Business Plan and Feasibility Analysis; Micro, Small and Medium Enterprises: Definition, Role of Government, Sickness and Revival, and Institutional Finance including Microfinance

The Micro, Small and Medium Enterprises Development (MSMED) Act 2006 replaced the old 'small-scale industry' regime, created the categories micro, small and medium, brought services in alongside manufacturing, set up the National Board for MSMEs, and gave statutory force to the delayed-payment rules. Classification originally rested on investment in plant and machinery or equipment alone, with separate limits for manufacturing and services. From 1 July 2020 a single composite criterion applied to both sectors — investment in plant and machinery or equipment and annual turnover, with exports excluded from turnover — and an enterprise is placed in the higher category if it crosses either limit. The Union Budget of 1 February 2025 raised the limits again (investment 2.5 times, turnover 2 times), notified with effect from 1 April 2025. Registration is online and self-declared on the Udyam portal (from 1 July 2020, replacing Udyog Aadhaar), linked to PAN and GST data, and yields a permanent Udyam Registration Number; informal micro units without PAN or GST can register on the Udyam Assist Platform (2023) to access priority-sector credit.

MSMEs matter because they are the largest employer after agriculture, contribute roughly three-tenths of GDP and over two-fifths of exports by the ministry's estimates, use local resources and labour-intensive methods, disperse industry to smaller towns, nurse entrepreneurship and feed large industry as ancillaries — while suffering from small scale, weak finance, obsolete technology, poor marketing and delayed payments. The Union Ministry of MSME (2007, from the merger of the ministries of small-scale industries and of agro and rural industries) works through the Development Commissioner (MSME) and its field institutes (MSME-DFOs, formerly DIs), KVIC, the Coir Board, NSIC, NIESBUD, IIE and the MGIRI at Wardha; state governments act through their Directorates of Industries and DICs.

• Protected market and procurement — the Public Procurement Policy for MSEs (2012, mandatory from 2018) requires central ministries, departments and PSUs to buy at least 25% of their annual purchases from micro and small enterprises, including 4% from SC/ST-owned and 3% from women-owned MSEs; GeM and the MSME Sambandh portal track it; tender-fee and earnest-money exemptions and a purchase preference within 15% of L1.
• Credit — collateral-free guarantee from the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE, 2000, set up by the ministry and SIDBI; guarantee cover on loans up to ₹10 crore from 2025); the priority-sector rule that 7.5% of a bank's adjusted net bank credit go to micro enterprises; PMEGP; the Emergency Credit Line Guarantee Scheme (2020, pandemic); customised credit cards for micro enterprises and a ₹5 lakh credit card announced in Budget 2025; the Self-Reliant India Fund (Fund of Funds, 2020).
• Technology and quality — Credit Linked Capital Subsidy Scheme (CLCSS, 15% subsidy on technology upgrading, now within the Credit Linked Capital Subsidy and Technology Upgradation Scheme), the Zero Defect Zero Effect (ZED) certification (2016, bronze/silver/gold from 2022), Lean Manufacturing Competitiveness, MSME Champions scheme, Technology Centres (tool rooms), the Micro and Small Enterprises Cluster Development Programme (MSE-CDP, common facility centres and infrastructure), and SFURTI for traditional clusters.
• Marketing and infrastructure — NSIC's marketing assistance, raw-material assistance and consortia; the Procurement and Marketing Support scheme; trade fairs and export promotion; industrial estates and the MSE-CDP; the Champions portal (2020) for grievances; the RAMP programme (Raising and Accelerating MSME Performance, 2022, World Bank-assisted) for state-level reforms.
• Delayed payments — under sections 15–24 of the MSMED Act a buyer must pay a micro or small supplier within the agreed period not exceeding 45 days (15 days if no agreement), failing which compound interest at three times the RBI bank rate is payable; disputes go to the Micro and Small Enterprises Facilitation Council (MSEFC) and are filed on the MSME Samadhaan portal (2017); section 43B(h) of the Income-tax Act (from FY 2023–24) disallows the buyer's deduction for amounts not paid within the MSMED time limit; companies file the half-yearly MSME Form 1 on overdue dues; TReDS (2017) lets MSEs discount receivables online.

An enterprise is sick when it can no longer meet its obligations from its own cash generation and its net worth is being eroded. The RBI's definition for MSEs (Kohli committee, 2001; revised 2012) treats a unit as sick if any of its borrowal accounts has remained a non-performing asset for three months or more, or there is erosion of net worth due to accumulated losses to the extent of 50% of its net worth in the previous accounting year. Causes are internal — poor project planning and an inflated cost of project, weak management and one-person dependence, technical faults and obsolescence, inadequate working capital and diversion of funds, poor marketing and over-dependence on one buyer, labour trouble — and external — delayed payments by large buyers, power and raw-material shortage, recession and demand shifts, import competition and dumping, policy and tax changes, natural calamities and pandemics; the Kohli committee found lack of demand and working-capital shortage the leading reasons. Symptoms appear early as declining sales and capacity utilisation, persistent cash losses, over-drawn accounts and irregular repayment, stretched creditors and rising inventory, frequent requests for enhancement, statutory dues in arrears, and high attrition of key staff.

Prevention is cheaper than cure: sound project appraisal, adequate working-capital limits sanctioned with the term loan, realistic margins, diversification of buyers, professional management and regular monitoring by the bank (stock statements, inspections, annual review) catch stress before it becomes sickness. When a unit does fall sick, the decision is viability: a viable unit is nursed back by restructuring and fresh funds with the promoter's contribution, a non-viable one is closed and its assets recovered — keeping a non-viable unit alive on bank money is throwing good money after bad.

The Pradhan Mantri Mudra Yojana (PMMY), launched on 8 April 2015, provides collateral-free loans through banks, RRBs, small finance banks, NBFCs and MFIs to non-farm income-generating micro enterprises in manufacturing, trading, services and allied agriculture; MUDRA (Micro Units Development and Refinance Agency) is a SIDBI subsidiary that refinances the lenders, and the Credit Guarantee Fund for Micro Units covers them. Loans are in four categories: Shishu up to ₹50,000; Kishore above ₹50,000 up to ₹5 lakh; Tarun above ₹5 lakh up to ₹10 lakh; and Tarun Plus above ₹10 lakh up to ₹20 lakh, added from 24 October 2024 for borrowers who have repaid a Tarun loan. Shishu loans dominate by number and women are the majority of borrowers; the Jan Dhan – Aadhaar – Mobile trinity and the PM SVANidhi scheme (2020, working-capital loans of ₹10,000, ₹20,000 and ₹50,000 in successive tranches to street vendors) extend the same logic to the smallest traders, and PM Vishwakarma (17 September 2023) gives artisans in 18 trades recognition, skilling, a ₹15,000 toolkit incentive and collateral-free loans of ₹1 lakh and ₹2 lakh at 5% interest.

Microfinance is the provision of small loans, savings, insurance and remittance services to low-income households excluded from formal banking, typically without collateral and through group mechanisms that substitute peer pressure for security. Its modern form dates from Muhammad Yunus's Grameen Bank (Bangladesh, 1976; bank 1983; Nobel Peace Prize 2006) with joint-liability groups of five. India's two channels are the SHG–bank linkage programme — begun as a NABARD pilot in 1992, a self-help group of 10–20 women saves regularly, lends internally, then borrows from a bank, now the largest microfinance programme in the world by membership and federated under DAY-NRLM — and microfinance institutions (NBFC-MFIs, section 8 companies, societies and trusts) lending to joint-liability groups, regulated by the RBI after the 2010 Andhra Pradesh crisis on the Malegam committee's recommendations (2011). The RBI's harmonised microfinance regulations of March 2022 define a microfinance loan as a collateral-free loan to a household with annual income up to ₹3 lakh, cap total monthly repayment obligations at 50% of household income, remove the earlier interest-rate ceiling in favour of board-approved policies with disclosure, and apply to all regulated lenders; MFIN and Sa-Dhan are the self-regulatory organisations. Small finance banks (from 2015–16, several converted from MFIs — Ujjivan, Equitas, ESAF) and Bandhan Bank (2015, the first MFI to become a universal bank) show the sector's evolution; its critiques are high effective interest rates, multiple lending and over-indebtedness, coercive recovery, and the question of whether microcredit lifts households out of poverty or merely smooths consumption.