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The Micro Small And Medium Enterprises Development Act 2006 And Its Amendment In 2018
Business and Startup related matter

The Micro Small And Medium Enterprises Development Act 2006 And Its Amendment In 2018

Introduction

The Micro, Small, and Medium Enterprises Development (MSMED) Act of 2006 was a landmark legislation in India aimed at promoting the growth and development of small businesses. In 2018, the Act underwent significant amendments to address the evolving needs of the MSME sector. This blog aims to provide a detailed overview of the MSMED Act 2006 and its 2018 amendment, highlighting their significance and impact on small and medium enterprises.

Understanding the MSMED Act 2006

The MSMED Act 2006 was enacted to facilitate the promotion, development, and enhancement of competitiveness of micro, small, and medium enterprises. It defined MSMEs based on their investment in plant and machinery or equipment for manufacturing enterprises and investment in equipment for service enterprises.

  • Classification of MSMEs: The Act classified MSMEs into two categories: manufacturing enterprises and service enterprises, with different investment thresholds for each category. Micro-enterprises have the lowest investment limit, followed by small enterprises, and medium enterprises.

  • Registration: The Act introduced the concept of registration for MSMEs, allowing them to avail of various benefits and support schemes provided by the government. Registration facilitates easier access to credit, subsidies, and other support measures.

  • Credit Facilities: One of the key provisions of the Act was to ensure timely and adequate credit flow to MSMEs. It mandated banks to extend credit facilities to these enterprises at preferential interest rates, reducing the financial burden on small businesses.

  • Delayed Payments: Another significant aspect of the Act was the provision for addressing the issue of delayed payments to MSMEs. It stipulated that buyers must make payments to MSME suppliers within a specified timeframe, failing which they would be liable to pay compound interest.

  • Promotion and Development: The Act aimed at promoting entrepreneurship and enhancing the competitiveness of MSMEs through various measures such as skill development, technology upgradation, and market access facilitation.

The 2018 Amendment: Key Changes and Implications

Recognizing the changing dynamics of the MSME sector and the need for reforms, the MSMED Act underwent significant amendments in 2018. These amendments aimed to address the emerging challenges faced by MSMEs and further streamline the regulatory framework to promote their growth.

  • Revised Definition and Classification: The 2018 amendment revisited the criteria for defining and classifying MSMEs, considering factors such as turnover in addition to investment in plant and machinery/equipment. This revised classification aimed at ensuring a more comprehensive and inclusive approach to categorizing MSMEs.

  • Udyog Aadhaar Registration: The amendment introduced the concept of Udyog Aadhaar registration, a simplified online registration process for MSMEs. This digital registration mechanism streamlined the registration process and made it more accessible to small business owners.

  • Enhanced Credit Facilities: In line with the government's initiatives to promote financial inclusion and ease of doing business, the amendment focused on enhancing credit facilities for MSMEs. It introduced measures such as interest subvention schemes and collateral-free loans to facilitate easier access to credit for small businesses.

  • Public Procurement Policy: The amended Act mandated that a certain percentage of government procurement be reserved for MSMEs. This provision aimed at providing MSMEs with greater market access and opportunities to participate in government contracts, thereby boosting their growth prospects.

  • Technology Upgradation and Innovation: Recognizing the importance of technology adoption and innovation in enhancing the competitiveness of MSMEs, the amendment emphasized support for technology upgradation and innovation through various incentive schemes and programs.

  • Ease of Compliance: One of the overarching objectives of the 2018 amendment was to simplify regulatory compliance for MSMEs. It introduced measures such as self-certification and deemed approval to reduce the regulatory burden on small businesses and promote ease of doing business.

Conclusion

The Micro, Small, and Medium Enterprises Development Act 2006 and its 2018 amendment have played a crucial role in fostering the growth and development of MSMEs in India. By providing a supportive regulatory framework, access to credit, and various incentives and support schemes, these legislations have helped MSMEs overcome challenges and seize opportunities for growth. However, continuous efforts are required to address the evolving needs of the MSME sector and ensure their sustained development. With the right policy interventions and support mechanisms, MSMEs can emerge as engines of inclusive growth and employment generation in the Indian economy.