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Policies & Schemes for MSEs

The MSME sector employs over 60 million people in about 2.61 crore units and is
the second largest employer of human resources after agriculture.. It contributes
about 40 per cent to the country's total exports and about 45 per cent to the
manufacturing activities. The development of Small Scale Sector has therefore
been assigned an important role in India's national plans.
In order to protect, support and promote small enterprises as also to help them
become self-supporting, the office of Development Commissioner, MSME
operates a number of schemes for the MSE sector through various financial
institutes like SIDBI, NSIC and others:

Access to Credit- Policy & Schemes

1. Priority Sector Lending: For Domestic Banks, 40% of Net Bank Credit
(NBC) and for Foreign banks, 32% for) of the NBC is earmarked for the
Priority Sector, of which 10% is earmarked for the MSE sector. Priority sector
include agriculture, small enterprises, retail trade, etc.
2. National Equity Fund Scheme (NEFS)- provide equity to MSEs in
manufacturing to cover projects upto Rs. 1 million.
3. Seed Capital Scheme- for the purpose of providing initial seed

capital in the form of promoters contribution to new ventures.

4. Credit Guarantee Trust Fund for MSEs (CGT-MSE)- to provide collateral

free credit facility for loans up to Rs 5 lakh, (extended upto Rs 25 lakh for
units with good track record) for SSIs unable to arrange third party guarantor
or collateral security. Also provide security cover of 75% to minimize risk
perceived by banks and FIs in providing Collateral free loans to MSEs upto a
limit of Rs.50 lakhs).
5. Composite term loan under Single Window Assistance Scheme facilitates long term loans (of Rs 1 crore), to acquire land & building,
machinery & equipment and working capital under one roof to MSEs.
6. Credit linked capital subsidy scheme (CLCSS)- capital subsidy of upto
15% with loan ceiling of Rs 1 crore for technology upgradation.
7. Micro Finance Programme to provide credit to Low income category
(below poverty line). It has been found as an effective instrument for lifting
the poor above the level of poverty by providing them increased selfemployment opportunities. Micro-credit programme works through NGOs/
MFIs/ SHGs. At present, SIDBI takes fixed deposit equal to 10% of the loan
amount. 25% of security deposit is to be provided by MFIs/NGOs and balance
75% of security deposit would be adjusted from the funds provided by the
GoI to SIDBI, called Portfolio Risk Fund (PRF).
8. India Microfinance Equity Fund- of 100 crore with SIDBI for providing
equity to smaller Micro Finance Institutions MFIs.
9. Refinancing Scheme- 10,000 crore to SIDBI (doubled this year) for
refinancing incremental lending by banks to MSEs.
10. India Opportunities Venture Fund- of 5,000 crore, for developing new
ventures and promoting risky Ventures by new technicians and new
11. Hire Purchase Scheme- supply of indigenous and imported machinery and
equipment on easy financial terms with special focus on women
12. Performance credit rating: if a unit takes a credit rating from an approved
credit rating agency, the govt reimburses 75% of the cost of getting a rating
subject to a ceiling of Rs 40,0000.
13. Mini Tool Rooms- Assistance upto 90% or Rs.9.00 crores, whichever is less
for setting up new Mini Tool Rooms. For upgradation of existing Tool Rooms,
assistance is 75% or Rs.7.5 crores - for State Governments.

14. Assistance to Entrepreneurship Development Institutes - For

strengthening training infrastructure assistance upto 50% or Rs. 50 lakhs
whichever is less - for State Governments.

General Policy & Schemes

1. Definition: Investment Limit in plant & machinery / equipment (excluding
land and building) for determining the status of SMEs increased:
Service Enterprises
Up to Rs 25 lakh
Up to Rs 10 lakh
Between Rs 25 lakh & Rs 5
Between Rs 10 lakh & 2
Between Rs 5 & 10 crore
Between Rs 2 & 5 crore
1 crore= 10 million= 100 lakh= 1,00,00,000

2. Progressive Dereservation of 654 items reserved for exclusive

manufacture by the SMEs in the last few years reducing it to 21 at present.
This has helped the sector in enlarging the scale of operations. If a Non-MSE
units wants to manufacture reserved items they have to undertake 50%
export obligations. But, there is no restriction on trading/ marketing of the
reserved items by large industries.
3. Purchase & Price Preference Policy- 358 items reserved for exclusive
purchase from MSEs. Price preference upto 15% over the lowest quotation of
the large scale units (to compensate MSEs on account of non-availability of
economies of scale, poor resource base, poor access to raw-material).
4. Equity participation by other industrial undertakings in the SMEs, to
up to 24% of the total shareholding.
5. Licensing Policy- Exemption from obtaining compulsory License for SMEs
employing less than 50 workers with power or less than 100 workers without
and brewing of alcoholic drinks; tobacco products; electronic aerospace and defense
equipment: industrial explosives ; hazardous chemicals; drugs and pharmaceuticals).

6. Limited Partnership Act introduced to enhance the supply of risk capital to

the SME sector that would limit the financial liability of the new and nonactive partners/entrepreneurs to the capital invested.
7. Micro & Small Enterprises Cluster Development Programme (MSECDP)- to enhance their productivity and competitiveness. Thus supporting
the sustainability and growth of MSEs. Clustering of units enables provision of
various services like common facility centres for testing, training centre, raw
material depot, effluent treatment) & infrastructure facilities (like power
distribution network, water, telecommunication, drainage and pollution
control facilities, roads, banks, raw materials, storage and marketing outlets)
8. Development of Industrial Estates & Technology Parks - to encourage
the creation, expansion and modernisation of Industrial estates & Technology
Parks. To create infrastructural facilities like built-up office space, high speed
better transport & communication facilities, uninterrupted power supply,
water supply, drainage and pollution control facilities, roads, banks, storage
and marketing outlets, common service facilities (for testing, training centre,
raw material depot, effluent treatment, complementing production
processes, etc) and technological backup services for MSEs. Eg. NSIC-STP
Complex at Okhla, New Delhi.
10. Central Excise Exemption- of Rs one crore to SSIs with turnover more than
Rs 4 crore. Tax on a good produced for sale, or sold, within a country or licenses for specific activities.
Excises are distinguished from customs duties, which are taxes on importation. Excises are inlandtaxes,
whereas customs duties are border taxes. Excises are typically imposed in addition to another indirect tax

such as a sales tax or value added tax (VAT).Typical examples of excise duties are taxes on gasoline and
other fuels, and taxes on tobacco and alcohol.

11. Tax Holiday (Income)- The deduction allowed is 25% of profits for 10 years
for new SSIs; 100% for first five years & 25% for the next five years for units
in specified backward States.
12. Equipment Leasing- to help MSEs expand their capacities or diversify
and/or upgrade their technology according to market needs.
13. Factoring services, to solve the problem of delayed payments to SMEs.
14. National Manufacturing Competitiveness Programme (NMCP) - to
support SMEs in their endeavor to become competitive and adjust to the
competitive pressure caused by liberalization.

Technology Development and Modernization Fund Scheme to

help MSEs become competitive by increasing their production

Credit Linked Capital Subsidy Scheme (CLCSS) aims at facilitating

Technology upgradation by providing Capital subsidy of 15% (of purchase
price of Plant and Machinery) with an upper limit of Rs. 100 lakh for
technology upgradation.
Technology Business Incubators- enable technical entrepreneurs to
conduct their R&D in a professional & supportive environment.
Tool Rooms/Tool Design Institutes (TRs/TDI): provide good quality
tools, dies, moulds and fixtures to SMEs at a very low price;
Product-cum-Process Development Centres: to improve the quality of
products, reduce cost of product and enhance marketability of goods;
Technology Development Cell (TDC) to provide technology inputs &
Common testing facilities. The TDC would coordinate the activities of the
Tool Rooms, Process-cum-Product Development Centres (PPDCs), & other
development organizations.
Regional Testing Centre (RTC)- provide testing facilities for product
quality upgradation.
Technology Information Centres to provide updated knowledge on
technology & markets and quality counseling- to create greater degree of
awareness to produce quality goods & services.
Provision of Technical & Managerial Consultancy Services
Indian Institutes of Technology (IITs) and selected Regional/other
Engineering Colleges will serve as Technological Information, Design and
Development Centres in their respective areas.
MSME MDA - to encourage SME exporters in their efforts in tapping and
developing overseas markets.
Participation in the International Exhibitions/ Fairs refund of 75%
with upper ceiling of Rs. 90,000/- on account of travel in economy class.
Sale-cum-study tour(s) abroad- Refund of 90% of the actual fare for
SME exporters with upper ceiling of Rs. 60,000/- for travel in economy
Financial Assistance for using barcoding- Providing 75% of one time
registration fee and annual recurring fee (for first three years)
Vendor Development Programme for Ancillarisation
Tender Marketing- participation on behalf of SMEs in government
tenders to procure orders for them.
Discount bills pertaining to supplies made by SMEs.
Marketing of mass consumption items (which are predominantly
being marketed by the organised sector) under common brand name.
Sub-Contract Exchanges for Ancillary Development (SCXs)- to
register and create database of spare manufacturing capacity and match

it with requirements of large scale undertakings; arrange buyer- seller

meets; organise vendor exhibitions, seminar, workshops etc.
Suppliers Rating Accreditation Services: speaks of the enterprise's
ability to supply reliably and effectively a product.
Quality Improvement Programmes
ISO 9000/ ISO 14001 Certification Reimbursement Scheme to
reimburse expenses incurred to the extent of 75% or Rs.75,000/whichever is lower.
Quality Awareness Workshops organized by Small Industries Service
Institutes (SISI);
National Awards for Quality Products in 15 industries of consumer
interests: consists of a citation, a trophy & Rs. 25,000/- cash prize money
for each of the 15 selected products;

15. Export Assistance to SMEs:

Duty (Custom) free import of capital goods/ raw material and other
essential inputs for export production.
Duty-Draw-Back Scheme- Refund of duties paid on the raw material
used in export production.
Pre and Post shipment Credit at concessional rate of interest to
the exporters.
No restrictions on export of items from small scale sector.
Simplified Export Procedures
SME manufacturer-exporters given triple weightage & merchant-exporters
given double weightage for the purpose of recognition as Export Houses/
Trading Houses/ Star Trading Houses and Super Star Trading Houses.
2% additional Special Import Licence (SIL) for SME exporters:
recognised as Export Houses, Star Trading House, and Trading Houses.
National Export Award to Exporters for outstanding export
Export Development Centre, set up in the SIDO to be the nodal agency
to support the SMEs in export promotion.
16. Energy conservation Scheme- for financing energy saving proposals of
17. Raw Material Assistance- facilitate availability of scarce raw material.
18. Information service: latest information on business leads, technology & policy
19. Advisory and Mentoring Services
20. Entrepreneurship Development Programmes (EDPs) to support first
generation entrepreneurs, to be built into the curricula of vocational and
other degree level courses./ MDP/ Skill Training Programmes
21. Simplification of rules and procedures- bureaucratic controls reduced & paper
work cut down to the minimum.
22. Fiscal benefits for environment protection- Financial assistance towards capital
investment up to 25% or Rs. 50 lakh, whichever is less, is given as subsidy to SMEs
for setting up common effluent treatment facilities; Provision of loans at reduced
rates of interest by financial institutions for installing pollution control devices;
Exemption of the Income Tax Act on expenditure incurred for conservation of natural
resources; Reduced Customs duty- 35 % on imported equipments for pollution

control; Reduced Customs duty- 5% on manufactured goods used for pollution


23. National Award for Outstanding SME Entrepreneur- consist of a citation,

trophy & Rs. 25,000/-. Also special Awards to SC/ST & women entrepreneurs
have been introduced.
24. Rehabilitation of sick units:
Prompt viability studies/nursing programmes of identified sick units.
Reduced rate of interest for rehabilitation.
Working capital limit enhanced to Rs. 5 crores.

NRI/ Foreign Direct Investment Approval

1. NRIs can invest up to 100% equity with full repatriation benefits instead of
24% by others.
2. Automatic permission is given for foreign technology agreements, for hiring
foreign technicians.
3. Automatic approval of PAYMENT OF ROYALTY by all companies irrespective of
the extent of foreign equity in the shareholding, who have entered into
foreign technology collaboration agreements. Earlier only wholly owned
subsidiaries were permitted to make payment of royalty.
4. Foreign Investment Regulations- Full Current Account Convertibility100% of the foreign exchange received as export earnings, is convertible into
rupee (i.e. fully convertible).

Schemes for Women

1. Definition of "Women Enterprises" simplified- present stipulation
regarding employment of majority of women workers would be dispensed
with and units in which women entrepreneurs have a majority shareholding
and management control, would be defined as "Women Enterprises".
2. Trade Related Entrepreneurship Assistance and Development
Scheme (TREAD) - easy availability of credit through NGOs, to women
entrepreneurs, who have no easy access to credit from banks due to their
cumbersome procedures and the inability of poor & usually illiterate/semiliterate women to provide adequate security demanded by banks in the form
of collaterals. GoI grants up to 30% of the total project cost through these
NGOs. NGOs also provide trade related training, information and counseling
to women entrepreneurs.
3. Rashtriya Mahila Kosh: set up to grant micro credit to poor women at
reasonable rates of interest with very low transaction costs and simple
4. Womens SHGs Development Fund- of `500 crore to empower women
and promote their Self Help Groups (SHGs).
5. A Women Cell to provide coordination and assistance to women
entrepreneurs facing specific problems.
6. "Outstanding Women Entrepreneur" of the year award to recognise the
achievements made by women entrepreneurs.
7. Mahila Udyam Nidhi- provides equity support to women entrepreneurs

8. Mahila Vikas Nidhi- offers developmental assistance for entrepreneurial

development of women especially in rural areas.
9. Training of Rural youth for Self employment (TRYSEM)- to alleviate
poverty, 30-40% reservation is provided to women.
10. Swarna Jayanti Gram Swarozgar Yojana and Swaran Jayanti Sekhari
Rozgar Yojana to provide reservations for women and encouraging them to
start their ventures.
11. Women EDPs
12. Training schemes specially for the self employment of women:
(i) Support for Training and Employment Programme of Women (STEP).
(ii) Development of Women and Children in Rural Areas (DWCRA).
13. Women Development Corporations- to help women entrepreneurs in
arranging credit and marketing facilities. Marketing Development Fund for
14. Federations and Associations
National Alliance of Young Entrepreneurs (NAYE)
India Council of Women Entrepreneurs, New Delhi
Self Employed Women's Association (SEWA)
World Association of Women Entrepreneurs (WAWE)
15. The SIDBI has also taken initiative to set up an informal channel for credit
needs on soft terms giving special emphasis to women.

Schemes for Priority sector

1. Prime Minister's Rozgar Yozna (PMRY): started in 1993. To provide selfemployment opportunities to educated unemployed youth in the country. The
eligibility is 35 yrs or less, relaxed to 45 yrs SCs/STs & women and
educational qualifications relaxed from matric to VIIIth passed. The upper
limit of project cost is Rs. 2 lakhs.
2. Self-employment to Educated Unemployed Youth Scheme (SEEUY):
started in 1983. Unemployed Youth in the age group of 19-35 years who are
matriculates and above are eligible for assistance under this scheme. A
ceiling of income of Rs. 10,000 per annum, per family, has been fixed for
eligibility under the scheme. A composite loan not exceeding and Rs.15,000/for business sector is provided. 25% subsidy is provided by the Govt. on the
loans. Banks do not require collateral guarantee or margin money for such
loans. 30% of the total beneficiaries are reserved for SC/ST persons.
3. Assistance to SC/ ST Entrepreneurs: EDPs are being organised by the
SISIs exclusively for weaker sections including the persons belonging to
SC/ST communities to motivate and equip them to set up SSI units. The SIDO
provides comprehensive consultancy services in technical, managerial,
economic and other disciplines. Such services are provided mostly free of
cost. Wherever, charges are leviable, the SC/ST entrepreneurs are given 50%

State Governments-- Incentives/ Facilities/ Concessions

1. State Capital Investment Subsidy to Priority Sector industries.
2. Sales Tax concessions to new units /sick units
3. Exemption from stamp duty and octroi duty and other local taxes to new
4. Rebate in electricity charges and water charges to the new and existing units
5. Interest Subsidy to entrepreneurs on term loans
6. State Transport Subsidy to industrial units on transportation of raw materials
and finished products.

7. Subsidy for technical know-how

8. Special facilities and better infrastructural facilities for export oriented unitsreimburse costs incurred by SSI units for shipment of export samples from
the nearest port/container depot to the port of destination.
9. Air Freight Subsidy- on the finished goods for any destination.
10. Incentives to Non-Resident Indians (NRIs)- for setting up new industries by
NRis in their respective States.
11. Special incentives for Women- SSI units owned and managed by women
entrepreneurs having more than 80% women labourers are provided special
incentives like 50% subsidy for building and machinery, rent subsidy,
managerial grant, stipendary training, etc.

Budget 2013-2014

The Budget 2013 proposal that will encourage more MSMEs to grow further:
1. Benefits or preferences enjoyed by MSME to continue upto three years after
they grow out of this category (graduate to a higher category). Acc to, Finance
Minister P Chidambaram, the number of industries which grow are minimum
as they apprehend that they would be loosing the benefits or preferences
associated with staying small or medium.
2. Refinancing capacity of SIDBI doubled, raised to ` 10,000 crore during 201314.
3. Another sum of ` 100 crore provided to India Microfinance Equity Fund.
4. A corpus of ` 500 crore to SIDBI to set up a Credit Guarantee Fund for
5. A sum of ` 2,200 crore during the 12th Plan period to set up 15 additional Tool
Rooms and Technology Development Centres with World Bank assistance.
6. Ministry of Corporate Affairs to notify that funds provided to technology
incubators located within academic Institutions and approved by the Ministry
of Science and Technology or Ministry of MSME will qualify as CSR expenditure.