Policies for MSMEs

In one line

Policy for small enterprises works on five fronts: guarantee their loans, give them equity, buy from them, connect them to markets, and let them grow without losing their status.

In the wording a student can write in an exam: policy for micro, small and medium enterprises operates through the promotional machinery of Chapter IV of the MSMED Act 2006, through credit measures including priority sector lending and the credit guarantee scheme, through equity and subsidy support, through a public procurement preference policy, through technology, quality and cluster programmes, through market access initiatives including electronic platforms and receivables discounting, and through the periodic revision of the classification thresholds so that enterprises are not penalised for growing.

The statutory machinery: Chapter IV of the Act

Chapter IV is headed Measures for promotion, development and enhancement of competitiveness and contains six sections. They are the legal foundation on which the schemes sit.

Note what section 11 does and does not do. It enables a procurement preference; it does not itself create one. The public procurement policy for micro and small enterprises is made under it, which is why an answer should cite the section as the source of the power and the policy as the instrument.

Front one: credit

Priority sector lending. Banks are required to lend a prescribed proportion of their credit to specified sectors, of which micro and small enterprises are one. This is the largest single instrument and it works by direction rather than by subsidy.

The Credit Guarantee Scheme, the most examinable item. The problem it solves is the absence of collateral: a lender that cannot take security will not lend, whatever the borrower's prospects. A guarantee substitutes the trust's promise for the security the borrower does not have.

The Economic Survey 2025-26 records the sequence precisely.

• The Credit Guarantee Scheme for Micro and Small Enterprises was revamped with effect from 1 April 2023, following a corpus infusion of 9,000 crore rupees into the Credit Guarantee Fund Trust for Micro and Small Enterprises.
• The ceiling for guarantee coverage was raised from 2 crore to 5 crore rupees, and the annual guarantee fee reduced to as low as 0.37 per cent.
• Coverage for women owned enterprises was increased from 85 per cent to 90 per cent.
• With effect from 1 April 2025, the ceiling was doubled again from 5 crore to 10 crore rupees, and the annual guarantee fee was rationalised for coverage exceeding 1 crore rupees.