The MSME sector has emerged as a dynamic sector of the Indian economy over the last five decades. MSMEs contribute enormously to the socio-economic development of the country. MSME have a large share of jobs, production and exports. The primary responsibility of promotion and development of MSMEs is of the State Governments. However, the Government of India, supplements the efforts of the State Governments through various initiatives.

Ministry of Agro and Rural Industries and Ministry of Small Scale Industries have been merged into a single Ministry, namely, “MINISTRY OF MICRO, SMALL AND MEDIUM ENTERPRISES” to direct and govern the establishment, registration and functioning of MSMEs.

As per the report of Ministry of Micro Small and Medium Enterprises, Government of India; MSME sector is serving numerous benefits towards the inclusive growth of Indian economy. Major contribution of MSMEs is as follows:

1. It provides opportunities at comparatively lower cost;

2. It helps in industrialization of rural and backward areas;

3. Reduce Regional imbalances through the optimum utilization of their resources;

4. More equitable distribution of national income and wealth;

5. Major partner in the process of inclusive growth.

Definition of MSME:

The Micro Small and Medium Enterprises have been defined under MSME Act, 2006. According to the Act, MSME have been broadly classified in two categories:

1. Enterprises engaged in the manufacturing and production of goods pertaining to any industry;

2. Enterprises engaged in providing or rendering services

The manufacturing enterprises have been further defined in terms of investment in plants and machinery wherein the service enterprises have been defined in terms of their investment in equipment. The further classification of manufacturing and service enterprises can be seen below.

Legal Framework on MSMEs

The conceptual and legal framework for small scale and ancillary industrial undertakings is derived from the Industries Development and Regulation Act, 1951. The Act provided the necessary powers to the Central Government to amend the provisions of this act from time to time so as to encourage small scale and ancillary undertakings. The Small and Medium Enterprises Development Bill 2005 which was enacted in June 2006 was renamed as “Micro, Small & Medium Enterprises Development Act, 2006” aims at facilitating the promotion and development of small and medium enterprises. Various notifications issued by the Central Government from time to time relating to increase in slap rate of investments in plant & Machinery for manufacturing enterprises and equipments in service enterprises provides a clear cut proof that the economy of our country is striving towards achieving the economies of scale by increasing the volume of production of goods. The Micro, Small and Medium Enterprise Development Act, 2006 (MSMEDA) extends the scope to accomplishes many long -standing goals of the government and stakeholders in the MSME sector including the service sector.

Micro, Small and Medium Enterprises (MSME) contribute nearly 8 percent of the country’s GDP, 45 percent of the manufacturing output and 40 percent of the exports. They provide the largest share of employment after agriculture. They are the nurseries for entrepreneurship and innovation. They are widely dispersed across the country and produce a diverse range of products and services to meet the needs of the local markets, the global market and the national and international value chains.

As per Ministry of Small Scale industries notification dated 5th day of October, 2006, the investment in Plant and Machinery referred to in respective limits is the Original Price, irrespective of whether the plant and machinery are new or second handed, shall be taken into account provided that in the case of imported machinery, the following shall be included in calculating the value, namely;

i. Import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port);
ii. Shipping charges;
iii. Customs clearance charges; and
iv. Sales tax or value added tax.

Further, as per the said notification, the following are excluded while calculating the investment in Plant and Machinery:-

i. Equipment such as tools, jigs, dyes, moulds and spare parts for maintenance and the cost of consumables stores;

ii. Installation of plant and machinery;

iii. Research and development equipment and pollution controlled equipment

iv. Power generation set and extra transformer installed by the enterprise as per regulations of the State Electricity Board;

v. Bank charges and service charges paid to the National Small Industries Corporation or the State Small Industries Corporation;

vi. Procurement or installation of cables, wiring, bus bars, electrical control panels (not mounded on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures;

vii Gas producers plants;

viii. Transportation charges (excluding sales-tax or value added tax and excise duty) for indigenous machinery from the place of the manufacture to the site of the enterprise;

ix. Charges paid for technical know-how for erection of plant and machinery;

x. Such storage tanks which store raw material and finished produces and are not linked with the manufacturing process; and

xi. Fire fighting equipment.

Further, investment in Land, Building, Vehicles, Furniture and fixtures, Office Equipment etc shall not be considered in determining the threshold limit of plant and machinery or Equipment as the case may be.