What is the primary objective of the Micro, Small, and Medium Enterprises Development (MSMED) Act of 2006 in India?
- (a)To increase import tariffs to protect MSMEs
- (b)To focus on large-scale industries only
- (c)To regulate foreign companies
- (d)To promote and facilitate the development of MSMEs
Answer
Why
Correct — D. The MSMED Act, 2006 states its purpose in its own long title: an Act to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises.
Option (d) is that sentence in short form. Everything the Act then does follows from it — a statutory definition of micro, small and medium, a National Board for MSME, and a remedy against buyers who pay late.
It is a development and facilitation statute, not a protective or regulatory one.
Why the others are wrong
- (a)To increase import tariffs to protect MSMEs — Import tariffs are fixed under customs law and the annual Finance Act. The MSMED Act carries no tariff power, and protection by tariff is trade policy rather than enterprise development.
- (b)To focus on large-scale industries only — Large-scale industries are precisely what the Act's ceilings exclude. An enterprise above the investment and turnover limits is not an MSME and falls outside the Act.
- (c)To regulate foreign companies — Foreign companies are governed by the Companies Act, 2013 and by FEMA. Nothing in the MSMED Act turns on who owns an enterprise or where the owner is from.
Concept
The MSMED Act, 2006 did three things worth remembering.
It gave statutory definitions of micro, small and medium enterprises for the first time, originally measured by investment in plant and machinery or in equipment.
It created the National Board for Micro, Small and Medium Enterprises as the advisory body under the Ministry.
And it made delayed payment actionable: a buyer must pay a micro or small enterprise within the agreed period, which cannot exceed 45 days.
The classification itself was replaced from 1 July 2020 by a composite criterion of investment and annual turnover, and the manufacturing-versus-services distinction was dropped at the same time. The Act's stated objective did not change.
Key facts
- The MSMED Act, 2006 is an Act to facilitate the promotion and development of micro, small and medium enterprises and to enhance their competitiveness.
- Under the Act a buyer must pay a micro or small enterprise within the agreed period, which cannot exceed 45 days, with disputes going to the Micro and Small Enterprises Facilitation Council.
- From 1 July 2020 MSMEs are classified on a composite criterion of investment and annual turnover.
- Udyam Registration replaced Udyog Aadhaar registration from 1 July 2020.
Study next
Common traps
- Dismissing promote and facilitate as a vague option, when the Act's long title uses exactly those words.
- Assuming the Act reserves products for small industry, which was industrial policy rather than this statute.
The sector is also asked through the laws around it rather than the Act's sections: the July 2021 Bill on factoring, meant to ease MSME working capital, is asked on 13 Sep 2024, 12:30, General Awareness Q.23.
Related PYQs
No directly related past PYQ was found.