Introduction
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, is a very important law passed by the Government of India. Its main aim is to promote, support, and develop micro, small, and medium enterprises (MSMEs) in the country. MSMEs are the backbone of the Indian economy. They create jobs, boost production, support exports, and help in balanced regional development. In this answer, we will explain what the MSMED Act is and describe its key provisions in simple and easy-to-understand language.
What is MSMED Act, 2006?
The MSMED Act, 2006 was enacted by the Parliament of India and came into effect on 2nd October 2006. This Act provides a legal framework for the recognition, registration, and promotion of MSMEs in India. It also protects these businesses from unfair trade practices and ensures timely payment from buyers.
The Act divides enterprises into two major categories:
- Manufacturing Enterprises: These produce goods or products.
- Service Enterprises: These offer services like IT, banking, hospitality, etc.
Classification of MSMEs under the Act (as per revised definition in 2020)
The government updated the definition of MSMEs in 2020 based on investment in plant & machinery and annual turnover:
| Enterprise Type | Investment | Annual Turnover |
|---|---|---|
| Micro | Up to ₹1 crore | Up to ₹5 crore |
| Small | Up to ₹10 crore | Up to ₹50 crore |
| Medium | Up to ₹50 crore | Up to ₹250 crore |
Key Provisions of MSMED Act, 2006
1. Promotion and Development of MSMEs
The Act gives power to the Central and State governments to take steps for the promotion and development of MSMEs. These include support for skill development, technology upgrade, market access, and quality improvement.
2. Registration of MSMEs (Udyam Registration)
The Act allows MSMEs to register themselves with the government to avail various benefits. The registration process is now called Udyam Registration and is done online.
3. Delayed Payments to MSMEs
One of the most important provisions of the Act is protecting MSMEs from late payments by buyers. According to the Act:
- Buyers must make payments within 45 days of receiving goods/services.
- If delayed, the buyer has to pay compound interest on the due amount at 3 times the bank rate.
- MSMEs can file a complaint with the Micro and Small Enterprises Facilitation Council (MSEFC).
4. Credit and Finance Support
The Act encourages banks and financial institutions to provide loans to MSMEs. It also allows the government to create credit guarantee schemes to support collateral-free loans.
5. Procurement Policy
The Act promotes procurement from MSMEs by government departments and public sector units. As per the policy:
- At least 25% of total annual purchases must be from MSMEs.
- Out of this, 4% is reserved for SC/ST entrepreneurs and 3% for women entrepreneurs.
6. Support for Technology and Infrastructure
The Act promotes technology upgrades in MSMEs by offering subsidies and technical guidance. It also helps in setting up industrial clusters and infrastructure for MSME units.
7. Marketing and Export Support
MSMEs are given support for attending trade fairs, exhibitions, and international marketing. The government helps promote Indian MSME products in global markets.
Conclusion
The MSMED Act, 2006, plays a key role in supporting the growth and development of micro, small, and medium enterprises in India. By offering protection, registration benefits, financial help, and marketing support, the Act empowers small businesses to compete and contribute to the nation’s progress. For entrepreneurs, understanding and using the benefits under this Act can be very helpful in building a successful business.