Micro, Small & Medium Enterprises Development Act

Introduction

The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) was enacted by the Indian Parliament to promote the growth and competitiveness of micro, small, and medium enterprises (MSMEs). Recognizing the critical role that MSMEs play in the nation’s economic development, this Act provides a legal framework for their support, development, and sustainability. The MSMED Act aims to foster these enterprises while also enhancing their competitive edge in the global market.

Objective of the Act

The Act is designed to facilitate the promotion, development, and competitiveness of micro, small, and medium enterprises. It also addresses various matters connected with MSMEs, or incidental thereto, ensuring that these enterprises receive the support and structure necessary to thrive.

The Act also ties into the Industries (Development and Regulation) Act, 1951, which declared the need for Union control over certain industries. In this context, the MSMED Act aims to further the promotion and development of MSMEs within the framework of the broader industrial policy of the country.

Key Elements of the MSMED Act

• Short Title and Commencement :

The Act is formally titled the Micro, Small and Medium Enterprises Development Act, 2006. It came into effect on October 2, 2006, as notified by the Central Government. Different provisions of the Act may have different commencement dates, as per the Government’s discretion.

• Definitions : 

The MSMED Act provides clear definitions of terms crucial to its implementation, including:

• Advisory Committee: A committee constituted by the Central Government to assist in the classification of MSMEs and other related matters.
• Appointed Day: Refers to the day following the 15-day period after the buyer has either accepted or is deemed to have accepted goods or services from a supplier.
• Enterprise: Refers to any industrial or business establishment engaged in the production of goods or provision of services.
• Micro, Small, and Medium Enterprises: These are classified based on specific criteria under Section 7 of the Act, distinguishing between enterprises in manufacturing and service sectors.

• National Board for Micro, Small, and Medium Enterprises: 

The Act establishes a National Board to provide guidance and oversight in the development of MSMEs. This board plays a pivotal role in policy formulation and coordination at the national level for the growth of these enterprises.

• Supplier and Buyer Definitions: 

The Act identifies a supplier as any micro or small enterprise that has registered under Section 8 of the Act. A buyer is defined as an entity that purchases goods or services from a supplier in exchange for consideration. This distinction is crucial for understanding the buyer-supplier relationship, particularly in the context of payment obligations.

• Promotion and Development: 

Section 7 of the MSMED Act outlines the classification criteria for micro, small, and medium enterprises. This classification is fundamental in determining the types of support and incentives that an enterprise may receive from the government.

• Facilitation of Payments: 

One of the key concerns addressed by the Act is the timely payment to MSMEs. The Act specifies clear timelines for the acceptance or deemed acceptance of goods or services and ensures that payments to MSMEs are made promptly. In cases where payments are delayed, buyers may be liable for penalties.

National Board for Micro, Small And Medium Enterprises 

The National Board for Micro, Small, and Medium Enterprises (MSMEs) is an important institution created to oversee and support the growth and development of MSMEs in India. 

The National Board for MSMEs plays a crucial role in fostering a conducive environment for the growth of small businesses, which form the backbone of India’s economy. By ensuring representation from various sectors, including state governments, trade unions, financial institutions, and industry experts, the Board ensures that the needs and challenges of MSMEs are comprehensively addressed. This multi-faceted representation helps in creating policies that are inclusive, practical, and beneficial for small enterprises across the country.

The establishment of the Board reinforces the government’s commitment to the development and competitiveness of MSMEs, which are key drivers of employment, innovation, and economic growth in India. By providing a platform for diverse stakeholders to collaborate, the Board ensures that the interests of MSMEs are effectively represented at the national level.

Establishment and Head Office

The National Board for MSMEs was established by the Central Government through a notification for the purposes of promoting and developing micro, small, and medium enterprises in the country. Its head office is located in Delhi, ensuring its central position for national-level policymaking and governance.

Composition of the Board

The Board comprises a diverse range of members, ensuring representation from various sectors that impact MSMEs. These members include:

• Chairperson and Vice-Chairperson:

1. 1. • The Minister in charge of MSMEs serves as the ex officio Chairperson of the Board.
      • The Vice-Chairperson can be the Minister of State or Deputy Minister, or a person appointed by the Central Government.

• State Ministers: 

Six Ministers from State Governments, responsible for small industries or MSMEs, are appointed by the Central Government to represent various regions of the country.

• Members of Parliament: 

Three Members of Parliament, two from the House of the People and one from the Council of States, are elected to the Board.

• Union Territories and Government Officials:

1. 1. • The Administrator of a Union Territory is an ex officio member.
      • Several Secretaries from key ministries (such as finance, commerce, industry, and labor) are also ex officio members.

• Banking and Financial Sector Representatives:

1. 1. • The Chairman of the National Bank and the Small Industries Bank, as well as a representative from the Reserve Bank of India, hold ex officio positions.

• Industry Representatives:

1. 1. • The Board includes 20 representatives from associations of micro, small, and medium enterprises. This ensures that various sectors, including women entrepreneurs and micro-enterprises, are represented.

• Eminent Personalities:

1. 1. • Three people of eminence from the fields of economics, industry, and science and technology, with at least one being a woman, are appointed to provide expert guidance.

• Trade Union Representatives: 

Two representatives from Central Trade Union Organizations are also part of the Board to represent labor interests.

Functions of the Board

The Board’s primary responsibility is to promote the growth and competitiveness of MSMEs in India. It performs the following key functions:

• Reviewing Policies and Programs: 

The Board regularly examines factors affecting MSMEs and reviews existing government policies and programs, assessing their impact on MSME growth and development.

• Making Recommendations: 

Based on its review, the Board makes recommendations to the Central Government on how to improve policies and initiatives related to MSMEs.

• Advising on Fund Utilisation: 

The Board advises the government on how to use various funds established to support MSMEs under the relevant provisions of the law.

Role of the Member-Secretary

The Member-Secretary of the Board, appointed by the Central Government, plays a key role in managing the Board’s activities. They are responsible for overseeing the day-to-day functions of the Board, ensuring that its goals are met, and assisting in the implementation of policies.

Meetings and Decision-Making

The Board is required to meet at least once every three months to discuss and review the progress of MSME-related policies and issues. Despite any vacancies or minor irregularities, the functioning of the Board remains valid, ensuring continuity in its decision-making processes.