The Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 was introduced by the Indian government to support the growth and development of MSMEs, providing a legal framework for defining, registering, and empowering these enterprises. The Act also aims to address challenges that MSMEs face, such as limited access to finance, technology, and delayed payments.

Here’s an overview of the key aspects of the MSMED Act, 2006:

1. Definition of MSMEs

• The Act initially defined Micro, Small, and Medium Enterprises based on investment in plant and machinery (for manufacturing enterprises) or investment in equipment (for service enterprises).
• Recent Update (2020): The criteria were revised to include both investment and annual turnover, with a unified framework for both manufacturing and service sectors.

2. Classification of Enterprises

The MSMED Act, 2006 originally classified MSMEs as follows (now revised in 2020):

• Micro Enterprises: Investment up to ₹25 lakh for manufacturing, up to ₹10 lakh for services.
• Small Enterprises: Investment between ₹25 lakh to ₹5 crore for manufacturing, ₹10 lakh to ₹2 crore for services.
• Medium Enterprises: Investment between ₹5 crore to ₹10 crore for manufacturing, ₹2 crore to ₹5 crore for services.

3. Facilitation of Credit Flow

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): Established under the Act, this scheme provides collateral-free loans to MSMEs.
• Priority Lending: Banks are encouraged to offer priority lending to MSMEs, making it easier for them to secure financing.

4. Delayed Payments Protection

• The Act mandates that buyers must make payments to MSMEs within 45 days of receiving goods or services.
• If delayed, the buyer is liable to pay compounded interest on the amount due, protecting MSMEs from cash flow disruptions caused by payment delays.

5. Procurement Policy

• The Act promotes procurement policies to ensure that a portion of government purchases is reserved for MSMEs, allowing them better access to public sector contracts.

6. Promoting Skill Development and Technology Upgradation

• The Act emphasizes technology upgradation, training, and skill development to help MSMEs improve productivity, quality, and competitiveness.
• Schemes like the Credit Linked Capital Subsidy Scheme (CLCSS) for technology upgradation encourage MSMEs to adopt better technologies through subsidies.

7. Registration of MSMEs

• The Act provides guidelines for MSME registration, though it was initially voluntary. Registered MSMEs benefit from easier access to government schemes and incentives.
• Udyam Registration (introduced later) has simplified the registration process under the Act, making it easier for MSMEs to access benefits.

8. Market Support and Export Promotion

• The Act offers provisions for market development assistance, subsidies, and export promotion initiatives to help MSMEs expand their market reach and grow internationally.
• Programs include assistance for participating in trade fairs, buyer-seller meets, and similar promotional activities.

9. Support for MSME Clusters

• The Act encourages the development of MSME clusters for shared infrastructure, resources, and markets, helping MSMEs enhance their collective competitive advantage.
• Schemes such as the Micro and Small Enterprises Cluster Development Programme (MSE-CDP) support this initiative with financial and technical aid.

10. Role of State Governments

• The Act mandates the establishment of Micro and Small Enterprises Facilitation Councils (MSEFCs) in each state to address disputes and delayed payment issues and provide advisory support to MSMEs.
• State governments play an important role in implementing the Act and ensuring the growth and support of MSMEs at the regional level.

11. Advisory and Monitoring Bodies

• National Board for Micro, Small and Medium Enterprises (NBMSME): Formed under the Act, this board advises the central government on MSME policies, development programs, and strategies to enhance their growth.

Conclusion

The MSMED Act, 2006 is instrumental in providing a structured support framework for MSMEs in India. By ensuring credit flow, protection against delayed payments, skill development, and market access, the Act aims to help MSMEs overcome growth challenges and strengthen their contribution to India’s economy. Through continuous policy support and recent updates, the Act remains central to India’s MSME development strategy.