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Industrial Policy and MSMEs

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Industrial Policy and MSMEs

What is Industrial Policy?

An Industrial Policy refers to the set of government strategies, policies, and regulations aimed at promoting industrial development, investment, technology upgradation, employment generation, and regional balance. It defines the role of the government and the private sector in industrial development.

Evolution of Industrial Policy in India

Industrial Policy Resolution, 1948

  • Mixed economy framework – Private sector allowed but with government control over strategic industries.
  • Focus on socialist ideals and planned industrialisation.

Industrial Policy Resolution, 1956

  • Classified industries into three categories:
    1. Exclusively under state control (atomic energy, railways, defence).
    2. State-led but with private participation (iron & steel, heavy machinery, telecom).
    3. Fully open to the private sector (consumer goods, services).
  • Strengthened the role of PSUs.

Industrial Policy, 1991 (Post-Liberalisation)

  • Abolished License Raj – Most industries freed from licensing requirements.
  • Opened sectors to private and foreign investment.
  • Encouraged competition and innovation.
  • Reduced the number of sectors reserved for public sector from 17 to only 4 (atomic energy, defence, railway transport, and minerals).

Current Industrial Policy Focus Areas

  • Ease of Doing Business – Simplified regulations, online approvals.
  • Make in India – Promoting manufacturing and export competitiveness.
  • Atmanirbhar Bharat – Self-reliance through domestic manufacturing and reduced import dependence.
  • Sector-specific initiatives – Electronics, defence manufacturing, pharma parks.

Micro, Small and Medium Enterprises (MSMEs)

Definition (Updated in 2020)

  • Micro Enterprise – Investment ≤ ₹1 crore, Turnover ≤ ₹5 crore.
  • Small Enterprise – Investment ≤ ₹10 crore, Turnover ≤ ₹50 crore.
  • Medium Enterprise – Investment ≤ ₹50 crore, Turnover ≤ ₹250 crore.

Importance of MSMEs

  • Contribute nearly 30% to GDP.
  • Employ over 11 crore people, especially in rural areas.
  • Promote entrepreneurship and innovation.
  • Significant contributors to exports – over 45% of exports from MSMEs.

Government Schemes for MSMEs

Credit Guarantee Scheme

  • Provides collateral-free loans to MSMEs.
  • Facilitates easier credit access from banks and NBFCs.

Prime Minister’s Employment Generation Programme (PMEGP)

  • Provides financial assistance for setting up new micro-enterprises in non-farm sectors.

ZED Certification (Zero Defect, Zero Effect)

  • Encourages quality manufacturing with environmental responsibility.
  • Helps MSMEs become globally competitive.

Udyam Portal

  • Simplified online platform for MSME registration.
  • Links MSMEs with marketplaces, credit access, and government tenders.

Challenges Faced by MSMEs

  • Credit constraints – High dependence on informal credit.
  • Technological obsolescence – Lack of modern machinery and processes.
  • Marketing challenges – Difficulty in accessing global supply chains.
  • Delayed payments – Especially from large corporates and government buyers.

Statement-based MCQs

MCQ 1
Consider the following statements regarding the Industrial Policy of 1991:

  1. It abolished industrial licensing for all industries.
  2. It allowed 100% foreign direct investment (FDI) in all sectors.
  3. It reduced the number of industries reserved for the public sector.

Which of the statements given above is/are correct?
a) 1 and 2 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2 and 3

Tap here for Answer
Answer: b) 1 and 3 only
Explanation:

  • Statement 1 is correct – Most licensing requirements were abolished, except for critical sectors.
  • Statement 2 is incorrect – FDI was liberalised but not 100% in all sectors.
  • Statement 3 is correct – Public sector reservation was reduced to just 4 sectors.

MCQ 2
Which of the following are features of the 1956 Industrial Policy Resolution?

  1. Emphasis on the public sector in core industries.
  2. Classification of industries into three categories.
  3. Complete exclusion of the private sector from all industries.

Select the correct answer using the code below:
a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 1, 2 and 3

Tap here for Answer
Answer: a) 1 and 2 only
Explanation:

  • Statement 1 is correct – 1956 policy gave preference to PSUs.
  • Statement 2 is correct – Industries were classified into three categories.
  • Statement 3 is incorrect – The private sector was allowed in some industries.

MCQ 3
Which of the following best describes the role of MSMEs in India?

  1. Significant contribution to exports.
  2. Large employment generator.
  3. Key driver of rural industrialisation.

Select the correct answer using the code below:
a) 1 and 2 only
b) 2 and 3 only
c) 1, 2 and 3
d) 1 only

Tap here for Answer
Answer: c) 1, 2 and 3
Explanation:

  • All statements are correct – MSMEs are critical to exports, rural employment, and industrialisation.

MCQ 4
As per the new MSME definition (2020), an enterprise with an investment of ₹8 crore and turnover of ₹30 crore would be classified as:
a) Micro Enterprise
b) Small Enterprise
c) Medium Enterprise
d) Large Enterprise

Tap here for Answer
Answer: b) Small Enterprise
Explanation:

  • Investment (₹8 crore) and turnover (₹30 crore) fall within the Small Enterprise category (Investment ≤ ₹10 crore, Turnover ≤ ₹50 crore).

MCQ 5
Which of the following schemes aims to promote quality manufacturing among MSMEs with minimal environmental impact?
a) PMEGP
b) MUDRA Yojana
c) ZED Certification Scheme
d) Stand-Up India

Tap here for Answer
Answer: c) ZED Certification Scheme
Explanation:

  • The ZED (Zero Defect, Zero Effect) Certification promotes quality production with environmental responsibility among MSMEs.

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