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The definition of MSMEs/SMEs differ from
country to country. The commonly used criteria
at the international level to define SMEs are:-
In terms of assets, a few in terms of sales and yet
others, in terms of shareholders fund.
Definition differ across countries, but they have
one thing in common; the vast majority of
MSMEs are relatively small (in terms of
employee strength).

Micro, Small and Medium Enterprises (MSME) sector
has emerged as a highly vibrant and dynamic sector of
the Indian economy over the last five decades
MSMEs not only play crucial role in providing large
employment opportunities at comparatively lower
capital cost than large industries
It also help in industrialization of rural & backward
areas, thereby, reducing regional imbalances, assuring
more equitable distribution of national income and
In accordance with the provision of Micro, Small &
Medium Enterprises Development (MSMED) Act, 2006
the Micro, Small and Medium Enterprises (MSME) are
classified in two Classes

Manufacturing Enterprises

Micro : Rs. 25 Lakhs
Small : Less than 5 Crores
Medium : Less than 10 Crores

Services Enterprises

Micro : Less than 10 Lakhs
Small : Less than 2 Crores
Medium : Less than 5 Crores

MSMEs in India
more than
1 Million
Contribution to
GDP set to
expand to 22% by
2012 from current
More than
60 Million
40% - Total
45% - Total Industrial Output
1.The contribution of micro, small and medium
enterprises (MSME) sector to manufacturing
output, employment and exports of the country is
quite significant.
2.The MSME sector employs about 60 million
persons in over 13 million units throughout the
3.There are more than 6000 products, ranging
from traditional to high-tech items, which are
being manufactured by the Indian MSMEs.

Importance of the MSME sector
1.Born out of individual initiatives &skills
2.Greater operational flexibility
3.Low cost of production
4.High propensity to adapt technology
5.High capacity to export
6.High employment orientation
7.Utilization of locally available human &
material resources
8.Critical for poverty reduction

Traditionally Indian SMEs have had the
following characteristics:

1.Predominantly rural , traditional household
2.Small and medium industries functioning with
obsolete technologies
3.Modern, small and medium enterprises which are
owned and operated by mostly young techno-
entrepreneurs operating in relatively newer fields like
Indian MSMEs can be divided into three classes
1.Introduce statutory consultative and recommendatory
bodies on MSME policies.
2.Improve registration procedures of MSMEs.
3.Statutory basis for purchase preference and credit
4.Improve realization of payments of MSMEs
MSMED Act 2006 : Objects
1.Industry replaced by enterprise which include service
enterprises also.

2.Ambit of sector enlarged to cover medium enterprises.

3.Constitution of MSME Board.

4.Simplification of registration procedure

5.Progressive credit support

6.Penalty for delayed payments

Salient Features

Credit Support

1.Public sector banks advised to double the flow of credit to
MSMEs within 5 years (20% annual growth)

2.A minimum of 40% of bank credit earmarked for priority
sector lending which includes loans to MSEs

3.Specialised SME Bank branches in industrial clusters for
smooth flow of credit to MSMEs

4.One Time Settlement (OTS) scheme for settling NPAs of

Technological Support
1.Credit Linked Capital Subsidy Scheme for Technology
Up gradation.
2.Scheme meant to improve quality of products by
technology up gradation.
3.Investment up to INR 10 million (US$ .250,000)
eligible for support with subsidy up to 15% on
4.Testing Centers for Quality Certification in OKHLA
(New Delhi).
5.Tool Rooms and Training Centers for skill up gradation
in Jamshedpur, kolkata .
6.Incentive scheme for obtaining ISO Certification by

1.Support for participation in trade fairs and exhibitions
national as well as international.

2.Training programmes on packaging for exports.

3.Purchase preference in Government procurement.

4.Market Development Assistance Scheme for publicity,
market studies and adoption of modern market practices

Marketing Assistance and Export Promotion
Cluster formation has been considered important for
MSME development.
A cluster may be defined as a local agglomeration of
enterprises (mainly SMEs, but often also including
some large enterprises), which are producing and
selling a range of related and complementary
products and services
Cluster Development Programme
1.Accessing adequate and timely financing on
competitive terms, particularly longer tenure loans.

2.Accessing credit on easy terms has become difficult
in the backdrop of current global financial crisis
which has held back the growth of SMEs and
impeded overall growth and Development.

3.It has become difficult for lenders to be able to
assess risk premiums properly, creating differences in
the perceived versus real risk profiles of SMEs.

4.Access to skilled manpower, R&D facilities and
marketing channels is limited
Factors affecting MSMEs
5.Availability of finance at cheaper rates, skills about
decision-making and good management and accounting
practices, and access to modern technology.

6.Bribery & corruption.
1. Problem of skilled manpower.

2.Inadequate credit assistance.

3.Irregular supply of raw material.

4.Absence of organized marketing.

5.Lack of machinery and equipment.

6.Absence of adequate infrastructure.

7.Competition from large-scale units and imported
Challenges For MSMEs
8.Other problems like poor project planning, managerial
inadequacies, old and orthodox designs, high degree of
obsolescence and huge number of bogus concerns etc.