation

S um m ar y of t he S chem e: -

T he S chem e was l aunched i n Oct ober , 2000 and r evi sed

w.e.f . 29.09.2005.T he r evi sed schem e ai m s at
f aci l i t at i ng T echnol ogy Upgr adat i on of Mi cr o and Sm al l
E nt er pr i ses by pr ovi di ng 15% capi t al subsi dy ( 12% pri or
t o 2005) on i nst i t ut i onal fi nance avai l ed by t hem f or
i nduct i on of wel l est abl i shed and i m pr oved t echnol ogy
i n appr oved sub- sect or s/ pr oduct s. The adm i ssi bl e capi t al
subsi dy under t he revi sed schem e i s cal cul at ed wi t h
r ef er ence t o pur chase pr i ce of Pl ant and Machi ner y.
Maxi m um l i m i t of el i gi bl e l oan f or cal cul at i on of
subsi dy under t he r evi sed schem e i s al so been rai sed
Rs.40 Lakhs t o Rs. 100 l akhs w.e.f . 29- 09.2005. T he
schem e has been cont i nues 10 t h fi ve year pl an t o 11t h
f i ve year pl an.

Backgr ound

T he Mi ni st r y of Sm al l Scal e I ndust r i es ( SSI) i s

oper at i ng a schem e f or t echnol ogy upgr adat i on of Sm al l
S cal e I ndust r i es (SSI) cal l ed t he Cr edi t Li nked Capi t al
S ubsi dy S chem e ( CL CSS) . T he Schem e ai m s at
f aci l i t at i ng t echnol ogy upgr adat i on by pr ovi di ng upfr ont
capi t al subsi dy t o SSI unit s, i ncl udi ng t i ny, khadi ,
vi l l age and coir i ndust r i al uni t s, on i nst i t ut i onal fi nance
( cr edi t) avai l ed of by t hem f or m oder ni sat i on of t hei r
pr oduct i on equi pm ent ( pl ant and m achi ner y) and
t echni ques. T he S chem e ( pr e- r evi sed) pr ovi ded for 12
per cent capi t al subsi dy t o SSI unit s, i ncl udi ng t i ny
uni t s, on i nst i t ut i onal fi nance avai l ed of by t hem for
i nduct i on of wel l est abl i shed and i m pr oved t echnol ogy
i n sel ect ed sub- sect or s/ pr oduct s appr oved under t he
S chem e. T he el i gi bl e am ount of subsi dy cal cul at ed
under the pr e- r evi sed schem e was based on t he act ual
l oan am ount not exceedi ng Rs.40 l akh.

Due t o i nsuf f i ci ent i nvest m ent and l ack of awar eness of

bot h t he qual i t y st andar ds and access t o m oder n
t echnol ogi es, a l ar ge per cent age of SSI uni t s cont i nue
wi t h out dat ed t echnol ogy and pl ant & m achi ner y. Wi t h
i ncr easi ng com pet i t i on due t o l i ber al i sat i on of t he
econom y, t he sur vi val and gr owt h of t he SSI uni t s ar e
cr i t i cal l y dependent on t heir m oder ni sat i on and
t echnol ogi cal upgr adat i on. Upgr adat i on of bot h t he
pr ocess of m anuf act ur e and cor r espondi ng pl ant and
m achi ner y i s necessar y for t he sm al l ent er pr i ses t o
r educe t he cost of pr oduct i on and r em ai n pr i ce
com pet i t i ve at a ti m e when cheaper pr oduct s ar e easi l y
avai l abl e i n t he gl obal m ar ket .

I t i s i n t hi s backgr ound t hat t he Fi nance Mi ni st er m ade

an announcem ent i n t he Budget Speech of 2004- 05 t o
r ai se t he cei l i ng f or l oans under t he Schem e fr om Rs. 40
l akh t o Rs. 1 cr or e and r at e of subsi dy f rom 12 per cent
t o 15 per cent . F ur t her , i n t he l i ght of t he exper i ence
gat her ed i n i m pl em ent i ng t he Schem e, cer t ai n ot her
m odi f i cat i ons wer e al so r equi r ed t o m ake i t m or e usef ul
t o t he S S I uni t s, i ncl udi ng t i ny, khadi , vi l l age and coi r
i ndust r i al uni t s, in t aki ng up t echnol ogy upgr adat i on on
a l ar ger scal e.

Af t er consi der i ng t hese i ssues, t he CL CSS has been

am ended as f ol l ows :

a) the cei l i ng on l oans under the Schem e has been r ai sed

f rom Rs. 40 l akh t o Rs. 1 cr or e;

b) t he r at e of subsi dy has been enhanced fr om 12 per

cent to 15 per cent ;
c) the adm i ssi bl e capi t al subsi dy i s t o be cal cul at ed wi t h
r ef er ence t o t he pur chase pr i ce of pl ant and m achi ner y,
i nst ead of the t er m l oan di sbur sed t o t he benef i ci ar y
uni t ;

d) t he pr act i ce of cat egor i sat i on of SSI uni t s i n di ff er ent

sl abs on t he basi s of t hei r pr esent i nvest m ent for
det er m i ni ng t he el i gi bl e subsi dy has been done away
wi t h ; and

e) t he oper at i on of t he Schem e has been ext ended upt o

31 st Mar ch, 2007

T he above am endm ent s ar e eff ect i ve fr om Sept em ber 29,

2005.

Obj ect i ve

T he r evi sed schem e ai m s at f aci li t at i ng t echnol ogy

upgr adat i on by pr ovi di ng 15 per cent upf r ont capi t al
subsi dy wi t h eff ect f rom t he 29 t h Sept em ber , 2005 ( 12
per cent pr i or t o 29.09.2005) t o SSI uni t s, i ncl udi ng
t i ny, khadi , vi l l age and coi r i ndust r i al uni t s( her ei naft er
r ef er r ed t o as SS I uni t s) , on i nst i t ut i onal fi nance avai l ed
of by t hem for i nduct i on of wel l est abl i shed and
i m pr oved t echnol ogi es i n the speci f i ed sub- sect or s
/ pr oduct s appr oved under t he schem e.

S cope of t he S chem e

T he schem e woul d cover t he f ol l owi ng t echnol ogy needs

/ pr oduct s/ sub - sect or s:

i ) Bi o- t ech I ndust r y

i i ) Com m on Ef f l uent Tr eat m ent Pl ant

i i i ) Corr ugat ed Boxes

i v) Dr ugs and P har m aceut i cal s

v) Dyes and Int er m edi at es

vi ) Indust r y based on Medi ci nal and Ar om at i c pl ant s

vi i ) Pl ast i c Moul ded/ Ext r uded Pr oduct s and Part s/

Com ponent s

vi i i ) Rubber Pr ocessi ng i ncl udi ng Cycl e/ Ri ckshaw

T yr es

i x) F ood Pr ocessi ng ( i ncl udi ng I ce Cr eam

m anuf act ur i ng)

x) P oul tr y Hat cher y & Cat t l e Feed Indust r y

xi ) Di m ensi onal St one I ndust r y ( excl udi ng Quar r yi ng

and Mi ni ng)

xi i ) Gl ass and Cer am i c I t em s i ncl udi ng T i l es

xi i i ) L eat her and Leat her Pr oduct s i ncl udi ng Foot wear
and Gar m ent s

xi v) El ect r oni c equi pm ent vi z t est , m easur i ng and

assem bl y/ m anuf act ur i ng,

I ndust r i al pr ocess

xv) cont r ol ; Anal yt i cal , Medi cal , E l ect r oni c Consum er &
Com m uni cat i on equi pm ent et c

xvi ) F ans & Mot or s Indust r y

xvi i ) Gener al Li ght Ser vi ce( GL S) l am ps

xvi i i ) Inf or m at i on T echnol ogy ( Har dwar e)

xi x) Mi ner al F i l l ed Sheat hed Heat i ng E l em ent s

xx) T r ansf or m er / E l ect r i cal St am pi ngs/ L ami nat i ons

/ Coi l s/ Chokes i ncl udi ng Sol enoi d coi l s

xxi ) Wir es & Cabl e Indust r y

xxi i ) Aut o P ar t s and Com ponent s

xxi i i ) Bi cycl e P ar t s

xxi v) Com bust i on Devi ces/ Appl i ances

xxv) F or gi ng & Hand T ool s

xxvi ) F oundr i es – St eel and Cast Ir on

xxvi i ) Gener al Engi neer i ng Wor ks

xxvi i i ) Gol d Pl at i ng and Jewel l er y

xxi x) Locks

xxx) S t eel F ur ni t ur e

xxxi ) Toys

xxxi i ) Non- F er r ous Foundr y

xxxi i i ) Spor t Goods

xxxi v) Cosm et i cs

xxxv) Readym ade Gar m ent s

xxxvi ) Wooden F ur ni t ur e

xxxvi i ) Mi ner al Wat er Bot t l e

xxxvi i i ) P ai nt s, Var ni shes, Al kyds and Al kyd pr oduct s

xxxi x) Agr i cul t ur al I m pl em ent s and Post Har vest

E qui pm ent

xl ) Benef i ci at i on of Gr aphi t e and Phosphat e

xl i ) Khadi and Vi l l age I ndust r i es

xl i i ) Coi r and Coi r Pr oduct s

xl i i i ) St eel Re- rol l i ng and / or Penci l Ingot m aki ng

I ndust r i es

xl i v) Zi nc S ul phat e
xl v) Wel di ng El ect r odes

xl vi ) S ewi ng Machi ne Indust r y

xl vi i ) Indust r i al Gases

xl vi i i ) Pr i nt i ng Indust r y

xl i x) Machi ne Tool s

A l i st of Wel l E st abl i shed and I m pr oved T echnol ogi es i s

encl osed at Appendi x- I .

T he cost of pl ant and m achi ner y m ent i oned i n Appendi x

– I i s onl y i ndi cat i ve. Act ual cost m ay be t aken for t he
pur pose of cal cul at i on of subsi dy.

As t he S chem e pr ogr esse s, t he l i st of pr oduct s / sub-

sect or s m ay be expanded by i nduct i ng new
t echnol ogi es / pr oduct s / sub- sect or s wi t h t he appr oval
of t he Com pet ent Aut hori t y, i .e. t he Gover ni ng and
T echnol ogy Appr oval Boar d ( GT AB) / T echni cal Sub-
Com m i t t ee (T S C) of t he CL CSS

Nodal Agenci es

T he S m al l Indust r i es Devel opm ent Bank of I ndi a

( SI DBI ) and t he Nat i onal Bank f or Agr i cul t ur e and
Rur al Devel opm ent (NABARD) wi l l cont i nue t o act as
t he Nodal Agenci es for t he i m pl em ent at i on of t hi s
schem e.

As deci ded i n t he 5 t h m eet i ng of t he Gover ni ng and

T echnol ogy Appr oval Boar d ( GT AB) of t he Cr edi t
L i nked Capi t al Subsi dy Schem e ( CL CSS) hel d on
F ebr uar y 17,2006 t he fol l owi ng ni ne Publ i c Sect or
Banks/ Gover nm ent Agenci es have al so been i nduct ed as
nodal banks/ agenci es f or i m pl em ent at i on and r el ease of
capi t al subsi dy under t he CL CSS:

S .No. Nam e of Bank/ Agenci es

1. S t at e Bank of I ndi a
 2. Canar a Bank

3. Bank of Bar oda

4. P unj ab Nat i onal Bank

5. Bank of I ndi a

6. Andhr a Bank

7. S t at e Bank of Bi kaner & Jai pur

8. T am i l Nadu I ndust ri al Invest m ent Cor por at i on

9. T he Nat i onal Sm al l Indust r i es Cor por at i on Lt d.

T he i ncl usi on of above- m ent i oned nodal banks/ agenci es

wi l l be i n addi t i on t o the exi st i ng nodal agenci es,
nam el y, t he Sm al l Indust r i es Devel opm ent Bank of
I ndi a(S I DBI ) and t he Nat i onal Bank for Agr i cul t ur e and
Rur al Devel opm ent (NABARD) under t he CL CSS. These
nodal banks/ agenci es woul d consi der pr oposal s onl y i n
r espect of cr edi t appr oved by thei r respect i ve br anches,
wher eas, f or ot her Pr i m ar y Lendi ng Inst i t ut i ons (PLI ) ,
t he S I DBI and t he NABARD woul d cont i nue t o be the
nodal agenci es f or rel ease of subsi dy under thi s schem e.

T he cut - off dat e for i m pl em ent i ng the above deci si on i s

Apr i l 04, 2006. No pr oposal s af t er t hi s cut of f dat e wi l l
be sent t o t he S I DBI or t he NABARD, as t he case m ay
be, by t hese banks/ agenci es and the new nodal
banks/ agenci es woul d st ar t pr ocessi ng pr oposal s di r ect l y
af t er t hi s cut - of f dat e f or r el ease of subsi dy under t he
CL CS S .Ot her m odal i t i es f or im pl em ent i ng t he above
deci si on wi l l r em ai n t he sam e as ar e cur r ent l y i n
pr act i ce i n t he case of t he SI DBI and t he NABARD.

E l i gi bl e Pr i m ar y Lendi ng I nst i t ut i ons ( PL I)

Al l S chedul ed Com m er ci al Banks, Schedul ed

Cooper at i ve Banks [i ncl udi ng t he ur ban cooper at i ve
banks co- opt ed by t he SI DBI under t he T echnol ogi cal
Upgr adat i on Fund Schem e(T UFS) of t he Mi ni st r y of
T ext i l es] , Regi onal Rur al Banks ( RRBs) , St at e Fi nanci al
Cor por at i ons (S F Cs) and Nor t h E ast er n Devel opm ent
F i nanci al I nst i t ut i on ( NE DFi ) ar e el i gi bl e as PLI under
t hi s schem e af t er t hey execut e a Gener al Agr eem ent ( GA)
wi t h any of t he nodal agenci es, i .e., t he Sm al l Indust r i es
Devel opm ent Bank of I ndi a ( SI DBI ) and Nat i onal Bank
f or Agr i cul t ur e and Rur al Devel opm ent ( NABARD) .

Det ai l s of el i gi bl e Schedul ed Com m er ci al Banks, SFC,

Cooper at i ve Banks[ i ncl udi ng ur ban cooper at i ve banks
co- opt ed by t he SI DBI under t he Technol ogi cal
Upgr adat i on Fund Schem e(T UFS) of t he Mi ni st r y of
T ext i l es] / and RRBs under thi s schem e ar e pr ovi ded at
Appendi x I I .

E l i gi bl e Benef i ci ar i es

T he el i gi bl e benef i ci ar i es i ncl ude sol e Pr opr i et or shi ps,

P ar t ner shi ps, Cooper at i ve soci et i es, Pr i vat e and Publ i c
l i m i t ed com pani es i n t he SSI sect or . Pr i or i t y shal l be
gi ven t o Wom en entr epr eneur s.

T ypes of uni t s t o be cover ed under t he Schem e:

i ) Exi st i ng SS I uni t s r egi st er ed wi t h t he St at e

Di r ect or at e of Indust r i es,whi ch upgr ade t heir exi st i ng
pl ant and m achi ner y wi t h t he st at e of t he ar t t echnol ogy,
wi t h or wi t hout expansi on

i i ) New S SI uni t s whi ch ar e regi st er ed wi t h t he St at e

Di r ect or at e of Indust r i es and whi ch have set up t hei r
f aci l i t i es onl y wi t h t he appr opr i at e el i gi bl e and pr oven
t echnol ogy dul y appr oved by t he GT AB/ T SC

E l i gi bi l i t y Cr i t er i a

i ) Capi t al subsi dy at t he r evi sed rat e of 15 per cent of

t he el i gi bl e i nvest m ent i n pl ant and m achi ner y under t he
S chem e shal l be avai l abl e onl y for such pr oj ect s, wher e
t er m s l oans have been sanct i oned by t he el i gi bl e PL I on
or af t er S ept em ber 29, 2005 . Machi ner y pur chased
under Hir e P ur chase Schem e of the NSI C ar e al so
el i gi bl e f or subsi dy under t hi s Schem e.

i i ) Indust r y gr aduat i ng f rom sm al l scal e t o m edi um scal e

on account of sanct i on of addi ti onal loan under CL CSS
shal l be el i gi bl e f or assi st anc e.

i i i ) E li gi bi l i t y for capi t al subsi dy under t he Schem e i s

not l i nked t o any r ef i nance Schem e of t he Nodal Agency
( i es) . Hence, it i s not necessar y t hat the PLI wil l have t o
seek ref i nance i n r espect of t he t er m l oans sanct i oned by
t hem f rom any of t he r efi nanci ng Nodal Agenci es.

i v) Labour i nt ensi ve and/ or expor t ori ent ed new sect or s/

act i vi t i es wi l l be consi der ed f or incl usi on under t he
schem e.

Def i ni t i on of T echnol ogy Upgr adat i on

i ) T echnol ogy upgr adat i on woul d or di nari l y m ean

i nduct i on of st at e- of- t he art or near st at e- of - t he- ar t
t echnol ogy. I n t he var yi ng m osai c of t echnol ogy
obt ai ni ng i n m or e t han 7500 pr oduct s i n t he I ndi an sm al l
scal e sect or , t echnol ogy upgr adat i on woul d m ean a
si gni f i cant st ep up f r om t he pr esent t echnol ogy l evel t o
a subst ant i al l y hi gher one i nvol vi ng i m pr oved
pr oduct i vi t y, and/ or i m pr ovem ent i n t he qual i t y of
pr oduct s and/ or i m pr oved envir onm ent al condi t i ons
i ncl udi ng wor k envi r onm ent f or t he uni t . It woul d al so
i ncl ude i nst al l at i on of i m pr oved packagi ng t echni ques as
wel l as ant i - poll ut i on m easur es and ener gy conser vat i on
m achi ner y.

F ur t her , t he uni t s i n need of i nt r oduci ng faci l i t i es f or

i n- house t est i ng and on- li ne qual i t y contr ol woul d
qual i f y f or assi st anc e, as t he sam e i s a case of
t echnol ogy upgr adat i on.

i i ) Repl acem ent of exi st i ng equi pm ent / t echnol ogy wi t h

t he sam e equi pm ent / t echnol ogy wi l l not qual i f y for
subsi dy under t hi s schem e, nor woul d t he schem e be
appl i cabl e t o unit s upgr adi ng wi t h second hand
m achi ner y.

Dur at i on of the S chem e:

P r esent l y, t he schem e i s i n oper at i on up t o Mar ch 31,

2007 or t i l l t he ti m e sanct i ons of aggr egat e capi t al
subsi dy di sbur sed by t he Nodal Agenci es r eaches Rs.600
cr or e, whi chever i s ear l i er .

Cei l i ng on el i gi bl e l oan am ount and capi t al subsi dy:

T he m axi m um l i mi t of el i gi bl e l oan under t he r evi sed

schem e i s Rs. 100 l akh.

Accor di ngl y, t he cei l i ng on subsi dy woul d be Rs.15 l akh

or 15 per cent of t he invest m ent in el i gi bl e pl ant and
m achi ner y, whi chever i s l ower .

i ) In cal cul at i ng t he val ue of pl ant & m achi ner y, t he

f ol l owi ng shal l be excl uded, nam el y:

• t he cost of equi pm ent s such as t ool s, j i gs, di es, m oul ds

and spar e par t s f or m ai nt enance and t he cost of
consum abl e st or es;

• t he cost of inst al l at i on of pl ant & m achi ner y;

• t he cost of resear ch & devel opm ent equi pm ent and

pol l ut i on cont r ol equi pm ent ( except wher e t hese have
been appr oved for speci f i c pr oduct / sub sect or by the
GT AB ;

• t he cost of gener at i on set s and extr a tr ansf or m er

i nst al l ed by t he under t aki ng as per t he regul at i ons of t he
S t at e E l ect ri ci t y Boar d; (except wher e gas based
gener at i on set s have been appr oved f or speci f i c
pr oduct / sub- sect or by t he GT AB) .

• t he bank char ges and ser vi ce char ges pai d t o t he

Nat i onal S m al l I ndust r i es Cor por at i on Lt d or t he St at e
S m al l I ndust r i es Cor por at i on;
• t he cost i nvol ved i n pr ocur em ent or i nst al l at i on of
cabl es, wi r i ng, bus bar s, el ect r i cal contr ol panel s (not
t hose m ount ed on i ndi vi dual m achi nes) , oil ci r cui t
br eaker s or m i ni at ur e cir cui t br eaker s whi ch ar e
necessar i l y t o be used f or pr ovi di ng el ect r i cal power t o
t he pl ant & m achi ner y or for saf et y m easur es;

• t he cost of gas pr oducer pl ant s (except wher e t hese

have been appr oved for speci f i c pr oduct / sub sect or by
t he GT AB) ;

• tr anspor t at i on char ges ( excl udi ng of sal es- t ax and

exci se) for i ndi genous m achi ner y f r om t he pl ace of
m anuf act ur i ng t o t he si t e of t he f act or y;

• char ges pai d f or t echni cal know- how f or er ect i on of

pl ant & m achi ner y;

• cost of such st or age t anks whi ch st or e r aw m at er i al s,

f i ni shed pr oduct s onl y and ar e not l i nked wi t h t he
m anuf act ur i ng pr ocess; and

• cost of f i r e fi ght i ng equi pm ent .

i i ) T he am endm ent s t o t he exi st i ng CL CSS ar e

appl i cabl e wi t h ef f ect f rom 29.9.2005. T he r evi sed r at es
ar e appl i cabl e onl y i n cases wher e t he loans have been
sanct i oned/ appr oved on or af t er Sept em ber 29, 2005.

Case s wher e t he l oans wer e sanct i oned/ appr oved pr i or

t o S ept em ber 29, 2005 wi l l be gover ned by t he pr e-
r evi sed gui del i nes r egar di ng cei l i ng on subsi dy ( Rs.4.80
l akh) , m et hod of cal cul at i on of subsi dy, et c

i i i ) Uni t s whi ch have alr eady avai l ed subsi dy under the

pr e- revi sed CL CS S schem e ( bef or e 29.9.2005) , cannot
cl ai m addi t i onal subsi dy on account of di ff er ence i n the
r at e of subsi dy whi ch i s now per m i ssi bl e under t he
r evi sed gui del i nes.

Wor ki ng Capi t al Requi r em ent s:

S i nce succes s of t he t echnol ogy upgr adat i on schem e, t o
a l ar ge ext ent , depends upon t he avai l abi l i t y of adequat e
wor ki ng capi t al , l endi ng i nst i t ut i ons woul d li ke t o be
assur ed t hat t he borr owi ng uni t s have m ade adequat e
ar r angem ent s f or m eet i ng t he wor ki ng capi t al
r equi r em ent s. Com m er ci al banks shoul d al so accor d
pr i or i t y i n pr ovi di ng adequat e wor ki ng capi t al suppor t
t o t he assi st ed uni t s.

Ot her condi t i ons f or l oans:

i ) P r om ot er s' contr i but i on, secur i t y, debt - equi t y r at i o,

up- fr ont f ee, et c. wi l l be det er m i ned by t he l endi ng
agency as per i t s exi st i ng norm s

i i ) Uni t s avai l i ng subsi dy under t he CL CSS shal l not

avai l any ot her subsi dy f or t echnol ogy upgr adat i on f rom
t he Cent r al / S t at e/ UT Gover nm ent .

However , cases cover ed under Nat i onal E qui t y Fund

( NE F ) S chem e,whi ch ar e ot her wi se el i gi bl e under t he
CL CS S can al so be cover ed under t hi s schem e.

i i i ) Uni t s i n t he Nor t h- E ast er n Regi on whi ch ar e

avai l i ng fi nanci al i ncent i ves/ subsi dy under any ot her
schem e fr om t he Gover nm ent i n t he Regi on woul d,
however , be el i gi bl e f or subsi dy under t he CL CSS.

i v) One of t he m ai n r equir em ent s for sanct i on of

assi st an ce under t he t echnol ogy upgr adat i on schem e wi l l
be avai l abi l i t y of com pet ent m anagem ent i n t he uni t
concer ned to car r y out t he upgr adat i on pr ogr am m e and
t o m anage t he oper at i on of the uni t ef f i ci ent l y. T owar ds
t hi s end, t he l endi ng agenci es m ay st i pul at e condi ti ons
as m ay be consi der ed necessar y.

P r ocedur al Aspect s:

i ) Al l t he el i gi bl e PL I ( excl udi ng t he new nodal banks /

agenci es) wi l l have t o execut e a Gener al Agr eem ent
( GA) for avai l i ng capi t al subsi dy under t he schem e,
i rr espect i ve of t he fact whet her r ef i nance i s avai l ed by
t hem or not .

i i ) T he P LI m ay have t he fl exi bi l i t y to execut e t he GA

wi t h ei t her of t he nodal agenci es or wi t h bot h t he nodal
agenci es for pr ovi di ng subsi dy t o t he el i gi bl e
benef i ci ar i es under t he schem e. However , i n t he l at t er
case, whi l e cl ai m i ng t he subsi dy fr om one nodal agency,
t he PL I s wi l l have t o gi ve t he under t aki ng t o t he nodal
agency t hat t hey have not cl ai m ed subsi dy under CL CS S
i n r espect of t he benef i ci ar y uni t fr om t he ot her nodal
agency ( as t he case m ay be) .

i i i ) Af t er sanct i on of t he assi st an ce, t he el i gi bl e PLI

wi l l get an agr eem ent execut ed wi t h t he concer ned SSI
uni t on behal f of Gover nm ent of I ndi a( GoI) . For m at of
t he agr eem ent t o be execut ed by t he el i gi bl e PLI wi t h
t he S S I unit i s pr ovi ded in Appendi x II I.

i v) The el i gi bl e PLI woul d obt ai n appl i cat i on for

assi st an ce under t he CL CSS i n the pr escr i bed for m
pr ovi ded i n Appendi x – I V.

v) T he el i gi bl e P LI shal l f ur ni sh subsi dy f or ecast on

quar t er l y basi s, t hr ough t hei r Head Off i ce (HO) , whi ch
wi l l act as a nodal of f i ce, t o t he Regi onal Of f i ce
( RO) / Br anch Of f i ce ( BO) of t he SI DBI or t he NABARD
( as t he case m ay be) l ocat ed i n t he r egi on. The subsi dy
f or ecast i nf or m at i on f or ever y quar t er on or bef or e 1st
Mar ch f or Apri l - June quar t er , on or bef or e 1st June for
Jul y- S ept em ber quar t er , on or bef or e 1st Sept em ber f or
Oct ober - Decem ber quar t er and on or bef or e 1st
Decem ber f or Januar y- Mar ch quar t er , m ay be fur ni shed
as per pr escr i bed for m at .

vi ) T he el i gi bl e PL I woul d r el ease t he subsi dy am ount

wi t h each i nst al l m ent of l oan i n a m anner pr opor t i onat e
t o t he am ount of t erm l oan di sbur sed ( on pr o- r at a
basi s) , subj ect t o t he cei l i ng of t he t erm l oan/ subsi dy
am ount as per appl i cabl e gui del i nes of t he CL CSS.
vi i ) The el i gi bl e PLI shal l fur ni sh det ai l s of rel ease of
subsi dy t o t he benef i ci ar y uni t s, t oget her wi t h t he
r equest for r epl eni shi ng advance m oney pl aced wi t h PLI
f or r el ease of subsi dy, on quar t er l y basi s on Mar ch 1,
June 1, S ept em ber 1 and Decem ber 1. The r equest s of
P LI f or r epl eni shm ent of advance m oney f or subsi dy,
however , woul d be ent er t ai ned by t he nodal agenci es
onl y on r ecei pt of com pl et e det ai l s of subsi dy r el eased
t o t he benef i ci ar y uni t s.

vi i i ) T he el i gi bl e PL I shal l be r esponsi bl e f or ensur i ng

el i gi bi l i t y for sanct i on of subsi dy t o t he SSI uni t s i n
t er m s of Gover nm ent of I ndi a gui del i nes under t hi s
schem e and al so f or di sbur sal and m oni t or i ng of t he
assi st ed uni t s.
 CHAPTER: VIII

The impact of FDI on MSMEs sector

Internationalization of SMEs usually refers to the

SMEs engaged in international businesses, have

developed cooperation, partnerships, linkages and

networks with foreign companies and institutions.

Imports and exports tend to enhance the

efficiencies, capabilities, competitiveness and

vision of SMEs. FDI is considered to be an

important channel for internationalization,

besides catalyzing technology flows and

investments. Most countries are aiming at

attracting larger FDI which poses challenges and

provide opportunities to SMEs. The domestic

policies therefore need to be finely tuned to take

full advantage of FDI and international

aid/support measures or loans. However, the

SMEs need to be growth oriented and forward

looking, with innovative capacities, for

internationalization.

Micro, small and medium

enterprises (MSMEs ) aren't happy at the

government's decision to allow more FDI into the

retail segment, especially its nod to 51 per cent

FDI in multi-brand retail. MSMEs, which operate

on small investments and revenues, are also

concerned at the Centre's flip-flop on policy

decisions.
In 2011, to protect the interests of the MSME

sector, the government had announced that for

proposals involving more than 51 per cent FDI, 30

per cent of the value of the goods purchased

should be sourced from Indian MSMEs.

It was believed the 'mandatory' 30 per cent

sourcing norm would give a fillip to small-scale

businesses and help SMEs achieve high sales

growth, capacity addition, increased

contracts/orders, better branding, technology

upgrade, etc.

"However, while notifying the executive

order, the government changed its own

position,. For single-brand retail , the initial

clause of 30 per cent 'mandatory' sourcing of

manufactured and processed goods from

MSMEs was later changed to 'preferably'.

Now, foreign investors aren't compelled to

buy anything from Indian manufacturers.

Therefore, it can't be expected foreign retail

chains would make local purchases; they can

easily import cheap goods from other parts of

the world and market these at cheaper prices.

An official of an SME said it would be

difficult for the Indian SME sector to

compete against its counterparts in other

countries, owing to high costs. Indian SMEs

secure capital at high costs. Also, transaction

costs in India are high.

SMEs will be greatly impacted. Good companies

with clean records and management system might

be able to forge partnership with the retail giants

to become part of their supply chain. But then

there is always the question of receivables and

how the credit system will work in favor of

MSMEs. The biggest concern is that a large

segment of MSMEs will find it difficult to

counter this onslaught. Large retail giants have

their systems and processes in place. They know

how to replicate and start operations in a short

span. They have capital. Banks will be more than

eager to lend to them further. They also have

human capital. They have a brand name and

smaller companies will be eager to join hands.

The larger companies will be imposing their terms

and conditions. It will not be easy to counter

them. And they will attract best of the talent due

to their name.

FDI in retail is definitely a positive move for the

nation but it will have its repercussion for the

MSME sector. The least it will do is seriously

nudge this sector to become competitive and

aggressive. It will probably segregate the 'wheat'

from the 'chaff'.

 CHAPTER- IX

RBI NORMS FOR LENDING

The Reserve Bank of India has set up guidelines

for financial banks for lending loans to Small and

Medium Enterprises in the country:

The Reserve Bank of India has set up guidelines

for financial banks for lending loans to Small and

Medium Enterprises in the country.

1. Disposal of Applications:

All loan applications for SSI up to a credit limit

of Rs. 25,000/- should be disposed of within 2

weeks and those up to Rs. 5 lakh within 4 weeks,

provided the loan applications are complete in all

respects and accompanied by a 'check list'.

2. Collaterals:

The limit for all SSI borrowal accounts for

obtaining collateral security is Rs 5 lakh. Banks,

on the basis of good track record and financial

position of the SSI units, may increase the limit

of dispensation of collateral requirement for loans

up to Rs.25 lakh (with the approval of the

appropriate authority).

3. Composite loan:

A composite loan limit of Rs.1 crore can be

sanctioned by banks to enable the SSI

entrepreneurs to avail of their working capital and

term loan requirement through Single Window.

4. Specialised SSI/SME branches:

Public sector banks have been advised to open at

least one specialised branch in each district.

Further, banks have been permitted to categorise

their SSI general banking branches having 60 per

cent or more of their advances to SSI sector as

Public sector banks have been advised to open at

least one specialised SSI branch, in order to

encourage them to open more specialised SSI

branches for providing better service to this

sector as a whole.

As per the policy package announced by the

Government of India for stepping up credit to

SME sector, the public sector banks will ensure

specialized SME branches in identified

clusters/centres with preponderance of small

enterprises to enable the entrepreneurs to have

easy access to the bank credit and to equip bank

personnel to develop requisite expertise.

The existing specialised SSI branches may be

also be redesignated as SME branches. Though

their core competence will be utilized for

extending finance and other services to SME

sector, they will have operational flexibility to

extend finance/render other services to other

sectors/borrowers.

Delayed Payment:

Under the Amendment Act, 1998 of Interest on

Delayed Payment to Small Scale and Ancillary

Industrial Undertakings, penal provisions have

been incorporated to take care of delayed

payments to SSI units which inter-alia stipulates

a) agreement between seller and buyer shall not

exceed more than 120 days, b) payment of interest

by the buyers at the rate of one and a half times

the prime lending rate (PLR) of SBI for any delay

beyond the agreed period not exceeding 120 days.

Further, banks have been advised to fix sub-limits

within the overall working capital limits to the

large borrowers specifically for meeting the

payment obligation in respect of purchases from

SSI.

After the enactment of the Micro, Small and

Medium Enterprises Development (MSMED), Act

2006, the existing provisions of the Interest on

Delayed Payment Act, 1998 to Small Scale and

Ancillary Industrial Undertakings, have been

strengthened as under:

(i) The buyer to make payment on or before the

date agreed on between him and the supplier in

writing or, in case of no agreement before the

appointed day. The agreement between seller and

buyer shall not exceed more than 45 days.

(ii) The buyer fails to make payment of the

amount to the supplier, he shall be liable to pay

compound interest with monthly rests to the

supplier on the amount from the appointed day or,

on the date agreed on, at three times of the Bank

Rate notified by Reserve Bank.

(iii) For any goods supplied or services rendered

by the supplier, the buyer shall be liable to pay

the interest as advised at (ii) above. (iv)In case of

dispute with regard to any amount due, a

reference shall be made to the Micro and Small

Enterprises Facilitation Council, constituted by

the respective State Government.

 Annexure:

Master Circular

Lending to Micro, Small & Medium

Enterprises (MSME)

SECTION ‐ I

Micro, Small & Medium Enterprises

Development (MSMED) Act, 2006

T he Gover nm ent of Indi a has enact ed t he Mi cr o, Sm al l and

Medi um Ent er pri ses Devel opm ent ( MSME D) Act , 2006 on
June 16, 2006 whi ch was not i f i ed on Oct ober 2, 2006. Wi t h
t he enact m ent of MS ME D Act 2006, t he par adi gm shi f t t hat
has t aken pl ace i s t he i ncl usi on of t he ser vi ces sect or in t he
def i ni t i on of Mi cr o, S m al l & Medi um ent er pr i ses, apart fr om
ext endi ng t he scope t o m edi um ent er pr i ses. The MSME D Act ,
2006 has m odif i ed t he def i ni t i on of mi cr o, sm al l and m edi um
ent er pr i ses engaged i n m anuf act ur i ng or pr oduct i on and
pr ovi di ng or r ender i ng of ser vi ces. The Reser ve Bank has
not i f i ed t he changes t o al l schedul ed com m er ci al banks.
F ur t her , t he def i ni t i on, as per t he Act , has been adopt ed for
pur poses of bank cr edi t vi de RBI ci r cul ar ref . RPCD.PL NFS.
BC.No.63/ 06.02.31/ 2006 ‐ 07 dat ed Apr i l 4, 2007.

1 Def i n it i on of Mi cro, Sm al l and Medi um Ent erpri ses

( a) En t erp ri ses en gaged in t he m anuf acture or product i on,
p rocessi n g or p reservat i on of goods as speci f i ed bel ow:
( i) A m i cro en t erp ri se i s an ent er pr i se wher e i nvest m ent i n
pl ant and m achi ner y d oes not exceed Rs. 25 l akh;
( i i) A sm al l en t erp ri se i s an ent er pr i se wher e t he i nvest m ent
i n pl ant and m achi ner y i s more than Rs. 25 lakh but does
n ot exceed Rs. 5 crore; and
( i i i) A m ed i um en t erp ri se i s an ent er pr i se wher e t he
i nvest m ent i n pl ant and m achi ner y i s m ore t han Rs.5 crore
b u t does n ot exceed Rs.10 crore.
I n case of t he above ent er pr i ses, i nvest m ent i n pl ant and
m achi ner y i s t he or i gi nal cost excl udi ng l and and bui l di ng
and t he it em s speci f i ed by t he Mi ni st r y of Sm al l Scal e
I ndust r i es vi de it s not if i cat i on No.S.O. 1722(E ) dat ed
Oct ober 5, 2006 ( An n exI) .
( b) En t erp ri ses en gaged in provi di ng or renderi ng of
servi ces and whose i nvest m ent i n equi pm ent ( or i gi nal cost
excl udi ng l and and bui l di ng and fur ni t ur e, f i t t i ngs and ot her
i t em s not dir ect l y r el at ed t o t he ser vi ce render ed or as m ay be
not i f i ed under the MS ME D Act , 2006) ar e speci f i ed bel ow.
( i) A m i cro en t erp ri se i s an ent er pr i se wher e t he i nvest m ent
i n equi pm ent d oes n ot exceed Rs. 10 l akh ;
Mast er Ci r cul ar L endi ng t o Mi cr o, Sm al l & Medi um
E nt er pr i ses S ect or
( i i) A sm al l en t erp ri se i s an ent er pr i se wher e t he i nvest m ent
i n equi pm ent i s more than Rs.10 lakh but does not exceed
Rs. 2 crore ; and
( i i i) A m ed i um en t erp ri se i s an ent er pr i se wher e t he
i nvest m ent i n equi pm ent i s m ore t han Rs. 2 crore but does
n ot exceed Rs. 5 crore .
T hese wi ll i ncl ude sm al l r oad & wat er tr anspor t oper at or s,
sm al l busi ness, r et ai l tr ade, pr of essi onal & sel f ‐ em pl oyed
per sons and ot her ser vi ce ent er pr i ses.
L endi ng by banks to m edi um ent er pr i ses wi l l not be i ncl uded
f or t he pur pose of r eckoni ng of advances under t he pr i or i t y
sect or .
( i v) S i nce t he MS ME D Act , 2006 does not pr ovi de f or
cl ubbi ng of i nvest m ent s of di f f er ent ent er pr i ses set up by
sam e per son / com pany f or t he pur pose of cl assi f i cat i on as
Mi cr o, S m al l and Medi um ent er pr i ses, t he Gazet t e
Not i f i cat i on No. S .O.2 (E ) dat ed Januar y 1, 1993 on cl ubbi ng
of i nvest m ent s of t wo or m or e ent er pr i ses under t he sam e
owner shi p for t he pur pose of cl assi f i cat i on of i ndust r i al
under t aki ngs as S SI has been r esci nded vi de GOI Not if i cat i on
No. S .O. 563 ( E) dat ed Febr uar y 27, 2009.
1.1 K h ad i and Vi l l age Indust ri es Sect or ( K VI)
Al l advances gr ant ed t o uni t s i n t he KVI sect or , ir r espect i ve
of t heir si ze of oper at i ons, l ocat i on and am ount of or i gi nal
i nvest m ent i n pl ant and m achi ner y wi l l be cover ed under
pr i or i t y sect or advances and wi l l be el i gi bl e for consi der at i on
under t he sub ‐t ar get ( 60 per cent ) of t he m i cr o ent er pr i ses
segm ent wi t hi n t he MS E Sect or .
1.2 In d i rect F i n an ce
1.2.1 P er sons i nvol ved i n assi st i ng t he decent r al i sed sect or i n
t he suppl y of i nput s and m ar ket i ng of out put s of ar t i sans,
vi l l age and cot t age i ndust r i es.
1.2.2 Advances t o cooper at i ves of pr oducer s i n t he
decent r al i sed sect or vi z. ar t i sans, vi l l age and cot t age
i ndust r i es.
1.2.3 L oans gr ant ed by banks t o Mi cr o Fi nance I nst i t ut i ons
on, or af t er , Apr i l 1, 2011 for on ‐l endi ng t o m i cr o and sm al l
ent er pr i ses (m anuf act ur i ng as wel l as ser vi ces) subj ect t o t he
com pl i ance of gui del i nes speci f i ed i n Mast er Ci r cul ar
RP CD.CO. Pl an. BC.12/ 04.09.01/ 2012 ‐ 13 dat ed Jul y 2, 2012
on 'L endi ng t o P ri or i t y Sect or '.
S ECTIO N ‐ II
Cert ai n t yp es of fu n d s depl oym ent el i gi bl e as pri ori t y
sect or ad van ces
2.1 In vest m en t s
2.1.1 S ecu ri t i sed Asset s
I nvest m ent s m ade by banks i n secur i t i sed asset s, r epr esent i ng
l oans t o vari ous cat egor i es of pr i or i t y sect or , shal l be el i gi bl e
f or cl assi f i cat i on under r espect i ve cat egor i es of pr i or i t y
sect or (di r ect or indi r ect ) dependi ng on t he under l yi ng asset s,
pr ovi ded t he secur i t i sed asset s ar e or i gi nat ed by banks and
f i nanci al i nst i t ut i ons and ful f i l l t he Reser ve Bank of Indi a
gui del i nes on secur i t i sat i on. Thi s woul d m ean t hat t he bank's
i nvest m ent s i n t he above cat egor i es of secur i t i sed asset s shal l
be el i gi bl e f or cl assi f i cat i on under t he r espect i ve cat egor i es
of pr i or i t y sect or onl y i f the secur i t i sed advances wer e
el i gi bl e t o be cl assi f i ed as pr i or i t y sect or advances bef or e
t hei r secur i t i sat i on.
2.1.2 Out r i ght pur chases of any loan asset el i gi bl e t o be
cat egor i sed under pr i or i t y sect or , shal l be el i gi bl e for
cl assi f i cat i on under t he r espect i ve cat egori es of pr i or i t y
sect or (di r ect or indi r ect ) , pr ovi ded t he loans pur chased ar e
el i gi bl e t o be cat egor i sed under pr i or i t y sect or ; t he l oan
asset s ar e pur chased (af t er due di li gence and at f air val ue)
f rom banks and f i nanci al i nst i t ut i ons, wit hout any recour se t o
t he sel l er ; and t he el i gi bl e l oan asset s ar e not di sposed of ,
ot her t han by way of r epaym ent , wi t hi n a peri od of si x
m ont hs fr om t he dat e of pur chase.
2.1.3 I nvest m ent s by banks i n Int er Bank Par t i ci pat i on
Cer t i f i cat es (I BP Cs) , on a ri sk shar i ng basi s, shal l be el i gi bl e
f or cl assi f i cat i on under r espect i ve cat egor i es of pr i or i t y
sect or , pr ovi ded t he under l yi ng asset s ar e el i gi bl e t o be
cat egor i sed unde r t he r espect i ve cat egor i es of pr i or i t y sect or
and ar e hel d f or at l east 180 days f rom t he dat e of
i nvest m ent .
2.2 S ch em e of Sm al l Ent erpri ses F inanci al Cent res
( S EF Cs):
As per announcem ent m ade by t he Gover nor i n t he Annual
P ol i cy S t at em ent 2005 ‐ 06, a schem e for st r at egi c al l i ance
bet ween br anches of banks and SI DBI l ocat ed i n cl ust er s,
nam ed as “S m al l E nt er pr i ses Fi nanci al Cent r es” has been
f or m ul at ed in consul t at i on wi t h t he Mi ni st r y of SSI and
Banki ng Di vi si on, Mi ni st r y of Fi nance,Gover nm ent of Indi a,
S I DBI , I BA and sel ect banks and cir cul at ed t o al l schedul ed
com m er ci al banks on May 20, 2005 for i m pl em ent at i on.
S I DBI has so f ar execut ed MoU wi t h 15 banks so far ( Bank of
I ndi a, UCO Bank, YE S Bank, Bank of Bar oda, Or i ent al Bank
of Com m er ce, P unj ab Nat i onal Bank, Dena Bank, Andhr a
Bank, Indi an Bank, Cor por at i on Bank, I DBI Bank, Indi an
Over seas Bank, Uni on Bank of I ndi a,St at e Bank of I ndi a and
F eder al Bank) . L i st of MSME cl ust er s cover ed by exi st i ng
S I DBI br anches i s fur ni shed in Annex II.
S ECTIO N ‐ III
Target s f or p ri orit y sect or l endi ng by Dom est i c
Com m erci al Ban k s
3.1 Target s f or Dom est i c Comm erci al Banks
3.1.1 T he dom est i c com m er ci al banks ar e expect ed t o enl ar ge
cr edi t t o pri or i t y sect or and ensur e t hat pr i or i t y sect or
advances ( whi ch i ncl ude t he m i cr o and sm al l ent er pr i ses
( MS E) sect or ) const i t ut e 40 per cent of Adj ust ed Net Bank
Cr edi t ( ANBC) or cr edi t equi val ent am ount of Of f ‐Bal ance
S heet E xposur e, whi chever i s hi gher .
3.1.2 I n t erm s of the recom m endat i ons of t he Pr i m e
Mi ni st er ’ s T ask F or ce on MSME s, banks ar e advi sed t o
achi eve a 20 per cent year ‐on ‐ year gr owt h i n cr edi t t o m i cr o
and sm al l ent er pr i ses and a 10 per cent annual gr owt h in t he
num ber of mi cr o ent er pri se account s.
3.1.3 I n or der t o ensur e that suff i ci ent cr edi t i s avai l abl e t o
m i cr o ent er pr i ses wi t hi n t he MSE sect or , banks shoul d ensur e
t hat :
( a) 40 per cent of t he t ot al advances t o MSE sect or shoul d go
t o m i cr o (m anuf act ur i ng) ent er pr i ses havi ng i nvest m ent i n
pl ant and m achi ner y up t o Rs. 5 l akh and m i cr o ( ser vi ce)
ent er pr i ses havi ng i nvest m ent i n equi pm ent up t o Rs. 2l akh;
( b) 20 per cent of t he t ot al advances t o MSE sect or shoul d go
t o m i cr o (m anuf act ur i ng) ent er pr i ses wi t h i nvest m ent i n pl ant
and m achi ner y above Rs. 5 l akh and up t o Rs. 25 l akh, and
m i cr o ( ser vi ce) ent er pr i ses wi t h i nvest m ent i n equi pm ent
above Rs. 2 l akh and up t o Rs. 10 l akh. Thus, 60 per cent of
MS E advances shoul d go t o t he m i cr o ent er pr i ses.
( c) Whi l e banks ar e advi sed t o achi eve t he 60% t ar get as
above, i n t er m s of t he r ecom m endat i ons of t he Pr i m e
Mi ni st er ’ s T ask F or ce, t he al l ocat i on of 60% of t he MSE
advances t o t he m i cr o ent er pr i ses i s t o be achi eved i n st ages
vi z. 50% i n t he year 2010 ‐11, 55% i n t he year 2011 ‐12 and
60% i n t he year 2012 ‐13.
3.2 Target s f or Forei gn Banks
3.2.1 F or ei gn banks ar e expect ed t o enl ar ge cr edi t t o pr i or it y
sect or and ensur e t hat pr i or i t y sect or advances (whi ch
i ncl udes t he MS E sect or ) const i t ut e 32 per cent of Adj ust ed
Net Bank Cr edi t ( ANBC) or cr edi t equi val ent am ount of Of f ‐
Bal ance S heet E xposur e, whi chever i s hi gher .
3.2.2 Wi t hi n t he over al l t ar get of 32 per cent t o be achi eved
by f or ei gn banks,t he advances t o MSE sect or shoul d not be
l ess t han 10 per cent of t he adj ust ed net bank cr edi t (ANBC)
or cr edi t equi val ent am ount of Of f ‐Bal ance Sheet E xposur e,
whi chever i s hi gher .
3.2.3 I n t erm s of the recom m endat i ons of t he Pr i m e
Mi ni st er ’ s T ask F or ce on MSME s, banks ar e advi sed t o
achi eve a 20 per cent year ‐on ‐ year gr owt h i n cr edi t t o m i cr o
and sm al l ent er pr i ses and a 10 per cent annual gr owt h in t he
num ber of mi cr o ent er pri se account s.
3.2.4 I n or der t o ensur e that suff i ci ent cr edi t i s avai l abl e t o
m i cr o ent er pr i ses wi t hi n t he MSE sect or , banks shoul d ensur e
t hat :
( a) 40 per cent of t he t ot al advances t o MSE sect or shoul d go
t o m i cr o (m anuf act ur i ng) ent er pr i ses havi ng i nvest m ent i n
pl ant and m achi ner y up t o Rs. 5 l akh and m i cr o ( ser vi ce)
ent er pr i ses havi ng i nvest m ent i n equi pm ent up t o Rs. 2 l akh;
( b) 20 per cent of t he t ot al advances t o MSE sect or shoul d go
t o m i cr o (m anuf act ur i ng) ent er pr i ses wi t h i nvest m ent i n pl ant
and m achi ner y above Rs. 5 l akh and up t o Rs. 25 l akh, and
m i cr o ( ser vi ce) ent er pr i ses wi t h i nvest m ent i n equi pm ent
above Rs. 2 l akh and up t o Rs. 10 l akh. Thus, 60 per cent of
MS E advances shoul d go t o t he m i cr o ent er pr i ses.
( c) Whi l e banks ar e advi sed t o achi eve t he 60% t ar get as
above, i n t er m s of t he r ecom m endat i ons of t he Pr i m e
Mi ni st er ’ s T ask F or ce t he al l ocat i on of 60% of t he MSE
advances t o t he m i cr o ent er pr i ses i s t o be achi eved i n st ages
vi z. 50% i n t he year 2010 ‐11, 55% i n t he year 2011 ‐12 and
60% i n t he year 2012 ‐13.
3.3 Dep osi t b y F orei gn Banks wi t h SIDBI or F unds wit h
ot h er F in an ci al In st i t ut i ons, as speci f i ed by t he Reserve
Ban k
3.3.1 T he f or ei gn banks havi ng shor t f al l in l endi ng t o
st i pul at ed pr i or i t y sect or l endi ng t ar get / sub ‐ t ar get s wi l l be
r equi r ed t o contr i but e t o Funds to be set up wi t h Sm al l
I ndust r i es Devel opm ent Bank of I ndi a (SI DBI) or wi t h ot her
F i nanci al I nst i t ut i ons, for such ot her pur pose as m ay be
st i pul at ed by Reser ve Bank of I ndi a fr om t im e t o ti m e.
3.3.2 F or t he pur pose of such al l ocat i on, t he achi evem ent
l evel of pr i or i t y sect or l endi ng as on t he l ast repor t i ng Fr i day
of Mar ch of t he i m m edi at el y pr ecedi ng fi nanci al year wi l l be
t aken int o account (i .e. For al l ocat i on i n Funds wi t h SI DBI or
any ot her F i nanci al I nst i t ut i ons i n t he year 2011 ‐ 12, t he
achi evem ent l evel of pr i or i t y sect or l endi ng t ar get / sub ‐
t ar get s as on t he l ast r epor t i ng Fr i day of Mar ch 2011 wi l l be
t aken int o account ) .
3.3.3 T he cor pus of F unds shal l be deci ded by Gover nm ent of
I ndi a / Reser ve Bank of I ndi a on a year ‐t o ‐ year basi s. The
t enor of the deposi t s shal l be f or a per i od of t hr ee year s or as
deci ded by Reser ve Bank f rom t i m e t o t i m e. T he contr i but i on
r equi r ed t o be m ade by f or ei gn banks woul d not be m or e t han
t he am ount of shor t f al l in pr i ori t y sect or l endi ng t ar get / sub ‐
t ar get s of t he f or ei gn banks.
3.3.4 T he concer ned f or ei gn banks wi l l be cal l ed upon by
S I DBI / or such ot her Fi nanci al Inst i t ut i ons m ay be deci ded
by Reser ve Bank, as and when f unds ar e r equir ed by t hem ,
af t er gi vi ng one m ont h's not i ce.
3.3.5 T he i nt er est r at es on f or ei gn banks' contr i but i on, per i od
of deposi t s, et c. shal l be fi xed by Reser ve Bank of Indi a f rom
t i m e t o t i m e.
3.4 Non ‐ achi evem ent of pri or i t y sect or t ar get s and sub ‐
t ar get s wil l be t aken i nt o account whi l e gr ant i ng regul at or y
cl ear ances/ appr oval s for var i ous pur poses.
[A NB C or credi t equi val ent of Of f ‐ B al ance Sheet E xposures
( as def i ned by Depart ment of B anki ng Operat i ons and
Devel opment of R eserve B ank of Indi a f rom ti me t o ti me) wi l l
be comput ed wi t h ref erence t o t he out st andi ng as on March
31 of t he previ ous year. F or t hi s purpose, out st andi ng F CNR
( B) and NR NR deposi t s bal ances wi l l no l onger be deduct ed
f or comput at i on of A NB C f or pri ori t y sect or l endi ng
purposes. For t he purpose of pri ori t y sect or l endi ng, A NB C
denot es NB C pl us i nvest ment s made by banks i n non ‐ SLR
bonds hel d i n HTM cat egory. I nvest ment s made by banks i n
t he R ecapi t al i zat i on B onds f l oat ed by Government of I ndi a
wi l l not be taken i nt o account f or t he purpose of cal cul at i on
of A NB C. E xi st i ng and f resh i nvest ment s, by banks i n non ‐
SL R bonds hel d i n HT M cat egory wi l l be t aken i nt o account
f or t he purpose. Deposi t s pl aced by banks wi t h
NA BA R D/ SI DBI , as t he case may be, i n l i eu of non ‐
achi evement of pri ori t y sect or l endi ng t arget s sub ‐
t arget s,t hough shown under Schedul e 8 – 'I nvest ment s' i n t he
B al ance Sheet at i t em I ( vi) –'Ot hers', wi l l not be t reat ed as
i nvest ment i n non ‐ SLR bonds hel d under HTM cat egory. For
t he purpose of cal cul at i on of credi t equi val ent of of f ‐ bal ance
sheet exposure s, banks may use current exposure met hod.
I nt er ‐ bank exposures wi l l not be t aken i nt o account f or t he
purpose of pri ori t y sect or l endi ng target s/ subt a rget s. ]
S ECTIO N ‐ IV
Com m on G u i d el i n es / Inst ruct i ons for Lendi ng t o MSME
S ect or
4.1 Di sp osal of App l i cat i ons
Al l l oan appl i cat i ons f or MSE uni t s upt o a cr edi t l i m i t of Rs.
25,000/ ‐ shoul d be di sposed of wi t hi n 2 weeks and t hose upt o
Rs. 5 l akh wi t hi n 4 weeks pr ovi ded , t he l oan appl i cat i ons ar e
com pl et e in al l r espect s and accom pani ed by a " check l i st ".
4.2 Issu e of Ack n owl edgem ent of Loan Appl i cat i ons t o
MS ME b orrowers
Banks have been advi sed t o m andat or i l y acknowl edge al l l oan
appl i cat i ons,subm i t t ed m anual l y or onl i ne, by t hei r MSME
borr ower s and ensur e t hat a runni ng ser i al num ber i s r ecor ded
on t he appl i cat i on for m as wel l as on t he acknowl edgem ent
r ecei pt . Banks ar e f ur t her encour aged t o st ar t Cent r al
Regi st r at i on of l oan appl i cat i ons. T he sam e t echnol ogy m ay
be used f or onl i ne subm i ssi on of l oan appl i cat i ons as al so f or
onl i ne t r acki ng of l oan appl i cat i ons.
4.3 Col l at eral
Banks ar e m andat ed not to accept col l at er al secur i t y i n t he
case of l oans upt o Rs.10 l akh ext ended t o uni t s i n t he MSE
sect or . Banks ar e al so advi sed t o ext end col l at er al ‐ fr ee l oans
upt o Rs. 10 l akh t o al l uni t s f i nanced under t he Pr i m e
Mi ni st er Em pl oym ent Gener at i on Pr ogr am m e of KVI C. Banks
m ay, on t he basi s of good t r ack r ecor d and fi nanci al posi t i on
of t he MS E uni t s, i ncr ease t he l i m it of di spensat i on of
col l at er al r equir em ent for l oans up t o Rs.25 l akh ( wi t h t he
appr oval of t he appr opr i at e aut hor i t y) .
Banks ar e advi sed t o st r ongl y encour age t hei r br anch l evel
f unct i onar i es t o avai l of t he Cr edi t Guar ant ee Schem e cover ,
i ncl udi ng m aki ng per f or m ance in t hi s r egar d a cr i t er i on i n t he
eval uat i on of t hei r fi el d st af f .
4.4 Com p osi t e l oan
A com posi t e l oan l i m i t of Rs.1 cr or e can be sanct i oned by
banks t o enabl e t he MS E ent r epr eneur s t o avai l of t heir
wor ki ng capi t al and t er m l oan r equir em ent t hr ough Si ngl e
Wi ndow.
4.5 S p eci al i sed MS ME branches
P ubl i c sect or banks have been advi sed to open at l east one
speci al i sed br anch i n each di st r i ct . Fur t her , banks have been
per m i t t ed t o cat egor i se t hei r MSME gener al banki ng br anches
havi ng 60% or mor e of t heir advances to MSME sect or i n
or der t o encour age t hem t o open m or e speci al i sed MSME
br anches for pr ovi di ng bet t er ser vi ce t o t hi s sect or as a
whol e. As per t he pol i cy package announced by t he
Gover nm ent of Indi a f or st eppi ng up cr edi t t o MSME sect or ,
t he publ i c sect or banks wi l l ensur e speci al i zed MSME
br anches i n i dent if i ed cl ust er s/ cent r es wit h pr eponder ance of
sm al l ent er pr i ses t o enabl e the entr epr eneur s t o have easy
access t o t he bank cr edi t and t o equi p bank per sonnel to
devel op requi si t e exper ti se. T he exi st i ng speci al i sed SSI
br anches m ay al so be redesi gnat ed as MSME br anches.
T hough t heir cor e com pet ence wi l l be ut i l i zed f or ext endi ng
f i nance and ot her ser vi ces t o MSME sect or , t hey wi l l have
oper at i onal f l exi bi li t y t o ext end fi nance/ r ender ot her ser vi ces
t o ot her sect or s/ bor r ower s.
4.6 Del ayed P aym ent
Under t he Am endm ent Act , 1998 of I nt er est on Del ayed
P aym ent t o S m al l S cal e and Anci l l ar y I ndust r i al
Under t aki ngs, penal pr ovi si ons have been i ncor por at ed t o
t ake car e of del ayed paym ent s t o MSME uni t s. Aft er t he
enact m ent of t he Mi cr o, Sm al l and Medi um Ent er pr i ses
Devel opm ent ( MS ME D) , Act 2006, t he exi st i ng pr ovi si ons of
t he I nt er est on Del ayed Paym ent Act , 1998 t o Sm al l Scal e
and Anci l l ar y I ndust r i al Under t aki ngs, have been
st r engt hened as under :
( i) I n case t he buyer t o m ake paym ent on or bef or e t he dat e
agr eed on bet ween hi m and t he suppl i er i n wr it i ng or , i n case
of no agr eem ent bef or e t he appoi nt ed day. The agr eem ent
bet ween sel l er and buyer shal l not exceed m or e t han 45 days.
( i i) I n case t he buyer fai l s t o m ake paym ent of t he am ount t o
t he suppl i er , he shal l be l i abl e t o pay com pound int er est wi t h
m ont hl y r est s t o t he suppl i er on t he am ount fr om t he
appoi nt ed day or , on t he dat e agr eed on, at t hr ee ti m es of the
Bank Rat e not i f i ed by Reser ve Bank.
( i i i) F or any goods suppl i ed or ser vi ces r ender ed by t he
suppl i er , t he buyer shal l be l i abl e t o pay t he i nt er est as
advi sed at ( i i) above.
( i v) I n case of di sput e wi t h r egar d t o any am ount due, a
r ef er ence shal l be m ade t o t he Mi cr o and Sm al l Ent er pr i ses
F aci l i t at i on Counci l , const i t ut ed by t he r espect i ve St at e
Gover nm ent .
F ur t her , banks have been advi sed t o f i x sub ‐ l i mi t s wi t hi n t he
over al l wor ki ng capi t al l i m it s t o t he l ar ge bor r ower s
speci f i cal l y for m eet i ng t he paym ent obl i gat i on i n r espect of
pur chases f r om MS ME s.
4.7 G u i d el i n es on reh abi l it at i on of si ck SSI (now MSE)
u n it s (b ased on K oh l i Worki ng G roup recomm endat i ons)
As per t he def i ni t i on, a uni t i s consi der ed as si ck when any of
t he bor r owal account of t he uni t rem ai ns subst andar d for
m or e t han 6 m ont hs or t her e i s er osi on i n t he net wor t h due t o
accum ul at ed cash l osses t o t he ext ent of 50% of i t s net wor t h
dur i ng t he pr evi ous account i ng year and t he uni t has been i n
com m er ci al pr oduct i on for at l east t wo year s. T he cri t er i a
wi l l enabl e banks t o det ect si cknes s at an ear l y st age and
f aci l i t at e corr ect i ve act i on f or r evi val of t he uni t . As per t he
gui del i nes, t he r ehabi l i t at i on package shoul d be ful l y
i m pl em ent ed wi t hi n si x m ont hs fr om t he dat e t he uni t i s
decl ar ed as pot ent i al l y vi abl e/ vi abl e. Dur i ng t hi s si x m ont hs
per i od of ident i f yi ng and i m pl em ent i ng r ehabi l i t at i on
package banks/ F I s ar e r equi r ed t o do “hol di ng oper at i on”
whi ch wi l l al l ow t he si ck uni t t o dr aw funds fr om t he cash
cr edi t account at l east t o t he ext ent of deposi t of sal e
pr oceeds.A ci r cul ar was i ssued t o al l schedul ed com m er ci al
banks vi de RP CD.No. PL NFS.BC.57/ 06.04.01/ 2001 ‐02 dat ed
Januar y 16, 2002 on 'Gui del i nes for Rehabi l i t at i on of Si ck
S m al l S cal e I ndust r i al Uni t s'.
F ur t her , i n t he l i ght of t he r ecom m endat i ons of t he Woki ng
Gr oup on Rehabi l i t at i on of Si ck SME s ( Chai r m an: Dr K.C.
Chakr abar t y) and t he Banki ng Codes St andar ds Boar d of
I ndi a's Code of Com m i t m ent f or t he MSE borr ower s, al l
S chedul ed Com m er ci al Banks have been advi sed vi de RPCD
Ci r cul ar S ME & NF S .BC.No.102/ 06.04.01/ 2008 ‐ 09 dat ed May
04, 2009, t o put i n pl ace t hei r own Rest r uct ur i ng/
Rehabi l i t at i on pol i cy for r evi val of vi abl e/ pot ent i al l y vi abl e
si ck uni t s/ ent er pri ses dul y appr oved by t he Boar d of
Di r ect or s.
However , consequent upon i nt r oduct i on of 'Base Rat e Syst em '
wi t h ef f ect fr om Jul y 1, 2010 and i n t er m s of par a 2.3.1.3 of
Mast er Ci r cul ar DBOD.No.Di r .BC.5/ 13.03.00/ 2011 ‐12 dat ed
Jul y 1, 2011 on 'I nt er est Rat es on Advances', i n case of
Rest r uct ur ed l oans i f som e of t he WCT L , FI TL , et c. need t o
be gr ant ed bel ow t he Base Rat e f or t he pur poses of vi abi l i t y
and t her e ar e r ecom pense et c. cl auses, such l endi ng by
S chedul ed Com m er ci al Banks wi l l not be const r ued t o be a
vi ol at i on of t he Base Rat e gui del i nes.
Consi der i ng t he above devel opm ent s, t he Rel i ef and
Conces si ons t o vi abl e/ pot ent i al l y vi abl e si ck uni t s under
r ehabi l i t at i on pr escr i bed i n Appendi x – I I of our ci r cul ar
RP CD. NO. P L NF S .BC.57/ 06.04.01/ 2001 ‐2002 dat ed Januar y
16, 2002 st and wi t hdr awn vi de our ci r cul ar RPCD.SME &
NF S .BC.No.19/ 06.02.31/ 2011 ‐12 dat ed Sept em ber 12, 2011.
4.8 S t at e Level In t er Inst i t ut i onal Com m it t ee
I n or der t o deal wi t h t he pr obl em s of co ‐ or di nat i on f or
r ehabi l i t at i on of si ck m i cr o and sm al l uni t s, St at e Level
I nt er ‐I nst i t ut i onal Com m i t t ees (SLI I Cs) have been set up i n
al l t he S t at es. The m eet i ngs of t hese Com m i t t ees ar e
convened by Regi onal Of f i ces of RBI and pr esi ded over by
t he S ecr et ar y, I ndust r y of t he concer ned St at e Gover nm ent . I t
pr ovi des a usef ul for um for adequat e i nt er f aci ng bet ween the
S t at e Gover nm ent Off i ci al s and St at e L evel Inst i t ut i ons on
t he one si de and t he t er m l endi ng i nst i t ut i ons and banks on
t he ot her . I t cl osel y m oni t or s t i m el y sanct i on of wor ki ng
capi t al to uni t s whi ch have been pr ovi ded t er m l oans by
S F Cs,i m pl em ent at i on of speci al schem es such as Mar gi n
Money S chem e of S t at e Gover nm ent and r evi ews gener al
pr obl em s f aced by i ndust r i es and si ckness i n MSE sect or
based on t he dat a f ur ni shed by banks. Am ong ot her s, t he
r epr esent at i ves of t he l ocal st at e l evel MSE associ at i ons ar e
i nvi t ed t o t he m eet i ngs of SLI I C whi ch ar e hel d quar t er l y. A
sub ‐com m i t t ee of SL II C l ooks i nt o t he pr obl em s of i ndi vi dual
si ck MS E uni t and subm i t s i t s r ecom m endat i ons t o t he f or um
of SL II C for consi der at i on.
4.9 Em p owered Com m it t ee on MSMEs
As par t of t he announcem ent m ade by t he Uni on Fi nance
Mi ni st er , at t he Regi onal Of f i ces of Reser ve Bank of I ndi a,
E m power ed Com m i t t ees on MSME s have been const i t ut ed
under t he Chai r m anshi p of t he Regi onal Di r ect or s wi t h t he
r epr esent at i ves of SL BC Convenor , seni or l evel off i cer s fr om
t wo banks havi ng pr edom i nant shar e i n MSME f i nanci ng i n
t he st at e, r epr esent at i ve of SI DBI Regi onal Off i ce, t he
Di r ect or of I ndust r i es of t he St at e Gover nm ent , one or t wo
seni or l evel repr esent at i ves f r om t he MSME / SSI Associ at i ons
i n t he st at e, and a seni or l evel of f i cer fr om SFC/ SI DC as
m em ber s. The Com m i t t ee wil l m eet per i odi cal l y and
r evi ew t he pr ogr ess i n MSME fi nanci ng as al so r ehabi l it at i on
of si ck Mi cr o, Sm al l and Medi um uni t s. I t wi l l al so
coor di nat e wi t h ot her banks/ f i nanci al i nst i t ut i ons and t he
st at e gover nm ent i n rem ovi ng bot t l enecks, if any, t o ensur e
sm oot h fl ow of cr edi t to t he sect or . The com mi t t ees m ay
deci de t he need t o have si m i l ar com m i t t ees at cl ust er / di st r i ct
l evel s.
4.10 Deb t Rest ru ct u ri ng Mechani sm f or MSMEs
( i) As par t of announcem ent m ade by t he Hon'bl e Fi nance
Mi ni st er for st eppi ng up cr edi t t o sm al l and m edi um
ent er pr i ses, a debt r est r uct ur i ng m echani sm f or uni t s i n
MS ME sect or has been f or m ul at ed by Depar t m ent of
Banki ng Oper at i ons & Devel opm ent of Reser ve Bank of I ndi a
and advi sed al l com m er ci al banks vi de ci r cul ar DBOD. BP.
BC. No. 34 / 21.04.132/ 2005 ‐ 06 dat ed Sept em ber 8, 2005.
T hese det ai l ed gui del i nes have been i ssued t o ensur e
r est r uct ur i ng of debt of al l el i gi bl e sm al l and m edi um
ent er pr i ses. These gui del i nes woul d be appl i cabl e t o t he
f ol l owi ng ent i t i es, whi ch ar e vi abl e or pot ent i al l y vi abl e:
( a) Al l non ‐cor por at e MSME s ir r espect i ve of t he l evel of
dues t o banks.
( b) Al l cor por at e MS ME s, whi ch ar e enj oyi ng banki ng
f aci l i t i es f r om a si ngl e bank, i rr espect i ve of t he l evel of dues
t o t he bank.
( c) Al l cor por at e MS ME s, whi ch have f unded and non ‐ funded
out st andi ng upt o Rs.10 cr or e under m ul ti pl e/ consor t i um
banki ng ar r angem ent .
( d) Account s i nvol vi ng wi l lf ul def aul t , f raud and m alf easance
wi l l n ot be el i gi bl e f or r est r uct uri ng under t hese gui del i nes.
( e) Account s cl assi f i ed by banks as “L oss Asset s ” wi l l not be
el i gi bl e f or r est r uct ur i ng.
F or al l cor por at e i ncl udi ng MSME s, whi ch have funded and
non ‐ funded out st andi ng of Rs.10 cr or e and above, Depar t m ent
of Banki ng Oper at i ons & Devel opm ent has i ssued separ at e
gui del i nes on Cor por at e Debt Rest r uct ur i ng
Mechani sm vi de cir cul ar DBOD. No.BP.BC.45/ 21.04.
132/ 2005 ‐ 06 dat ed Novem ber 10, 2005.
P r udent i al Gui del i nes on MSME Debt Rest r uct ur i ng by banks
have been f or m ul at ed and advi sed t o al l com m er ci al banks by
Depar t m ent of Banki ng Oper at i ons & Devel opm ent vi de
ci r cul ar DBOD.No.BP .BC.No.37 / 21.04.132/ 2008 ‐09 dat ed
August 27, 2008.
( i i) I n t he l i ght of t he r ecom m endat i ons of t he Wor ki ng
Gr oup on Rehabi l i t at i on of Si ck MSE s ( Chai r m an: Dr . K.C.
Chakr abar t y) , al l com m er ci al banks wer e advi sed vi de our
ci r cul ar r ef . RP CD. S ME & NFS.BC.No. 102/ 06.04.01/ 2008 ‐
09 dat ed May 4, 2009 t o:
( a) put in pl ace l oan pol i ci es gover ni ng ext ensi on of cr edi t
f aci l i t i es,Rest r uct ur i ng/ Rehabi l i t at i on pol i cy f or r evi val of
pot ent i al l y vi abl e si ck uni t s/ ent er pr i ses and non ‐
di scr et i onar y One T i m e Set t l em ent schem e for r ecover y of
non ‐ perf or m i ng loans f or t he MSE sect or , wit h t he appr oval
of t he Boar d of Dir ect or s and
( b) i m pl em ent r ecom m endat i ons wi t h regar d t o t i m el y and
adequat e fl ow of cr edi t t o t he MSE sect or .
( i i i) Banks have been advi sed t o gi ve wi de publ i ci t y t o t he
One Ti m e set t l em ent schem e im pl em ent ed by t hem , by
pl aci ng i t on t he bank’ s websi t e and thr ough ot her possi bl e
m odes of di ssem i nat i on. T hey m ay al l ow r easonabl e t i m e t o
t he bor r ower s t o subm i t t he appl i cat i on and al so m ake
paym ent of t he dues i n or der t o ext end t he benef i t s of t he
schem e t o el i gi bl e borr ower s.
4.11 Cl u st er Ap p roach
( i) 60 cl ust er s have been i dent if i ed by t he Mi ni st r y of Mi cr o,
S m al l and Medi um Ent er pr i ses, Gover nm ent of I ndi a for
f ocused devel opm ent of Sm al l E nt er pr i ses sect or . Al l SL BC
Convenor banks have been advi sed to i ncor por at e i n
t hei r Annual Cr edi t P l ans, t he cr edi t r equi r em ent i n t he
cl ust er s i dent i fi ed by t he Mi ni st r y of Mi cr o, Sm al l and
Medi um Ent er pri ses, Gover nm ent of I ndi a.
As per Gangul y Com m i t t ee r ecom m endat i ons banks have been
advi sed t hat a f ul l ser vi ce appr oach t o cat er t o t he di ver se
needs of t he MS E sect or m ay be achi eved t hr ough ext endi ng
banki ng ser vi ces t o r ecogni zed MSE cl ust er s by adopt i ng a 4 ‐
C appr oach nam el y, Cust om er f ocus, Cost contr ol , Cr oss sel l
and Cont ai n ri sk. A cl ust er based appr oach t o l endi ng m ay be
m or e benef i ci al :
( a) i n deal i ng wi t h wel l ‐def i ned and r ecogni zed gr oups;
( b) avai l abi l i t y of appr opr i at e inf or m at i on for ri sk asses sm ent
and
( c) m oni t or i ng by t he l endi ng i nst i t ut i ons.
Cl ust er s m ay be ident i f i ed based on f act or s such as t r ade
r ecor d, com pet i t i veness and gr owt h pr ospect s and/ or ot her
cl ust er speci f i c dat a.
( i i) As per announcem ent m ade by t he Gover nor i n par agr aph
157 of t he Annual P ol i cy St at em ent 2007 ‐08, al l SL BC
Convenor banks have been advi sed vi de l et t er
RP CD.P L NF S .No. 10416/ 06.02.31/ 2006 ‐ 07 dat ed May 8,
2007 t o r evi ew t hei r i nst i t ut i onal arr angem ent s f or del i ver i ng
cr edi t t o t he MS ME sect or , especi al l y i n 388 cl ust er s
i dent i f i ed by Uni t ed Nat i ons Indust r i al Devel opm ent
Or gani sat i on( UNI DO) spr ead over 21 st at es i n var i ous par t s
of t he count r y. A l i st of SME cl ust er s as i dent if i ed by
UNI DO has been f ur ni shed i n Annex III.
( i i i) T he Mi ni st r y of Mi cr o, Sm al l and Medi um E nt er pr i ses
has appr oved a l i st of cl ust er s under t he Schem e of Fund f or
Regener at i on of T r adit i onal I ndust r i es( SFURTI ) and Mi cr o
and Sm al l E nt er pr i ses Cl ust er Devel opm ent Pr ogr am m e
( MS E CDP ) l ocat ed i n 121 Mi nor i t y Concent r at i on Di st r i ct s.
Accor di ngl y, appr opr i at e m easur es have been t aken to
i m pr ove t he cr edi t fl ow t o t he i dent i f i ed cl ust er s of m i cr o
and sm al l ent r epr eneur s fr om t he Mi nor i t i es Com m uni t i es
r esi di ng i n t he m i nor i t y concent r at ed di st r i ct s of t he count r y.
( i v) I n t er m s of recom m endat i ons of t he Pr i m e Mi ni st er ’ s
T ask F or ce on MS ME s banks shoul d open m or e MSE focused
br anch off i ces at di ff er ent MSE cl ust er s whi ch can al so act as
Counsel l i ng Cent r es for MSE s. E ach l ead bank of a di st r i ct
m ay adopt at l east one MSE cl ust er .
4.12 Gover nm ent of Indi a, Mi ni st r y of Mi cr o, Sm al l and
Medi um Ent er pri ses has conveyed t heir appr oval f or
cont i nuat i on of t he Cr edi t Li nked Capi t al Subsi dy Schem e
( CL SS ) f or T echnol ogy Upgr adat i on of Mi cr o and Sm al l
E nt er pr i ses f rom X P l an t o XI Pl an (2007 ‐ 12) subj ect t o t he
f ol l owi ng t er m s and condi t i ons:
( i) Cei l i ng on t he l oan under t he schem e i s Rs. 1 cr or e.
( i i) T he r at e of subsi dy i s 15% f or al l uni t s of m i cr o and
sm al l ent er pr i ses up t o l oan cei l i ng at Sr . No. (i ) above.
( i i i) Cal cul at i on of adm i ssi bl e subsi dy wi l l be done wi t h
r ef er ence t o t he pur chase pr i ce of pl ant and m achi ner y
i nst ead of t er m l oan di sbur sed t o t he benef i ci ar y uni t .
( i v) S I DBI and NABARD wi l l cont i nue t o be i m pl em ent i ng
agenci es of t he schem e.
4.13 Com mi t t ees on f l ow of Credi t t o MSE sect or
4.13.1 Rep ort of th e H i gh Level Com m it t ee on Credi t to
S S I ( n ow MS E)
( K apu r Com m it t ee)
Reser ve Bank of I ndi a had appoi nt ed a one ‐m an Hi gh L evel
Com m i t t ee headed by S hri S L Kapur , (I AS, Ret d.) , For m er
S ecr et ar y, Gover nm ent of I ndi a, Mi ni st r y of Indust r y t o
suggest m easur es f or im pr ovi ng t he del i ver y syst em and
si m pl i f i cat i on of pr ocedur es for cr edi t t o SSI sect or . T he
Com m i t t ee m ade 126 r ecom m endat i ons cover i ng wi de r ange
of ar eas per t ai ni ng t o f i nanci ng of SSI sect or . These
r ecom m endat i ons have been exam i ned by t he RBI and i t has
been deci ded t o accept 88 recom m endat i ons whi ch i ncl ude t he
f ol l owi ng i m por t ant r ecom m endat i ons:
( i) Del egat i on of m or e power s t o br anch m anager s t o gr ant
ad ‐ hoc l i m i t s;
( i i) S i m pl if i cat i on of appl i cat i on f or m s;
( i i i) F r eedom t o banks t o deci de t heir own nor m s f or
asse ssm ent of cr edi t r equir em ent s;
( i v) Openi ng of m or e speci al i sed SSI br anches;
( v) E nhancem ent i n t he l i m i t f or com posi t e l oans t o Rs. 5
l akh. ( si nce enhanced t o R s.1 crore) ;
( vi) S t r engt heni ng t he r ecover y m echani sm ;
( vi i) Banks t o pay m or e at t ent i on t o t he backwar d st at es;
( vi i i) S peci al pr ogr am m es f or t r ai ni ng br anch m anager s f or
appr ai si ng sm al l pr oj ect s;
( i x) Banks t o m ake cust om er s gr i evance m achi ner y m or e
t r anspar ent and si m pl i f y t he pr ocedur es f or handl i ng
com pl ai nt s and m oni t or i ng t her eof .
A ci r cul ar was i ssued t o al l schedul ed com m er ci al banks vi de
RP CD.No.P L NF S .BC.22/ 06.02.31/ 98 ‐99 dat ed August 28,
1998 t her eby advi si ng im pl em ent at i on of t he Kapur
Com m i t t ee Recom m endat i ons.
4.13.2 Rep ort of th e Com mi t t ee t o Exami ne t he Adequacy
of In st i t ut i on al Cred i t to SSI Sect or( now MSE) and
Rel at ed Asp ect s ( Nayak Com m it t ee)
T he Com m i t t ee was const i t ut ed by Reser ve Bank of Indi a i n
Decem ber 1991 under t he Chai r m anshi p of Shr i P. R. Nayak,
t he t hen Deput y Gover nor t o exam i ne t he i ssues confr ont i ng
S S I s ( now MS E) i n t he m at t er of obt ai ni ng f i nance. T he
Com m i t t ee subm i t t ed i t s r epor t in 1992. Al l t he m aj or
r ecom m endat i ons of t he Com m i t t ee have been accept ed and
t he banks have been i nt er ‐ al i a advi sed t o:
( i) gi ve pr ef er ence t o vi l l age i ndust r i es, ti ny i ndust r i es and
ot her sm al l scal e uni t s i n that or der , whi l e m eet i ng t he cr edi t
r equi r em ent s of t he sm al l scal e sect or ;
( i i) gr ant wor ki ng capi t al cr edi t li m i t s t o SSI (now MSE )
uni t s com put ed on t he basi s of mi ni m um 20% of t hei r
est i m at ed annual t ur nover whose cr edi t l i m i t in i ndi vi dual
cases i s upt o Rs.2 cr or e [ si nce r ai sed t o Rs.5 cr or e ];
( i i i) pr epar e annual cr edi t budget on t he ` bott om ‐ up ’ basi s t o
ensur e t hat t he l egi t i m at e r equi r em ent s of SSI (now MSE )
sect or ar e m et in f ul l ;
( i v) ext end ‘S i ngl e Wi ndow Schem e’ of SI DBI t o al l di st r i ct s
t o m eet t he f i nanci al r equi r em ent s ( bot h wor ki ng capi t al and
t er m l oan) of S SI s( now MSE ) ;
( v) ensur e t hat t her e shoul d not be any del ay i n sanct i oni ng
and di sbur sal of cr edi t . I n case of rej ect i on/ cur t ai l m ent of
cr edi t l i m i t of t he l oan pr oposal , a ref er ence t o hi gher
aut hor i t i es shoul d be m ade;
( vi) not t o i nsi st on com pul sor y deposi t as a ` qui d pr o ‐ quo ’
f or sanct i oni ng t he cr edi t ;
( vi i) open speci al i sed S SI ( now MSE) bank br anches or
conver t t hose br anches whi ch have a f air l y l ar ge num ber of
S S I (now MS E ) bor r owal account s, i nt o speci al i sed SSI ( now
MS E ) br anches;
( vi i i) i dent i f y si ck S S I (now MSE ) unit s and t ake ur gent
act i on t o put t hem on nur si ng pr ogr am m es;
( i x) st andar di se l oan appl i cat i on for m s f or SSI (now MSE )
borr ower s; and
( x) i m par t tr ai ni ng t o st af f wor ki ng at speci al i sed br anches t o
br i ng about at t i t udi nal change i n t hem .
A ci r cul ar was i ssued t o al l schedul ed com m er ci al banks vi de
RP CD. P LNF S / BC. No.61/ 06.0262/ 2000 ‐01 dat ed Mar ch 2,
2001 t her eby advi si ng im pl em ent at i on of t he Nayak
Com m i t t ee Recom m endat i ons.
4.13.3 Rep ort of th e Worki ng G roup on Fl ow of Credit t o
S S I ( n ow MS E) S ect or
( G an gu l y Com m it t ee)
As per t he announcem ent m ade by t he Gover nor , Reser ve
Bank of I ndi a, i n t he Mi d ‐T erm Revi ew of t he Monet ar y and
Cr edi t P ol i cy 2003 ‐ 2004, a “Wor ki ng Gr oup on Fl ow of
Cr edi t t o S SI sect or ” was const i t ut ed under t he Chai r m anshi p
of Dr . A S Gangul y.
T he Com m i t t ee m ade 31 recom m endat i ons cover i ng wi de
r ange of ar eas per t ai ni ng t o fi nanci ng of SSI sect or . The
r ecom m endat i ons per t ai ni ng t o RBI and banks have been
exam i ned and RBI has accept ed 8 recom m endat i ons so far and
com m ended t o banks f or i m pl em ent at i on vi de ci r cul ar
RP CD.P L NF S .BC.28/ 06.02.31( WG) / 2004 ‐ 05 dat ed
S ept em ber 4, 2004 whi ch ar e as under:
( i) adopt i on of cl ust er based appr oach f or f i nanci ng MSME
sect or ;
( i i) sponsor i ng speci f i c pr oj ect s as wel l as wi del y publ i ci si ng
succes sf ul wor ki ng m odel s of NGOs by L ead Banks whi ch
ser vi ce sm al l and t i ny i ndust r i es and i ndi vi dual
ent r epr eneur s;
( i i i) sanct i oni ng of hi gher wor ki ng capi t al l i m it s by banks
oper at i ng i n t he Nor t h East regi on t o SSI s ( now MSE) , based
on t hei r com m er ci al j udgm ent due t o t he pecul i ar si t uat i on of
hi l l y t err ai n and fr equent fl oods causi ng hi ndr ance i n t he
t r anspor t at i on syst em ;
( i v) expl or i ng new i nst r um ent s by banks f or pr om ot i ng rur al
i ndust r y and t o i m pr ove t he fl ow of cr edi t t o rur al ar t i sans,
r ur al indust r i es and r ur al ent r epr eneur s, and
( v) r evi si on of t enur e as al so i nt er est r at e st r uct ur e of
deposi t s kept by f or ei gn banks wi t h SI DBI for t heir shor t f al l
i n pr i or i t y sect or l endi ng.
4.13.4 P ol i cy Pack age f or St eppi ng up Credi t to Sm all and
Med i u m En t erp ri ses ‐
An n ou n cem ent s mad e by t he Uni on F i nance Mi ni st er on
Au gust 10, 2005
T he Hon'bl e F i nance Mi ni st er , Gover nm ent of Indi a had
announced on August 10, 2005, a Pol i cy Package for st eppi ng
up cr edi t f l ow t o Sm al l and Medi um ent er pr i ses. Som e of t he
sal i ent f eat ur es of the poli cy package ar e as under :
• Def i ni t i on of S m al l and Medi um Ent er pri ses ( MSME s)
• F i xi ng of sel f ‐t ar get s for fi nanci ng t o MSME sect or by
banks
• Measur es t o r at i onal i ze t he cost of l oans to MSME sect or
• Measur es t o i ncr ease t he out r each of f or m al cr edi t t o t he
MS ME sect or
• Cl ust er based appr oach for fi nanci ng MSME sect or
• Const i t ut i on of E m power ed Com m i t t ees for MSME s i n the
Regi onal Off i ces of Reser ve Bank
• S t eps t o rat i onal i ze the cost of l oans t o MSME sect or by
adopt i ng a t r anspar ent r at i ng syst em wi t h cost of cr edi t bei ng
l i nked t o t he cr edi t r at i ng of ent er pr i se.
• Banks t o consi der t aki ng advant age of Cr edi t Appr ai sal &
Rat i ng Tool ( CART ) , Ri sk Assessm ent Model ( RAM) and t he
com pr ehensi ve r ati ng m odel f or ri sk assessm ent of MSME
pr oposal s, devel oped by SI DBI for r educt i on of t hei r
t r ansact i on cost s.
• Banks t o consi der t he rat i ngs of MSE uni t s car r i ed out
t hr ough r eput ed cr edi t r at i ng agenci es under t he Cr edi t
Rat i ng S chem e i ntr oduced by Nat i onal Sm al l Indust r i es
Cor por at i on.
• Wi der di ssem i nat i on and easy accessi bi l i t y of t he pol i cy
gui del i nes for m ul at ed by Boar ds of banks as wel l as
i nst r uct i ons/ gui del i nes i ssued by Reser ve Bank by
di spl ayi ng t hem on t he r espect i ve banks’ web si t es as wel l as
web si t e of SI DBI and al so pr om i nent l y di spl ayi ng t hem at
t he bank br anches.
4.13.5 Maj or In st ru ct i ons i ssued t o Publ i c Sect or banks
su b seq u en t t o th e pol i cy announcem ent s
On t he basi s of t he P ol i cy Package as announced by t he
Uni on F i nance Mi ni st er ,som e of t he m aj or i nst r uct i ons i ssued
by Reser ve Bank t o al l publ i c sect or banks wer e as under :
• P ubl i c sect or banks wer e advi sed t o fi x t hei r own t ar get s f or
f undi ng S ME s i n or der t o achi eve a m i ni m um 20% year on
year gr owt h i n cr edi t t o SME s. The obj ect i ve i s t o doubl e t he
f l ow of cr edi t f rom Rs. 67,600 cr or e i n 2004 ‐05 t o Rs.
1,35,200 cr or e t o t he S ME sect or by 2009 ‐10, i .e. wi t hi n a
per i od of 5 year s.
• P ubl i c sect or banks wer e advi sed t o fol l ow a t r anspar ent
r at i ng syst em wi t h cost of cr edi t bei ng l i nked t o t he cr edi t
r at i ng of t he ent er pr i se.
• Al l banks, m ay m ake concer t ed ef f or t s t o pr ovi de cr edi t
cover on an aver age t o at l east 5 new sm al l / m edi um
ent er pr i ses at each of t hei r sem i ‐ ur ban/ ur ban br anches per
year .
• T he banks m ay ensur e speci al i zed MSME br anches i n
i dent i f i ed cl ust er s/ cent r es wi t h pr eponder ance of sm al l
E nt er pr i ses t o enabl e t he entr epr eneur s t o have easy acces s t o
t he bank cr edi t .
( The cir cul ar s i ssued by Reser ve Bank i n t hi s r egar d ar e vi de
RP CD.P L NF S . BC.No.31/
06.02.31/ 200506 dat ed August 19, 2005 and RPCD.PL NFS.
BC.No.35/ 06.02.31 /
2005 ‐ 06 dat ed August 25, 2005)
4.14 Ban k i n g Cod es and St andard Board of Indi a ( BCSBI)
T he Banki ng Codes and St andar d Boar d of I ndi a ( BCSBI ) has
f or m ul at ed a Code of
Bank's Com m i t m ent t o Mi cr o and Sm al l Ent er pr i ses. Thi s i s a
vol unt ar y Code, whi ch
set s m i ni m um st andar ds of banki ng pr act i ces f or banks t o
f ol l ow when t hey ar e deal i ng wi t h Mi cr o and Sm al l
E nt er pr i ses ( MS E s) as def i ned i n t he Mi cr o Sm al l and
Medi um Ent er pri ses Devel opm ent ( MSME D) Act , 2006. It
pr ovi des pr ot ect i on t o MSE and expl ai ns how banks ar e
expect ed t o deal wi t h MSE for t hei r day t o ‐day oper at i ons
and i n t i m es of f i nanci al di ff i cul t y.
T he Code does not r epl ace or super sede r egul at or y or
super vi sor y inst r uct i ons i ssued by t he Reser ve Bank of I ndi a
( RBI ) and banks wi l l com pl y wit h such i nst r uct i ons
/ di r ect i ons i ssued by t he RBI fr om t i m e t o t i m e.
4.14.1 O b j ecti ves of th e BCSBI Code
T he Code has been devel oped t o
( a) Gi ve a posi t i ve t hr ust t o t he MSE sect or by pr ovi di ng
easy access t o ef f i ci ent banki ng ser vi ces.
( b) P r om ot e good and f air banki ng pr act i ces by set t i ng
m i ni m um st andar ds i n deal i ng wi t h MSE .
( c) Incr ease tr anspar ency so t hat a bet t er under st andi ng of
what can r easonabl y expect ed of t he ser vi ces.
( d) I m pr ove under st andi ng of busi ness t hr ough ef f ect i ve
com m uni cat i on.
( e) Encour age m ar ket f or ces, t hr ough com pet i t i on, t o achi eve
hi gher oper at i ng st andar ds.
( f) P rom ot e a fai r and cor di al r el at i onshi p bet ween MSE and
banks and al so ensur e t i m el y and qui ck r esponse t o banki ng
needs.
( g) F ost er conf i dence i n the banki ng syst em .
T he com pl et e t ext of t he Code i s avai l abl e at t he BCSBI 's
websi t e ( www.b csb i .org.i n)
4.15 P rim e Mi ni st er’ s Task Force on Mi cro, Sm al l and
Med i u m En t erp ri ses
A Hi gh L evel T ask F or ce was const i t ut ed by t he Gover nm ent
of Indi a ( Chair m an: S hr i T K A Nai r ) to consi der vari ous
i ssues r ai sed by Mi cr o, Sm al l and Medi um Ent er pri ses
( MS ME s) .T he T ask F or ce r ecom m ended sever al m easur es
havi ng a bear i ng on t he f unct i oni ng of MSME s, vi z., cr edi t ,
m ar ket i ng, l abour , exi t poli cy,i nf r ast r uct ur e/ t echnol ogy/ ski l l
devel opm ent and t axat i on. The com pr ehensi ve
r ecom m endat i ons cover m easur es t hat need i m m edi at e act i on
as wel l as m edi um t er m i nst i t ut i onal m easur es al ong wi t h
l egal and regul at or y st r uct ur es and r ecom m endat i ons for
Nor t h ‐E ast er n S t at es and Jam m u & Kashm i r .
Banks ar e ur ged t o keep i n vi ew t he r ecom m endat i ons m ade
by t he T ask For ce and t ake ef f ect i ve st eps t o i ncr ease t he
f l ow of cr edi t t o t he MSE sect or , par t i cul ar l y t o t he m i cr o
ent er pr i ses.
A ci r cul ar was i ssued t o al l schedul ed com m er ci al banks vi de
RP CD. S ME & NF S BC.No. 90/ 06.02.31/ 2009 ‐ 10 dat ed June
29, 2010 advi si ng i m pl em ent at i on of t he r ecom m endat i ons of
t he P r i m e Mi ni st er ’ s t ask For ce on MSME s.

T he r epor t of t he Pr i m e Mi ni st er ’ s T ask For ce on Mi cr o,

S m al l and Medi um Ent er pr i ses i s avai l abl e on t he websi t e of
Mi ni st r y of Mi cr o, S m al l and Medi um Ent er pri ses
( m sm e.gov.i n) .
4.16 Work i n g G rou p to Revi ew the Credi t G uarant ee
S ch em e f or Mi cro an d Sm al l Ent erpri ses
A Wor ki ng Gr oup was const i t ut ed by t he Reser ve Bank of
I ndi a under t he Chai r m anshi p of Shr i V.K. Shar m a, E xecut i ve
Di r ect or , t o revi ew the wor ki ng of t he Cr edi t Guar ant ee
S chem e of CGT MS E and suggest m easur es t o enhance i t s
usage and f aci l i t at e i ncr eased fl ow of col l at er al fr ee l oans t o
MS E s.
T he r ecom m endat i ons of t he Wor ki ng Gr oup i ncl uded, int er
al i a, m andat or y doubl i ng of t he l im i t f or col l at er al f r ee l oans
t o m i cr o and sm al l ent er pr i ses ( MSE s) sect or fr om Rs.5 l akh
t o Rs.10 l akh and enj oi ni ng upon t he Chi ef E xecut i ve
Of fi cer s of banks t o st r ongl y encour age t he br anch l evel
f unct i onar i es t o avai l of t he CGS cover and m aki ng
per f or m ance i n thi s r egar d a cr i t er i on i n t he eval uat i on of
t hei r fi el d st af f , et c. have been advi sed t o al l banks.
A ci r cul ar was i ssued t o al l schedul ed com m er ci al banks vi de
RP CD.S ME & NF S .BC.No.79/ 06.02.31/ 2009 ‐ 10 dat ed May 6,
2010 m andat i ng t hem not t o accept col l at er al secur i t y i n t he
case of l oans upt o Rs 10 l akh ext ended t o uni t s i n t he MSE
sect or and advi si ng t hem t o st r ongl y encour age t hei r br anch
l evel f unct i onar i es t o avai l of t he CGS cover , i ncl udi ng
m aki ng per f or m ance i n thi s r egar d a cr i t er i on i n t he
eval uat i on of t hei r fi el d st af f .
Necess ar y act i on i s bei ng t aken to i m pl em ent t he ot her
r ecom m endat i ons of t he Gr oup whi ch woul d r esul t i n
enhanced usage of t he Guar ant ee Schem e and f aci l i t at e
i ncr ease i n qual i t y and quant i t y of cr edi t t o t he pr esent l y
i ncl uded, as wel l as excl uded, MSE s, l eadi ng event ual l y, t o
sust ai nabl e incl usi ve gr owt h.

An n ex I
MINIS TRY OF S MALL SCALE INDUSTRI ES
NO TIF ICAT IO N
New Del h i , th e 5t h O ct ober, 2006
S .O. 1722(E ) – In exer ci se of t he power s conf err ed by sub ‐
sect i on ( 1) of 2006) her ei n r ef er r ed t o as the sai d Act , t he
Cent r al Gover nm ent speci f i es t he f ol l owi ng i t em s, t he cost of
whi ch shal l be excl uded whil e cal cul at i ng t he i nvest m ent in
pl ant and m achi ner y i n t he case of t he ent er pr i ses m enti oned
i n S ect i on 7( 1) ( a) of t he sai d Act , nam el y:
( i) equi pm ent such as t ool s, j i gs, dyes, m oul ds and spar e
par t s f or m ai nt enance and t he cost of consum abl es st or es;
( i i) i nst al l at i on of pl ant and m achi ner y;
( i i i) r esear ch and devel opm ent equi pm ent and pol l ut i on
cont r ol l ed equi pm ent
( i v) power gener at i on set and ext r a tr ansf or m er i nst al l ed by
t he ent er pr i se as per r egul at i ons of the St at e El ect r i ci t y
Boar d;
( v) bank char ges and ser vi ce char ges pai d to t he Nat i onal
S m al l I ndust r i es Cor por at i on or t he St at e Sm al l I ndust r i es
Cor por at i on;
( vi) pr ocur em ent or i nst al l at i on of cabl es, wi r i ng, bus bar s,
el ect r i cal cont r ol panel s (not m ounded on i ndi vi dual
m achi nes) , oi l cir cui t br eaker s or m i ni at ur e cir cui t br eaker s
whi ch ar e necess ar i l y t o be used f or pr ovi di ng el ect r i cal
power t o t he pl ant and m achi ner y or for saf et y m easur es;
( vi i) gas pr oducer s pl ant s;
( vi i i) t r anspor t at i on char ges ( excl udi ng sal es ‐ t ax or val ue
added t ax and exci se dut y) f or i ndi genous m achi ner y fr om t he
pl ace of t he m anuf act ur e t o t he si t e of t he ent er pr i se;
( i x) char ges pai d f or t echni cal know ‐how f or er ect i on of pl ant
and m achi ner y;
( x) such st or age t anks whi ch st or e r aw m at er i al and f i ni shed
pr oduces and ar e not l i nked wi t h t he m anuf act ur i ng pr ocess;
and
( xi) f ir ef i ght i ng equi pm ent .
2. Whi l e cal cul at i ng t he i nvest m ent i n pl ant and m achi ner y
r ef er t o par agr aph 1, t he or i gi nal pr i ce t her eof , ir r espect i ve
of whet her t he pl ant and m achi ner y ar e new or second
handed, shal l be t aken int o account pr ovi ded t hat i n t he case
of i m por t ed m achi ner y, t he f ol l owi ng shal l be i ncl uded i n
cal cul at i ng t he val ue, nam el y;
( i) I m por t dut y ( excl udi ng m i scel l aneous expenses such as
t r anspor t at i on fr om t he por t t o the si t e of t he f act or y,
dem ur r age pai d at t he por t) ;
( i i) S hi ppi ng char ges;
( i i i) Cust om s cl ear ance char ges; and
( i v) S al es t ax or val ue added t ax.
‐‐‐ ‐ sd ‐‐‐‐
( F .No.4( 1) / 2006 ‐MS ME ‐ Pol i cy)
JAWHAR SI RCAR, Addl . Secy.
 CHAPTER- X

FINDINGS, CONCLUSIONS AND

SUGGESTIONS

 FINDINGS:

SMEs are going through a transition phase and

are generally restructuring their strategies and

capabilities to remain competitive and grow in the

emerging world trade environment. The

government are also evolving policies, strategies

and modes of implementation to encourage and

support SMEs for their growth, capacity building

and international competitiveness. The issues and

strategies vary with the level of development and

priorities in national economies.

Innovation, technology, productivity and quality,

though inter-related, are assuming greater

significance for competitiveness in manufacturing

and businesses. Foreign Direct Investments (FDI),

networking and technical tie ups are being

encouraged to facilitate access to newer

technologies, strengthening technological and

management capabilities, and access to market

information. Creation of training and skill up

gradation facilities, ICT applications, and sharing

of risks in financing and development, are the

thrust areas. In India, effective implementation of

policies and delivery of results to the satisfaction

of the SMEs, remain much below than desired,

though there are a large number of institutional

mechanisms and support measures available and

concerns shown by the government. There is a

need to critically review the existing policies and

mechanisms, to assess the constraints and gaps in

delivering the desired outputs. For example, there

are overlapping agencies and programmes for

development of technologies and technological

assistance to the SMEs, but the SMEs continue to

be weak in R&D, technology development,

acquisition and induction of new technologies,

productivity and quality among other factors. The

technology support programmes are largely

implemented from Delhi or the capitals of the

states and the awareness about programmes and

fiscal incentives available is limited among

SMEs.

Most SMEs, need easier access to new or modern

technologies abroad, technology support facilities

and easier access to finance, including technology

finance, besides marketing information and

incentives for training and skills development.

Further, differentiated policies and mechanisms

are needed for SMEs in different sectors, stages

of their development, nature of operations. For

example, the technological needs of SMEs in

traditional sectors such as food processing,

leather textiles, toys etc. would be different than

those in new and advanced technological areas

such as micro-electricals, pharma, precision

instruments and so on. Perhaps, there is a need to

have short term and long term strategies for

enhancing competitiveness of SMEs in one broad

based strategy. The R&D expenditure and

technological capacities of most of the SMEs

would continue to be limited because of their

inherent constraints in the resources and vision.

The support structures should recognize this fact.

However, the SMEs have enormous potential for

innovations and incremental development, which

need to be nurtured for production of new goods

and services at competitive costs.

The IT and auto-component SMEs are examples of

the successes through innovations. Such policies

should lead to wider dispersal of economic

benefits, capacity building, and utilization of

resources, creating employment, etc. across the

society. Economic, education, trade, technology

and society need to be interdependent. The SMEs

development project should recognize the needs

of internationalizing companies or those who have

the potential to internationalize, differently than

those of domestic oriented companies or

stagnating companies. The analysis of FDI data

for SMEs in India tend to show that some SMEs

are internationalizing or willing to

internationalize through various types of

collaborations through FDI route since the

amounts involved are small.

In the context of WTO and other emerging trade

mechanisms including Regional Trade

Agreements(RTAs), Free Trade Agreements

(FTAs) and bilateral or special economic

cooperation agreements, the technological

preparedness of SMEs need to be studied and

support mechanisms evolved to overcome the gaps

or constraints being faced or likely to be faced by

them in the international businesses. In view of

the wide variations in definitions of SMEs in

various economies, the harmonization of

definition of SMEs in India, with those in

developed or advanced developing countries

would facilitate international assistance for

technology transfer, development and evolving

measures for enhancing competitiveness in export

markets. Preparedness of SMEs for WTO is still

another issue. Innovations and trade agreements

are likely to be the thrust areas in near future.

CONCLUSION:

Small and Medium Enterprises (SMEs) contribute

to economic development in various ways such as

creating employment opportunities for rural and

urban population, providing goods & services at

affordable costs by offering innovative solutions

and sustainable development to the economy as a

whole. SMEs in India face a number of problems -

absence of adequate and timely banking finance,

non-availability of suitable technology,

ineffective marketing due to limited resources and

non availability of skilled manpower.

Small and Medium Enterprises (SME) play an

important role in the development of a country.

There are around 26 million MSME units in India,

of which 13 million are SMEs. SMEs contribute

nearly 45% share of manufactured output,

accounting for 40% in overall exports of the

country and providing employment to about 32

million people.

The Micro, Small and Medium Enterprises

(MSME) sector contributes significantly to

manufacturing output, employment and exports of

the country. It is estimated that in terms of value,

the sector accounts for about 45 % of the

manufacturing output and 40% of total exports of

the country.

To make this sector to become more vibrant and

significant player in development of the Indian

economy the Government of India has taken

various initiatives. The definition and coverage of

the MSME sector was broadened MSME

Development Act 2006 which recognized concept

of 'enterprise' to include both manufacturing and

service sector besides defining medium

enterprises setting up a Board for developing

policy.

SUGGESTIONS: