MSMEs… Beneficial yet Ignored

MSME RegistrationWe often hear about the Micro, Small and Medium Enterprises (MSMEs) but do we really understand the concept and its importance. While talking to many business owners, I have felt that there is lack of clarity about MSMEs. Many do not find it worthwhile not because it is not worthy but due to their ignorance about its benefits.    Recently, when I was trying to make my client understand about the benefit, he reluctantly replied that there are already so many mandatory compliances; please do not add one which is not so compulsory. I tried to make him understand its benefits but in vain. Likewise, there are many who ignore due to its non- mandatory nature and because they are already surrounded by so many compliances. However, for startups and for all enterprises that fall under the purview of MSME, it is boon for them. Government through MSME Act helps them in various ways. The Small and Medium Enterprises Development Bill 2005 that was enacted in June 2006 was renamed as “Micro, Small & Medium Enterprises Development Act, 2006.” The Act aims at facilitating the promotion and development of small and medium enterprises. The MSMEs contribute significantly to value addition, employment generation, exports and overall growth and development of the country’s economy. All classes of enterprises, whether Proprietorship, Hindu undivided family, Association of persons, Cooperative society, partnership firm, Company or Undertaking, by whatever name called can apply for the registration and get qualified for the benefits provided under the Act. The limit for investment in plant and machinery for manufacturing and investment in equipment service enterprises i.e., indicators of whether an enterprise can be micro, small and medium are: Manufacturing Sector

Enterprises Investment in Plant & Machinery
Micro Enterprises Does not exceed Rs. 25Lakhs
Small Enterprises More than 25lakhs but does not exceed Rs. 5crores
Medium Enterprises More than 5crores but does not exceed Rs. 10crores

  Service Sector

Enterprises Investment in Equipments
Micro Enterprises Does not exceed Rs. 10Lakhs
Small Enterprises More than 10lakhs but does not exceed Rs. 2crores
Medium Enterprises More than 2crores but does not exceed Rs. 5crores

  The limits stated above have been revised. The new prescribed limits are as under: Micro enterprise: Rs 50 lakhs or less in plant & machinery / Rs 20 lakhs in equipment Small enterprise: Rs 50 lakhs to Rs 10 crore in plant and machinery / Rs 20 lakhs to Rs 5 crore in equipment Medium enterprise: Rs 10 – 30 crore in plant & machinery / Rs 5 – 15 crore in equipment Before we move towards the registration process under the Act, we shall first understand the benefits and privileges that can be availed by the registered enterprises. BENEFITS OF REGISTERING MSME UNDER MSME ACT 2006

  • If a micro or small enterprise has filed a memorandum with District Industries Centers (DIC) of its area, then it stands to gain as to timely payment in respect of supply of goods or rendering of services to any buyer.
  • The seller (Micro or Small enterprises) which has filed a memorandum with the authority, then the buyer shall make the payment on or before the date agreed upon between him and the supplier in writing or within a period of 15 days from the day the goods are delivered or services are rendered.  However, the period of credit cannot exceed more than 45 days from the date of delivering product or services.
  • Eligible for availing exemption under –
  1. Excise Scheme
  2. Direct Tax Laws
  • Easy finance availability from Banks
  • Preference in procuring Government tenders, stamp duty
  • Concession in electricity bills
  • Reimbursement of ISO Certification expenses
  • Credit prescription (Priority sector lending), differential rates of interest etc.
  • Statutory support such as condition and the Interest on Delayed Payments Act.
  • There are around 20 items reserved for exclusive manufacture by Micro and Small Enterprises Sector. MSMEs units can manufacture any item including those notified as exclusively reserved for manufacture in the small-scale sector. Medium units can manufacture reserved items if they have obtained a carry on business license or accept an export obligation of 50% of their production.

MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL (MSEFC) Application to Micro and Small Enterprises Facilitation Council (MSEFC) can be made in case of dispute for starting the arbitration process. Once the application is done under MSEFC, there is no provision to withdraw the proceedings. CLASSIFICATION OF MSME Classification of the Micro and Small Enterprises (manufacturing and service) shall be under Priority Sector that includes Small Road and Water Transport Operator, Small Business, Professional and self-employed persons and all other service enterprises. Retail Trade will not be classified under Micro and Small enterprises (service sector). DIRECT FINANCE

  • All loans granted to Small Enterprises including Micro Enterprises (both Manufacturing and Services) will be classified under Direct Finance to Micro and Small Enterprises Sector.
  • All advances granted to units in the KVI sector, irrespective of Sector their size of operation, location and amount of original investment in Plant and Machinery, will be eligible for consideration under the Sub Target (60 percent) of the Small Enterprises segment within the Priority Sector.


  • Term Loan
  • Cash Credit
  • Letter of Credit
  • Bank Guarantees
  • Composite Loan upto Rs. 1crore

By now, all must have noted the long list benefits of registering under MSME Act. Moving towards the registration process under MSME Act, note that

  • Registration is voluntary and not compulsory.
  • DIC is the primary registering centre
  • Two types of registration:
  1. Provisional Registration – Granted to a unit at its pre-investment stage to enable it to apply for financial credit.
  2.  Permanent/Final Registration – 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.
  • After getting registered under a competent authority, an enterprise is allotted a MSMED registration/entrepreneurs memorandum (EM) number.

EM Part- I : To establish a micro, small or medium enterprise engaged in providing or rendering of services or to establish medium enterprise engaged in production or manufacture of products shall file Part- I. EM Part- II : To be filed with theDistrict Industries Center within 2 years from date of starting production or providing or rendering of services by the MSME. Note: EM PART – II to be filed within 2 years or else the EM PART – I filed by a person will become invalid. DE-REGISTRATION OF MSME in the following cases:

  • Investment limits exceeds the limit specified under this Act from time to time.
  • When an registered enterprises starts manufacturing any new item or items that require an industrial license or other kind of statutory license.

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 any assistance about registration of MSME, visit:



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