2. What are the benefits available to an enterprise that falls within the definition of a micro, small or medium enterprise?

The major benefit for MSMEs is the reservation policy, which reserves certain items, for exclusive manufacture by these enterprises, thus, protecting their interests, as well as providing impetus to the society by generating employment opportunities. The Government has put in place policies and has reserved three hundred fifty (350) items for purchase from MSMEs, under the Government Stores Purchase Programme. To encourage the small-scale units, the SEZs are required to allocate 10 per cent space for the small-scale units. Under the MSMED Act, protections are offered in relation to timely payment for goods and services by buyers to MSMEs. Furthermore, the Government has been encouraging and supporting the sector through policies for preferential access to credit, preferential purchase policy, etc. It has been offering packages of schemes and incentives through its specialized institutions in the form of assistance in obtaining finance; help in marketing; technical guidance; training and technology upgradation, etc. Further, an enterprise, whose post-issue face value does not exceed INR 25,00,00,000 (Rupees Twenty Five Crores only), is entitled to certain exemptions from the eligibility requirements under the ICDR Regulation.

3. What is the procedure to be followed to be classified as a Micro, Small or Medium Enterprise?

For the purposes of registration, the two part Entrepreneurs Memorandum has to be submitted to the concerned District Industries Centre.
Filing of an Entrepreneurs Memorandum is optional for a micro or small enterprise, or a medium enterprise engaged in providing services. However, a medium enterprise engaged in the manufacture or production of goods has to mandatorily file Part I of the Entrepreneurs Memorandum. There is no processing fee for processing the memorandum. Thereafter, on the commencement of production/activity, Part II of the Entrepreneurs Memorandum has to be filled up and submitted to the District Industries Centre. However, it must be filed within two (2) years of the filing of Part I.

4. What is the implication of exceeding the limits prescribed for classification as a micro, small or medium enterprise?

If a Micro or a small Enterprise crosses the permissible investment limits, they would have to re-file part II of the Entrepreneurs Memorandum. If the investment limit in a Medium enterprise exceeds the permissible limit, it will become liable for de-registration and would not be eligible for preferred treatment reserved for the MSMEs.

5. What are the sectors that are specifically reserved for these enterprises?

The list of items exclusively reserved for production by MSEs is limited to twenty (20) items. Some examples of reserved items are pickles and chutneys, bread, mustard oil, ground nut oil, exercise books and registers, wooden furniture and fixtures, candles, laundry soap, safety matches, fireworks, agarbattis, glass bangles, steel almirahs and stainless steel and aluminum utensils. Though reserved exclusively for MSMEs, these items can also be manufactured by Large/Medium units provided they undertake to export a minimum of 50 per cent of the new or additional annual production of the MSE reserved items within a maximum period of three years from the date of commencement of commercial production of such reserved items.

6. What is the implication for such enterprises falling within the priority sector with respect to lending?

MSE sector now has greater access to credit as a result of its classification as a priority lending sector. The banks are required to compulsorily ensure that specified percentage (currently 40 per cent and 32 per cent of adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher, for domestic commercial banks and foreign banks, respectively) of their overall lending is made to priority sectors as classified by Government, thus ensuring credit to these sectors.
The priority sectors include agriculture, small enterprises, retail trade, etc. While for domestic commercial bank, advances to small enterprises sector is reckoned for its overall priority sector target, for foreign banks, such lending would be counted towards 10 per cent of adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher, irrespective of whether the finance is for export or domestic activities.
Out of the total advances to small enterprise sector, 60 per cent is reserved for micro enterprises and the balance 40 per cent for the small enterprises. Out of this 60 per cent quota,

1. 40 per cent of the total advances to MSE sector is reserved for micro (manufacturing) enterprises having investment in plant and machinery up to INR 5,00,000 (Rupees Five Lakhs only) and micro (service) enterprises having investment in equipment up to INR 2,00,000 (Rupees Two Lakhs only); and
2. 20 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises with investment in plant and machinery above INR 5,00,000 (Rupees Five Lakhs only) and up to INR 25,00,000 (Rupees Twenty Five Lakhs only), and micro (service) enterprises with investment in equipment above INR 2, 00,000 (Rupees Two Lakhs only) and up to INR 10, 00,000 (Rupees Ten Lakhs only).

Lending to medium enterprises is not considered to be a priority sector lending. Micro and small enterprises are also entitled to collateral free loan up to INR 10, 00,000 (Rupees Ten Lakhs only), which may go up to INR 25, 00,000 (Rupees Twenty Five Lakhs only), with the approval of the appropriate authority.