95  Micro and Small Scale Industries in India

95.1 Concept and Definition

Micro, Small and Medium Enterprises (MSMEs) are defined in India under the MSME Development Act 2006, revised in 2020 (Atmanirbhar Bharat package) to use a composite criterion of investment in plant & machinery + annual turnover.

95.2 Revised MSME Classification (2020)

TipMSME thresholds (2020 onwards)
Category Investment ≤ Turnover ≤
Micro ₹1 Cr ₹5 Cr
Small ₹10 Cr ₹50 Cr
Medium ₹50 Cr ₹250 Cr

Distinction between manufacturing and service was removed in 2020.

95.3 Role and Importance of MSMEs

TipMSME contribution to India
  • ~30% of GDP.
  • ~45% of manufacturing output.
  • ~48% of exports.
  • ~11 Crore (110 m) jobs — second-largest employer after agriculture.
  • 6.3 Crore MSME units registered/unregistered.
  • Promote balanced regional development.
  • Use indigenous resources.
  • Foster entrepreneurship.
  • Distribute income.
  • Vital for export earnings.
  • Udyam Registration portal (since 2020) has 4+ crore registered.

95.4 Evolution of Small-Scale Industries in India

TipEvolution
  • Industrial Policy Resolution 1948 — small-scale recognised.
  • IPR 1956 — reservation policy.
  • Karve Committee (1955) — set up Small Scale Industries Board.
  • Abid Hussain Committee 1997 — review of SSI.
  • MSMED Act 2006 — comprehensive framework.
  • MSME Ministry — created 2007 (from earlier SSI Ministry).
  • Atmanirbhar Bharat 2020 — composite criteria, ECLGS support.
  • MSME Champions Portal — grievances.
  • PMS-MSME scheme.
  • PLI for MSMEs — sector-wise inclusion.

95.5 Major Schemes for MSMEs

TipGovernment schemes
  • PMEGP — Prime Minister’s Employment Generation Programme (KVIC).
  • CGTMSE — Credit Guarantee Fund Trust for Micro & Small Enterprises (collateral-free loans).
  • CLCSS — Credit Linked Capital Subsidy Scheme.
  • ZED — Zero Defect Zero Effect certification.
  • TReDS — Trade Receivables electronic Discounting System.
  • MUDRA Yojana — Shishu (< ₹50k), Kishor (50k–5L), Tarun (5L–10L).
  • Stand-Up India — SC/ST/Women.
  • PMS-MSME — Champions scheme.
  • SFURTI — traditional industry clusters.
  • ASPIRE — rural entrepreneurship.
  • Lean Manufacturing Competitiveness Scheme.
  • Public Procurement Policy 2012 — 25% of govt procurement from MSEs.
  • Samadhaan Portal — delayed payments redressal.
  • ECLGS — Emergency Credit Line Guarantee Scheme (COVID-era).
  • RAMP — Raising and Accelerating MSME Performance (2022, World Bank).

95.6 Institutional Framework

TipIndian institutions for MSMEs
  • Ministry of MSME — central nodal.
  • Office of DC-MSME — Development Commissioner.
  • NSIC — National Small Industries Corporation (1955).
  • KVIC — Khadi & Village Industries Commission (1957).
  • NIESBUD — training.
  • NI-MSME (Hyderabad) — National Institute for MSME.
  • NIESBUD (Noida) — National Institute for Entrepreneurship.
  • MSME-DI (DICs) — District Industries Centres.
  • MSME Technology Centres.
  • TIFAC.
  • Coir Board, Silk Board, Spices Board — sector-specific.
  • Lakshadweep Tribal Cooperative Marketing Development Federation (TRIFED).

95.7 Finance for MSMEs

TipMSME financing
  • SIDBI — Small Industries Development Bank of India (1990).
  • NABARD — for rural.
  • MSME loans by PSBs.
  • Mudra Bank (PMMY 2015).
  • CGTMSE collateral-free up to ₹5 Cr (revised limit).
  • SME exchanges — BSE-SME, NSE Emerge.
  • Factoring services.
  • Bill discounting.
  • NBFC-MFIs.
  • Venture finance for MSMEs.
  • Priority Sector Lending — RBI mandates banks to lend a share to MSMEs.

95.8 Problems Faced by MSMEs

TipMSME challenges
  • Inadequate finance at reasonable cost.
  • Technology obsolescence.
  • Marketing weaknesses.
  • Quality and certification issues.
  • Skill shortage.
  • Raw-material access.
  • Delayed payments from large buyers.
  • Infrastructure — power, transport.
  • Regulatory compliance burden.
  • Sickness / NPA (Topic 95).
  • Limited bargaining power.
  • Digital adoption gap.

95.9 Cluster Development

TipFamous Indian clusters
  • Tiruppur — knitwear.
  • Sivakasi — fireworks, matches, printing.
  • Moradabad — brassware.
  • Ludhiana — hosiery, bicycle.
  • Surat — textiles, diamonds.
  • Jaipur — gems, handicrafts.
  • Bhadohi — carpets.
  • Aligarh — locks.
  • Firozabad — bangles, glass.
  • Panipat — handlooms.
  • Coimbatore — pumps, wet-grinders.
  • Kanchipuram — silk.
  • Agra — leather, footwear.
  • MSE-Cluster Development Programme (MSE-CDP) funds these.

95.11 Practice Questions

Q 01MSMED ActEasy

MSMED Act came in:

  • A2006
  • B2000
  • C2014
  • D2020
View solution
Correct Option: A
MSMED Act 2006.
Q 02MicroMedium

Micro enterprise investment ceiling (2020) is:

  • A₹1 Cr
  • B₹5 Cr
  • C₹10 Cr
  • D₹50 Cr
View solution
Correct Option: A
Micro: ≤ ₹1 Cr investment + ≤ ₹5 Cr turnover.
Q 03CGTMSEMedium

CGTMSE provides:

  • ACollateral-free loan guarantee
  • BDirect subsidy
  • CMarketing
  • DTraining
View solution
Correct Option: A
Credit Guarantee Fund.
Q 04SIDBIEasy

SIDBI was established in:

  • A1990
  • B1982
  • C1955
  • D1969
View solution
Correct Option: A
1990.
Q 05ProcurementMedium

Public Procurement Policy 2012 reserves what % for MSEs?

  • A25 %
  • B10 %
  • C50 %
  • D15 %
View solution
Correct Option: A
25 % of central govt procurement from MSEs (incl 4 % SC/ST, 3 % women).
Q 06KarveHard

Karve Committee (1955) recommended:

  • ASSI Board
  • BBank Nationalisation
  • CEXIM Bank
  • DFERA
View solution
Correct Option: A
Establishment of SSI Board.
Q 07UdyamMedium

Udyam Registration replaced:

  • AUdyog Aadhaar
  • BEM-II
  • CSSI registration
  • DAll of the above
View solution
Correct Option: D
Udyam (2020) replaced all earlier processes.
Q 08TReDSHard

TReDS platform addresses:

  • ADelayed-payment receivables financing
  • BFDI clearance
  • CExport credit
  • DGST refund
View solution
Correct Option: A
RXIL, A.TReDS, M1xchange.
Q 09RAMPHard

RAMP 2022 is backed by:

  • AWorld Bank
  • BIMF
  • CADB
  • DAIIB
View solution
Correct Option: A
$808 m World Bank-backed Raising and Accelerating MSME Performance.
Q 10TiruppurMedium

Tiruppur cluster is famous for:

  • AKnitwear
  • BBrass
  • CGlass
  • DLocks
View solution
Correct Option: A
Tamil Nadu knitwear export hub.
Q 11NSICHard

NSIC was set up in:

  • A1955
  • B1969
  • C1982
  • D1990
View solution
Correct Option: A
National Small Industries Corporation 1955.
Q 12ZEDMedium

ZED MSME certification stands for:

  • AZero Defect Zero Effect
  • BZero Excise Duty
  • CZero Emission Distribution
  • DZonal Entrepreneurship Development
View solution
Correct Option: A
Zero Defect (quality) Zero Effect (environment).
Q 13SivakasiMedium

Sivakasi cluster is famous for:

  • AFireworks, matches and printing
  • BIT
  • CPharma
  • DDiamonds
View solution
Correct Option: A
"Mini Japan" of India.
Q 14CompositeMedium

MSME composite criteria use:

  • AInvestment + Turnover
  • BInvestment only
  • CTurnover only
  • DEmployees only
View solution
Correct Option: A
2020 reform.
Q 15MatchHard

Match clusters:

(i) Tiruppur (a) Brassware
(ii) Moradabad (b) Locks
(iii) Aligarh (c) Knitwear
(iv) Surat (d) Diamonds
  • A(i)-(c), (ii)-(a), (iii)-(b), (iv)-(d)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(b), (ii)-(c), (iii)-(d), (iv)-(a)
  • D(i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
View solution
Correct Option: A
Tiruppur—Knitwear; Moradabad—Brass; Aligarh—Locks; Surat—Diamonds.

95.11.1 Advanced Format Questions

AR 1Assertion-ReasonHard

A: MSMED Act 2006 was revised in 2020.
R: The revision introduced composite criteria (Investment + Turnover).

  • ABoth true; R explains A
  • BBoth true; R does not explain A
  • CA true, R false
  • DA false, R true
View solution
Correct Option: A
S 1Statement-basedMedium

Indian MSME bodies: (i) DC-MSME. (ii) NSIC (1955). (iii) KVIC (1957). (iv) SIDBI (1990).

  • AAll four
  • B(i) and (ii) only
  • C(iii) and (iv) only
  • D(i), (ii), (iii) only
View solution
Correct Option: A
S 2Statement-basedHard

MSME schemes: (i) PMEGP. (ii) CGTMSE. (iii) CLCSS. (iv) RAMP (2022).

  • AAll four
  • B(i) and (ii) only
  • C(iii) and (iv) only
  • D(i), (ii), (iii) only
View solution
Correct Option: A

95.12 Quick Recall

ImportantQuick recall
  • MSMED Act 2006; revised 2020 — composite Investment + Turnover.
  • Micro ≤ ₹1 Cr / ₹5 Cr · Small ≤ ₹10 Cr / ₹50 Cr · Medium ≤ ₹50 Cr / ₹250 Cr.
  • Importance: ~30 % GDP, ~45 % manufacturing, ~48 % exports, ~11 Cr jobs.
  • Evolution: IPR 1948/56 · Karve Committee 1955 (SSI Board) · Abid Hussain 1997 · MSMED Act 2006 · Atmanirbhar 2020.
  • Schemes: PMEGP · CGTMSE (collateral-free) · CLCSS · ZED · TReDS · MUDRA (PMMY 2015) · Stand-Up · PMS-Champions · SFURTI · ASPIRE · Lean Mfg · Public Procurement Policy 2012 (25 % MSE) · MSME Samadhaan · ECLGS · RAMP 2022 (World Bank).
  • Institutions: Min of MSME · DC-MSME · NSIC (1955) · KVIC (1957) · NIESBUD · NI-MSME Hyderabad · MSME-DI/DIC · TIFAC · Coir/Silk/Spices Boards.
  • Finance: SIDBI (1990) · NABARD · PSBs · MUDRA Shishu/Kishor/Tarun · CGTMSE · BSE-SME, NSE Emerge · NBFC-MFI · Priority Sector Lending.
  • Problems: finance · technology · marketing · quality · skills · raw material · delayed payments · infra · compliance · sickness · digital gap.
  • Clusters: Tiruppur (knitwear) · Sivakasi (fireworks/matches/printing) · Moradabad (brass) · Ludhiana · Surat (textile/diamonds) · Jaipur · Bhadohi · Aligarh (locks) · Firozabad (bangles) · Panipat · Coimbatore · Kanchipuram · Agra.
  • Modern: Udyam Registration (2020) · GeM · ONDC · TReDS (RXIL, A.TReDS, M1xchange) · GST e-invoice · PLI · ODOP · ZED push · ESG · AA framework · AI credit underwriting.