MSMEs: Policy, Regulatory and Legal Framework | Study Notes and MCQs
MSMEs: Policy, Regulatory and Legal Framework
1. Policy Framework for SMEs
Since 1991, India has shifted its policy framework to favor liberalization, privatization, and globalization. MSMEs were given importance under the New Industrial Policy of 1991 to ensure balanced regional development, create employment, and boost exports. New policies aim to strengthen MSMEs' competitiveness, innovation, and productivity.
2. Policy Shifts since 1991
Key shifts include:
- Deregulation and simplification of processes
- Increased private participation
- Establishment of credit guarantee schemes
- Emphasis on technology upgradation and skill development
3. Regulatory Framework
The MSME sector is governed by several regulations, such as:
- MSMED Act, 2006
- Factories Act, 1948
- Payment of Wages Act, 1936
- Environmental and labor laws specific to SME operations
4. Laws and Regulations for SMEs
Key legal regulations include GST registration, Udyam Registration for MSMEs, mandatory labor law compliances, and credit rating requirements.
5. SME Development Bill, 2005
The SME Development Bill, later enacted as MSMED Act 2006, aims to promote, develop, and enhance the competitiveness of small businesses. It introduced legal protection regarding delayed payments and redefined SME classifications based on investment and turnover.
6. LLP Act
The Limited Liability Partnership (LLP) Act, 2008, provides SMEs an alternative business structure that combines the flexibility of a partnership with limited liability of a company. It reduces compliance burden and offers tax advantages.
7. Changing Policy Framework & SME Strategies
SMEs are increasingly focusing on digitization, sustainable practices, cluster development, and entering global value chains (GVCs) to remain competitive in a changing environment.
8. Registration of SME Unit – Procedure
The MSME registration is now online through the Udyam Registration Portal. Requirements include PAN, Aadhaar, and business details. Registration enables access to credit, subsidies, and other government incentives.
9. Credit Reporting Agencies
- CIBIL: Credit Information Bureau India Limited provides credit scores for businesses.
- CERSAI: Central Registry of Securitization Asset Reconstruction and Security Interest of India tracks movable and immovable assets against loans.
- D&B Report: Dun & Bradstreet provides global credibility reports on businesses.
- MIRA Report: Management Information & Risk Analysis Report helps assess the business health of SMEs for lenders and investors.
Mathematical Example: MSME Classification Based on Turnover
Suppose a company has an annual turnover of ₹3 crore and an investment in plant and machinery of ₹40 lakh.
According to the MSME definition:
- If investment ≤ ₹1 crore and turnover ≤ ₹5 crore, it is classified as a Micro Enterprise.
- Thus, this company falls under the Micro Enterprise category.
Formula: MSME Category = Based on Investment (I) & Turnover (T)
Micro: I ≤ ₹1 crore & T ≤ ₹5 crore
Small: I ≤ ₹10 crore & T ≤ ₹50 crore
Medium: I ≤ ₹50 crore & T ≤ ₹250 crore
Sample MCQs on MSMEs Policy and Legal Framework
- Which Act governs MSMEs in India?
- A) MSMED Act, 2006
- B) Companies Act, 2013
- C) LLP Act, 2008
- D) Banking Regulation Act
- The LLP Act was enacted in which year?
- A) 2005
- B) 2008
- C) 2010
- D) 2012
- Which portal is used for MSME registration?
- A) Startup India
- B) Udyam Registration
- C) Digital India
- D) GST Portal
- CIBIL primarily provides:
- A) Stock Prices
- B) Credit Reports
- C) Business Licenses
- D) Export Certificates
- CERSAI deals with:
- A) Environmental Clearances
- B) Land Record Management
- C) Security Interest Registration
- D) Tax Filing
- The SME Development Bill was passed in:
- A) 2002
- B) 2005
- C) 2007
- D) 2010
- Which of these agencies provides global business credibility reports?
- A) CIBIL
- B) D&B
- C) SIDBI
- D) NSIC
- MIRA report assesses:
- A) GST Filing
- B) SME Risk & Management
- C) Industrial Licensing
- D) Loan Recovery
- What is the turnover limit for Small Enterprises?
- A) Up to ₹5 crore
- B) Up to ₹10 crore
- C) Up to ₹50 crore
- D) Up to ₹250 crore
- The registration for an MSME unit requires:
- A) Aadhaar only
- B) PAN and Aadhaar
- C) GST Registration
- D) Import License
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