MSME
Table of content
1.0 Introduction
2.0 Regulation of MSME Sector in India
3.0 Establishing an MSME
4.0 Registration and filing procedures
5.0 Entrepreneur’s Memorandum (EM)
6.0 Compliance with applicable legislation and obtaining necessary approvals and clearances
7.0 Foreign Direct Investment (FDI) in MSME
8.0 Programmes and schemes for the benefit of the MSME Sector
Introduction
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. MSMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country.
The Sector consisting of 36 million units, as of today, provides employment to over 80 million persons. The Sector through more than 6,000 products contributes about 8% to GDP besides 45% to the total manufacturing output and 40% to the exports from the country. The MSME sector has the potential to spread industrial growth across the country and can be a major partner in the process of inclusive growth.
Khadi is the proud legacy of our national freedom movement and the father of the nation. Khadi and Village Industries (KVI) are two national heritages of India. One of the most significant aspects of KVI in Indian economy is that it creates employment at a very low per capita investment. The KVI Sector not only serves the basic needs of processed goods of the vast rural sector of the country, but also provides sustainable employment to rural artisans. KVI today represent an exquisite, heritage product, which is ‘ethnic’ as well as ‘ethical’. The Sector has a potentially strong clientele among the middle and upper echelons of the society.
Coir Industry is an agro-based traditional industry, which originated in the state of Kerala and proliferated to the other coconut producing states like Tamil Nadu, Karnataka, Andhra Pradesh, Odisha, West Bengal, Maharashtra, Assam, Tripura, etc. It is an export oriented industry and has greater potential to enhance exports by value addition through technological interventions and diversified products like Coir Geo textiles etc. The acceptability of Coir products has increased rapidly due to its ‘environment friendly’ image.
Ministry of Micro, Small & Medium Enterprises (M/o MSME) envisions a vibrant MSME sector by promoting growth and development of the MSME Sector, including Khadi, Village, and Coir Industries, in cooperation with concerned Ministries/Departments, State Governments, and other Stakeholders, through providing support to existing enterprises and encouraging the creation of new enterprises.

Source: Ministry of Micro, Small and Medium Enterprises, Annual Report 2014-15
At the Central, State and Local Government level, there is a strong institutional structure in place for promoting and developing the MSME sector and for providing a wide range of support services. Types of support services include assistance in technology up gradation, marketing tools, finance availability, infrastructure and skill development.
The administration of the MSME sector falls under the jurisdiction of the Ministry of Micro, Small and Medium Enterprises (Sukshma Laghu Aur Madhyam Udyam Mantralaya), of the Government of India. It designs and implements policies and programmes through its field organizations and attached offices for promotion and growth of MSME sector. The Ministry of MSME has two Divisions called Small & Medium Enterprises (SME) Division and Agro & Rural Industry (ARI) Division.
The Office of the Development Commissioner -MSME (DC-MSME) is an attached office of the Ministry of MSME, and is the apex body to advise, coordinate and formulate policies and programmes for the development and promotion of the MSME Sector. It functions through a network of Development Institutes, Regional Testing Centres, Footwear Training Institutes, Production Centres, Field Testing Stations and specialized institutes. There are 30 MSME Development Institutes (MSME – DIs) and 28 Branch MSME Development Institutes set up in the State capitals and other industrial cities all over the country. Other than that, the Ministry has various Attached Offices, Field Offices, PSUs and other organizations.
The main steps involve in setting up a Micro, Small & Medium Enterprise are:-
- Materials and Machinery Procurement
- Financial Assistance
- Registration and Filing of Entrepreneurs’ Memorandum with District Industries Centers (DIC)
- Obtaining Approvals and Clearances
- Quality Certification
- Compliance with applicable legislations
- Adhering to Disclosure Requirements u/MSMED Act 2006
An entrepreneur wishing to set up a MSME can first form a company under the Companies Act 1956 or establish any other form of business organisation by registering with the Registrars of Companies (ROC) appointed under Section 609 of the Companies Act, 1956, vested with the primary duty of registering companies floated in the respective States and Union Territories and of ensuring that such companies comply with statutory requirements under the Act.
There are various forms of doing business in India viz. Sole proprietorship, Hindu-Undivided-Family, Partnership Firm, Limited Liability Partnership, Cooperative Society, Private Limited Company, Public Limited Company etc. The choice of form of business will depend on the activity for which the business is being set up and various other ancillary factors.
After that manufacturing or service enterprises which are classified as micro, small or medium enterprise depending on their amount of investment in plant & machinery may seek registration under MSMED Act 2006.
The Ministry of MSME is not involved in registration process of MSME’s. Registration under the MSME Act 2006 is done by enterprise filing the Entrepreneurs’ Memorandum (EM) with the jurisdictional District Industries Centre of its area.
After getting registered, an enterprise is allotted a MSMED registration/ entrepreneurs memorandum (EM) number. The EM number is a 12-digit number where the first two boxes are for State/UT code, next three boxes are for District code, sixth and seventh boxes are for category of enterprise (sixth box for indicting manufacturing or service and seventh box for indicating micro or small or medium) and last five boxes are for EM number).
The enterprise should get the EM number printed on letter heads, invoices, bills, supply order sheets and other necessary documents. Also after registration, an enterprise can seek financial credit and also other facilities like land, industrial set-up, and water/electricity/telephone connections etc.
Under the MSMED Act 2006, filing of EM is optional for all Micro and Small Enterprises. Filing of memorandum is optional for service sector medium enterprises however it is mandatory for manufacturing sector medium enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to The Industries (Development & Regulation) Act 1951.
The EM is to be filed u/section 8(1) of the MSMED, Act 2006 with the District Industries Centre (DIC) in the jurisdiction of which the enterprise is (or, is proposed to be) located.
The General Instructions with respect to filing of EM are:
- The Entrepreneurs’ Memorandum (EM) consists of part I and part II. Part I (provisional registration) is for the proposed Enterprises and Part II (permanent registration) is used for the established enterprises after commencement of commercial production.
- Once the enterprises start production or start providing or rendering services, they should file Part II of the EM to DIC. In case of non-filing of Part II of the EM within 2 years of the filing of Part I, the Memorandum (Part I) filed by the entrepreneur will become invalid.
- Three copies of EM for Micro and Small enterprises and four copies for Medium enterprises should be filed
- There is no fee for processing the EM
- Existing MSME Units should fill up only Part II of the Memorandum
- In case of any change in information at any point of time, details to be informed to DIC within 3 months of change
- In case of change in the investment in plant and machinery or in equipment, the enterprises who have already filed EM should inform the DIC of the same in writing within 3 month of the change in investment.
- In case of change of products and that of services or addition in products or services, the enterprises who have already filed EM should inform the DIC of the same in writing within 3 month of the change.
- All codes other than Pin Code shall be filled by DIC office
- Form shall be machine numbered by the DIC
Procedure for Filing EM:
- Form of the Entrepreneurs Memorandum can be downloaded from the internet, the address of which from Directorate dealing with Micro, Small & Medium Enterprises of the State Governments can be obtained / UTs. or the hard copies of the same can be obtained from the District Industries Centres. This form can also be downloaded from the Micro, Small and Medium Enterprises Development Organisation website i.e. www.dcmsme.gov.in.
- The micro/small/medium enterprise shall file the EM with the DIC of its area
- The DIC shall fill all the codes in the form of the Memorandum and issue an acknowledgment after allotting an EM number, date of issue, and category of the unit within five days of the receipt of the form of Memorandum by post or same day, in the form of Memorandum is submitted in person as well as online...
- The EM filed by the Enterprises would be acknowledged by the DIC and further to issue the receipt is also mandatory. Before issuing the acknowledgement, the DIC shall make sure that the form is complete in all respect and particularly the form is signed and is accompanied with an undertaking, which is a part of the form of EM. The undertaking certifies that the information furnished in the memorandum is true and correct in the knowledge of the applicant.
- The DIC shall maintain record of all the EM so filed in respect of micro, small and medium enterprises engaged in providing and rendering services. DIC shall forward a copy of the EM so filed with EM number allotted to the Development Institute (earlier called Small Industries Service Institutes) of their State/Jurisdiction. In case of EM filed by medium enterprises engaged in production/manufacturing of products, DIC shall forward one copy each of the EM with EM number allotted to Development Institute of their State/Jurisdiction and to Joint Development Commissioner (MSME Pol.) in the Office of the Development Commissioner (Micro, Small and Medium Enterprises).
- The DIC shall, in addition of keeping a record, in writing, shall also maintain records electronically on computer.
- The Acknowledged EM shall be liable to be cancelled in case the unit is found closed for more than 6 months or furnished wrong information in the EM filed or has failed to inform DIC of any change in investment in plant, machinery or equipment within 3 months of change.
- The enterprise has to file the EM Part II again, in case, the status of the enterprise changes from micro to small or small to medium or vice versa, as a result of enhancement/decrease in the investment in plant and machinery/equipments. In such cases, the acknowledgement issued earlier need to be cancelled and the letter of cancellation along with the copy of the cancelled acknowledgement (certified) should be provided to the entrepreneur so that they may take benefit, if any, for that period of functioning.
- Out of the 3 copies of the EM filed by the Micro and Small enterprises (both manufacturing and service), first should be retained by the DIC, second returned to the Enterprise with EM No. allotted, and
- Out of the 4 copies of the EM filed by the medium enterprises (both manufacturing and service), first should be retained by the DIC, second returned to the Enterprise with EM No. allotted, third forwarded to MSME-Development Institute concerned and fourth copy should be forwarded to the MSME Policy Division of the Development Commissioner (MSME), 7th floor, A Wing, Nirman Bhavan, New Delhi.
- In case of companies as defined in Companies Act, 1956, (1 of 1956) cooperative/partnership firms and trusts, the change of name of the enterprise, if any, should be informed to General Manager, DIC or the authority notified for filing of EM in the State/UT within 3 months of change. In case of ownership firms, the same should be communicated within 3 months of effecting the change in name along with an affidavit.
Every SSI unit has to comply with various regulations in force. These include regulatory, taxation, environmental and certain product specific clearances.
The MSME will have to comply with the various regulatory and taxation laws and obtain registration wherever necessary viz. under Central Sales Tax Act/VAT laws, Central Excise and Salt Act, 1944, Income Tax Act 1961, Factories Act 1948 etc.
In the context of Licensing, The Industries (Development and Regulation) Act 1951 provides the conceptual and legal framework for industrial development and industries in India. The licensing policy for industries is determined and regulated under this Act.
At present Industrial Licensing for manufacturing is required in case of :-
- Industries under compulsory licensing
- Manufacture of items by Large or medium industries of items reserved for exclusive manufacture in small scale industrial units
- Also, Project location attracts locational restrictions
Following industries require compulsory industrial licence under the provisions of I(D&R) Act, 1951.
- Distillation and brewing of alcoholic drinks.
- Cigars and cigarettes of tobacco and manufactured tobacco substitutes;
- Electronic Aerospace and defence equipment: all types;
- Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and matches;
- Hazardous chemicals;
- Hydrocyanic acid and its derivatives
- Phosgene and its derivatives
- Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate).
In small scale units, industrial license is not required except in case of product groups included in compulsory licensing. Subject to this, an entrepreneur can set up a SSI unit anywhere in the country without any restriction. The units are, however, subject to the locational/land use and zoning restrictions in force under the local laws.
Additionally, an entrepreneur has to obtain several product specific clearances depending upon the nature of his unit and products manufactured. For e.g:
- For manufacturing household electrical appliances - License from Bureau of Indian Standards will be required
- Milk Processing & Milk products manufacturing units – will require Approval under Milk and Milk Products Order from State Agricultural/ Food Processing Industries Department above a designated capacity
Also, Environment & Pollution Related Clearances will have to be obtained under the environmental laws like The Environment (Protection) Act, 1986, The Biological Diversity Act, 2002, Water (Prevention and Control of Pollution) Act, 1974, Air (Prevention and Control of Pollution) Act, 1981, Forest Conservation Act 1980, etc. The method of granting consent underwater and air pollution to SSI units has been simplified. Except for 17 critically polluting sectors, in all other cases, SSI units will merely have to file an application and obtain an acknowledgment which will serve the purpose of consent.
FDI in Micro, Small And Meduim Enterprises will be subject to the sectoral caps, entry routes and other relevant sectoral regulations. Any industrial undertaking which is not a Micro or Small Scale Enterprise, but manufactures items reserved for the MSE sector would require Government route where foreign investment is more than 24% in the capital. Such an undertaking would also require an Industrial License under the Industries (Development & Regulation) Act 1951, for such manufacture. The issue of Industrial License is subject to a few general conditions and the specific condition that the Industrial Undertaking shall undertake to export a minimum of 50% of the new or additional annual production of the MSE reserved items to be achieved within a maximum period of three years. The export obligation would be applicable from the date of commencement of commercial production and in accordance with the provisions of section 11 of the Industries (Development & Regulation) Act 1951.
The implementation of policies and various programmes/projects/schemes of the Ministry of Micro, Small and Medium Enterprises is undertaken through the Small Industries Development Organization (SIDO), National Small Industries Corporation (NSIC) Ltd., Khadi and Village Industries Commission (KVIC), Coir Board and State & Union Territory Governments.
The Ministry of MSME has been implementing inter alia the following Schemes/Programmes for promotion and development of MSMEs and creation of rural off-farm employment for balanced economic development in the country:
- Surveys, Studies and Policy Research
- International Cooperation
- Assistance for strengthening of Training Infrastructure of Existing and New Entrepreneurship Development Institutions
- Rajiv Gandhi Udyami Mitra Yojana (RGUMY)
- Prime Minister’s Employment Generation Programme (PMEGP)
- Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
- Scheme for Enhancing Productivity and Competitiveness of Khadi Industry and Artisans
- Workshed Scheme for Khadi Artisans
Incentives Provided to MSME Sector:
- Assistance in providing finance and credit
The small enterprises may approach public sector banks and Small Industries Development Bank of India (SIDBI) for bankable and viable projects for necessary assistance. National Small Industries Corporation (NSIC), a PSU of the Ministry is also engaged in providing financial assistance for purchase of machinery, assistance in credit rating certification for the units in order to have faster assistance from Banks, etc.
- Training Facilities
The Ministry of MSME has established three National Institutes, viz., the National Institute for Micro, Small and Medium Enterprise (NIMSME) at Hyderabad, the National Institute of Entrepreneurship and Small Business Development (NIESBUD) at Noida (U.P) and the Indian Institute of Entrepreneurship (IIE) at Guwahati as autonomous bodies. These Institutes conduct training schedules and also undertake research and training for entrepreneurship development in the MSME sector.
- Mandatory Procurement from MSME
As per the Public Procurement Policy for Micro and Small Enterprises (MSEs) Order, 2012. Every Central Ministry or Department or Public Sector Undertaking shall set an annual goal of procurement from Micro and Small Enterprises from the financial year 2012-13 and onwards, with the objective of achieving an overall procurement of minimum of 20 per cent, of total annual purchases of products produced and services rendered by Micro and Small Enterprises in a period of three years.
- Innovative Schemes
In view of furtherance of technological development of MSME , the Ministry of MSME initiates a number of programmes and schemes for this sector.
- Items reserved for Exclusive Manufacture by Micro and Small enterprise sector
Reservation of products for exclusive manufacture in the small-scale sector was introduced for the first time in 1967 with the reservation of 47 items. Reservation provides support to SSIs against competition from medium/large/ multinational companies. The policy received statutory backing in 1984 under Section 29B of Industries (Development & Regulation) Act, 1951. Reservation/dereservation is a continuous process. The Advisory Committee on Reservation constituted under the Industries (Development & Regulation) Act, 1951 recommends items to be added and deleted from the reserved list including bringing changes in nomenclature.
International Co-operation Initiatives:
The DC (MSME) can cooperate /collaborate with the beneficiary governments for the development of SMEs through concerned Ministries. Expertise can be provided to the relevant counterparts of the beneficiary governments connected with the development of SMEs in their countries. Many Memorandum of Understandings (MOUs) have been entered into by Ministry of Micro, Small and Medium Enterprises with other countries.