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The Government of India passed in June 2006 an act regarding the Micro , Small , and Medium Enterprises MSMED ACT i.e., The Micro Small and Medium Enterprise Development Act 2006 this act also known as Town and Village Enterprises Actually started from October 6th 2006 SMEs are mainly skill oriented. This sector contains an element of Welfare of Masses. Different parameters in Different countries, like Man power, Turn over, Working Hours.etc.

Definition of MSME ACT

The Act decisively defines the MSMEs by the level of by Plant and Machinery (P&M ) investment. The categorization also makes allowances for the inherently smaller investments of Service enterprises.

The new definition has expanded the P&M limits ;

now each enterprise level encompasses larger investments than before . The new categorization is as follows :-

New Definition of MSMEs

Micro Small Medium

Up to Rs.25 lakh Rs.25 lakh to Rs.5.0 cr. Rs.5.0 cr. to Rs.10.0 cr.

Service Enterprise
Up to Rs.10 lakh Rs.10 lakh to Rs.2.0 cr. Rs.2.0 cr. to Rs.5.0 cr.

Filling of memoranda by MSMEs

Process of two - stage registration of Micro & Small Enterprises dispensed with & replaced by filing of memoranda. Filling of memorandum optional for all Micro & Small Enterprises. Filling of memorandum optional for service sector Medium Enterprises. Filling of memorandum mandatory for manufacturing sector Medium Enterprises


[Sec. 10]

The Policies & Practices of Credit to MSME shall be progressive, & Specified by RBI Guidelines for: Ensuring smooth credit flow to MSMEs

Ensuring better competitiveness

Minimizing sickness among them

Delayed Payments Provisions [Sec. 14 to 24]

Provisions regarding Micro & Small Enterprises Strengthened Period of payment to MSEs by the buyers reduced to forty five days Rate of interest on outstanding amount increased to three times the prevailing bank rate of Reserve Bank of India compounded on monthly basis MSE Facilitation Council may utilise the services of any Institution or Centre for conciliation and alternate dispute resolution services Reference made to the Council to be decided within ninety days from the date of reference

Declaration of payment outstanding to MSE supplier mandatory for buyers in their annual statement of accounts Interest (paid or payable to buyer) disallowed to supplier for deduction for income tax purposes No appeal against order of Facilitation Council to be entertained by any Court without deposit of 75% of the decreed amount payable by buyer Appellate Court may order payment of a part of the deposit to the supplier MSE


MSMED Act 2006

In India, the MSMED Act 2006 has come into force on 02nd Oct. 2006 which facilitates:

(i) (ii) (iii) (iv) (v)

Promotion and Development of SMEs Enhancing their competitiveness. Generation of Employment. Generation of income/profit to boost GDP. Increasing Exports.

The world over there has been a significant thrust for growth of Micro and Small Enterprises mainly due to sectors ability to deliver quality products /services at cheaper and to provide large scale employment.

Any commercial activity permissible under law i.e. any type of manufacturing, processing or industrial activity or trading or allied operations.

Some of few are:

1. Servicing & repairing machinery and equipment, including agro service units 2. Village and cottage industries 3. Computer software development and computer services

Medical /Legal transcription activities Call Centers Event development and animation Video film making Marketing consultancy. Equipment rental & leasing. Laundry/X-rays/ pathology/ Tailoring/Studios/Cable TV network.

SMEs Financing Features

Involvement of lesser amount of financial resources. Lower gestation period. Wide scope of marketing. They are mostly run by promoters /Owners. They are operated mainly in Rural and Semi Urban areas showing their national presence.

Importance of SMEs
Large-scale generation of wage employment. Growth in GDP. MSMEs not only account for 80% of the total number of Industrial Enterprises in the country but are also the second largest employment providing sectors in the country after agriculture.

This sector is a growth-driver in the economy. It is possible to set up SMEs in large numbers in a country in order to usher in rapid progress and growth. 40/50% of output/services originated from this sector. 30% of Indian Exports are on account of SMEs.

Govt. Initiatives
Government of India has initiated the following steps for the speedy growth of SMEs. Ministry of Finance has announced a policy for doubling of outstanding credit to Micro and Small Enterprise Sector by the year 2009-10.

A minimum of year-to-year growth of 20% is to be achieved under outstanding in this sector.

Introduced credit linked capital subsidy scheme for SME sector In lines with SME sector introduced various employment generation schemes to cater to the needy people from Rural and Urban.

A Technology bureau for SMEs has been set up as a starting process for promoting SMEs.

Problem for SME Sector

Low capital base and inadequate availability of institutional funds. Low technology base. Absence / Inadequacy of quality control assessment Weak/ ineffective management. Unable to cope with contemporary business requirements. Higher NPAs of Banks in SME sector creates risk aversion in lending. Competition from large sized units. Unable to providing documents required for bank finance due to lack of awareness.