Home Business Ideas What is Start-up And MSME Act – Detail Guide

What is Start-up And MSME Act – Detail Guide



  1. Introduction
  2. MSME report 2014-2015
  3. Funding of MSME
  4. Developments in MSME sector
  5. Benefits from central government
  6. Conclusion
  7. FAQs


The acronym MSME stands for micro, small and medium enterprises.

The development of the MSME sector has been a policy level issue for the government. Several policies have been implemented to give impetus to the growth of the MSME segment.

A lot of literature has been published to emphasize the growth of MSMEs. MSMEs have a direct correlation to the growth of the Indian economy.

As well as that MSMEs contribute to the economic, industrial and social development of the country

By generating huge employment opportunities,

Contributes nearly 37.54% of the country’s GDP (as of 2012-13)

Accounts for 45% of the manufacturing output and 40% of the exports.

In India, according to the Fourth All India Census of Micro, Small and Medium Enterprises carried out by the Development Commissioner (MSME) during 2006 -2007 “Census”),

Total number of MSME reported was 36.17 million and there has been a constant and humble growth in the number of MSMEs in the country over the years.

MSME report 2014-2015

Studies also reveal an interesting fact that of the total number of MSMEs in India, a very small fraction of MSMEs registers themselves under the MSME Act.

The MSME Act was brought into force to facilitate promotion and development of MSMEs and increase competitiveness amongst MSMEs (registered MSMEs)

But a large number of business entities have not opted to register themselves as per the provisions of the MSME Act.

However, this can be largely attributed to the fact that there is a lack of awareness about the existence of the MSME Act.

Amongst MSME’s and therefore the benefits that the MSME Act intends to provide is rendered meaningless.

Where the MSMEs are aware of the benefits under the MSME Act,

They choose to not register to stay light on compliances and reduce the administrative costs otherwise applicable on such compliances.

What is MSME?

The Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) lays down the criteria for an enterprise to be classified as micro, small or medium enterprise on the basis of investment in plant and machinery or equipment or turnover from services rendered .

Meanwhile according to report 14 November 2019 at present, MSMEs are classified on the basis of investment in plant and machinery for manufacturing units, and investment in equipment for services enterprises.

Under the goods category, the slabs are up to ₹25 lakh for micro, ₹25 lakh to ₹5 crore for small and ₹5-10 crore for medium.

Funding of MSME

An innovative idea is important for a successful and prosperous business but it also very essential that necessary funds are in place at all times for a business to expand and grow.

Funding of MSME can be divided into two parts they are as follows :-

Funding from informal sources –

Informal sources of finance includes funds, registered or unregistered money lenders, and lastly resources from family, friends, etc.

Funding from formal sources

The formal sector comprises of banks and NBFCs.

Firstly MSME can arrange for funds through debt financing ie. by availing loans from banks or NBFCs.

Secondly, The government through its Credit Guarantee Scheme provides support to MSME

Thirdly By allowing them to avail credit facilities up to Rs. 100 lakhs without any collateral securities or third party guarantee from selective scheduled commercial banks and regional rural banks.

At last, MSME can go for equity-based funding through angel investors or venture capital funds.

Developments in MSME sector

Some of the recent developments in the MSME sector include:-

Credit Guarantee Scheme (CGS) –

The Ministry of MSME and SIDBI established a trust named Credit Guarantee Fund Trust for micro and small enterprises.

MSES (CGTMSE) to implement the Credit Guarantee Scheme for MSES to provide credit facilities up to Rs.100 lakhs without any collateral securities or third party guarantee to MSME for both long and working capital facility.

The corpus of CGTMSE is being calculate by the Government in the ratio of 4:1.

However, CGS provides ance to the lender who has provided credit facility to MSME without any security.

Meanwhile, in the event of failure of MSME to pay the amount due, the guarantee trust would make good the loss incurred by the lender up lo 85 percent of the outstanding amount in default.

Micro and Small Enterprises –

Cluster Development Programme (MSE – CDP) – MSE

Similarly, CDP provides support for capacity building for common supportive action through the formation of self-help groups, consortia, upgrading of associations, etc.

Sustainability and growth of MSME’s by addressing common issues such as improvement of technology, skill , quality and to upgrade infrastructural facilities in the new in existing industrial areas of MSMEs.

Technology Centre Systems Programme (TCSP) –

Ministry of MSME has established a number of technology centers and technology development centers to support MSMEs.

But by providing them access to advanced manufacturing technologies, offering opportunities for technical skill development of the youth, and providing technical and business advisory support to MSME entrepreneurs.

Prime Minister Employment Generation Programme (PMEGP) –

However, this program aims at generating continuous and sustainable employment opportunities in rural and urban areas of the country and facilitating the participation of financial institutions for higher credit flow to the micro sector.

National Manufacturing Competitiveness Programme (NMCP)

The primary objective of this program is to support the MSMEs in their endeavor to become competitive and balance the competitive pressure caused by liberalization and moderation of tariff rates.

Credit Linked Capital Subsidy Scheme (CLCSS)

This scheme aims at providing a 15% upfront capital subsidy up to a maximum limit of Rs. 15 lakhs investment in approved plant and machinery up to Rs. 1 crore) for induction of well established and improved technologies in specified sub-sectors/products approved under the scheme.

Marketing Assistance Scheme

This scheme aims at facilitating the marketing competitiveness of MSME; thus provide them with a platform for interaction with individual/institutional buyers, also to update them with prevalent market scenario and provide them a form for redressing their grievances.

Benefits from central government

Benefits Character Means Perks Favors Or Rewards

Additionally to that bank also provide loans without collateral requirement

(Prior. Benefits from Central Government Ity sector coverage)

Banks in India are directed to lend to certain sectors, classified as priority sector lending (PSL).

The minimum PSL requirement is 40 of the “adjusted net bank crediít” in case of domestic banks, and 32% in case of foreign banks.

Loans to MSMES also fall in the PSL category. There is a separate target of 7.5% within the overall limit of 40% for loans to micro enterprises.

Providing loans to MSME help banks to meet their PSL targets and thus there is casy sanction of loans from banks to MSME sector,

Excise exemption scheme-

MSMES are granted exemption from paying excise duty based on their turnover.

At present the exemption limit for excise duty is a turnover of Rs. 1.5 crore.

A start-up with turnover up to Rs. 1.5 crore gets exemption from paying excise duty.

Under is, units having turnover of less than Rs. 3 crores are eligible for concessional rate of Excise Duty, Further,

There is an exemption from Excise Duty for MSME units producing so ,that branded goods in rural areas

Exemption under direct tax laws

Especially under Electronics Hardware Technology Park Scheme

Which is a 100% export oriented scheme, MSME is eligible to avail 100% income tax exemption that is on export profits under section 10AA of the Income Tax Act, 1961 for 5 years .

Also, 50% exemption for next five years and 50% ploughed back export profit for next five years.

Procurement preference

As per Public Procurement Policy for Micro and Small Enterprises (MSES) Order that is, 2012″ which came into effect from 1 April 2012,

Central Ministry or Department or PSU shall procure a minimum of 20% of the goods and services from MSMEs which gives them an added advantage.

Further, there is a list of 358 items that are reserved exclusively for purchase from MSMEs.

Apart from the above benefits which are provided to MSMEs, additionally, the government is helping these businesses.



Basically,The Ministry of Micro, Small and Medium Enterprises, a branch of the Government of India, is the apex executive body for the formulation and administration of rules,regulations and laws relating to micro, small and medium enterprises in India


1) What is MSME?

The Ministry of Micro, Small and Medium Enterprises, a branch of the Government of India, is the apex executive body for the formulation and administration of rules, regulations and laws relating to micro, small and medium enterprises in India

2)What is MSME act?

The Micro, Small and Medium Enterprises Development Act, 2006 is an Act of the Parliament of India.
According to the act, “any buyer who fails to make payment to MSMEs, as per agreed terms or a maximum of 45 days, would be liable to pay monthly compounded interest at three times the bank rate notified by RBI”

3)What is RBI?

The Reserve Bank of India is India’s central bank, which controls the issue and supply of the Indian rupee.
However, RBI is the regulator of the entire Banking in India. RBI plays an important part in the Development Strategy of the Government of India.

4) What is MSME report?

Every specified company shall file in MSME Form I details of all outstanding dues to Micro or small enterprises suppliers existing on the date of notification of this order within thirty days from the date of publication of this notification



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