Indian Economy Quiz: Industrial Policy and MSMEs

The correct answer is D, Micro, Small and Medium Enterprises. The expression comes from the Micro, Small and Medium Enterprises Development Act, which came into force on 2 October 2006 and gave the sector its first statutory definition, replacing the older language of small scale and ancillary industrial undertakings.

Option A is wrong because the first category is micro, not medium; the three categories in ascending order are micro, small and medium. Option B is wrong for the same reason in reverse: the third word is medium and not marginalized, and no Indian law uses the term marginalized enterprise. Option C is wrong because strategic is not a category of enterprise in the Act at all. Since this is the easiest question the sector can yield, read the options to the end: all four begin with words that look plausible, and only one gives the three categories in the correct order.

The correct answer is C, Micro Enterprise. Under the composite criteria notified in 2020, an enterprise with investment in plant, machinery or equipment up to one crore rupees and turnover up to five crore rupees is a micro enterprise, and the same ceilings apply whether it manufactures goods or renders services. An enterprise crossing either ceiling moves up a category.

Option A is wrong because tiny enterprise was a category of the older policy framework and is not used in the present classification. Option B is wrong because a small enterprise stood at investment up to ten crore rupees and turnover up to fifty crore under the same notification. Option D is wrong because a medium enterprise stood at fifty crore and two hundred and fifty crore rupees. The ceilings have since been revised upward, but an enterprise of this size remains in the micro category, so the answer does not change.

The correct answer is D, Sick Industrial Companies Act. This Act of 1985 had created the Board for Industrial and Financial Reconstruction to deal with sick industrial units in the private sector. As part of the reforms, it was amended in December 1991 so that sick public sector enterprises could also be referred to the Board, which fitted the new policy of treating public undertakings by commercial standards.

Option A is wrong because the Industries Development and Regulation Act of 1951 dealt with licensing, not with sickness or revival. Option B is wrong because the Companies Act governs the formation and working of companies in general; winding up under it is a separate route. Option C is wrong because there is no Financial Rehabilitation Act in Indian law, and the name is invented to look plausible. The machinery of the 1985 Act was itself replaced later by the Insolvency and Bankruptcy Code of 2016.

The correct answer is C, 1955. The National Small Industries Corporation was set up in 1955 to help small units with machinery on hire purchase, raw material supply, marketing and government purchase, and it works under the Ministry of Micro, Small and Medium Enterprises.

Option A is wrong because 1954 is the year of the Karve Committee's work on village and small industries, and it is placed here to catch the candidate who remembers only that the corporation belongs to the mid nineteen fifties. Option B is wrong because 1982 is the year in which NABARD was set up for rural and agricultural credit. Option D is wrong because 1975 is the year of the nationalisation of coal companies and of the founding of Coal India, nothing to do with small industry. Keep the sector's dates in one line: NSIC in 1955, KVIC in 1957, NABARD in 1982 and SIDBI in 1990.

The correct answer is C, 2006. The MSMED Act came into force on 2 October 2006. It defined micro, small and medium enterprises in law for the first time, provided for a National Board for MSME, required a memorandum of registration and laid down the rule that a buyer must pay a micro or small enterprise within forty five days.

Option A is wrong because 2002 is the year of the Competition Act, which replaced the MRTP Act. Option B is wrong because no MSME law belongs to 2004; the year is offered only because it lies near the correct one. Option D is wrong because 2010 is a year of no statute in this field, though the National Manufacturing Policy followed in 2011. Note the date as well as the year, because 2 October, the birthday of Mahatma Gandhi, was chosen deliberately for a law about village and small enterprise.

The correct answer is B, Industrial Policy Resolution of 1956. It set the framework in which Indian industry worked for more than three decades, dividing industry into three schedules: Schedule A reserved seventeen industries for the state, Schedule B marked twelve for growing state participation and Schedule C left the rest to private enterprise. It also gave the Second Five Year Plan its emphasis on heavy and basic industry.

Option A is wrong because the Resolution of 1948 only announced the idea of a mixed economy and a four fold division of industry. Option C is wrong because the Statement of 1977 turned attention to small, village and cottage industries and created District Industries Centres. Option D is wrong because the policy of 1991 dismantled the very system the 1956 resolution had built. The phrase economic constitution in a question always points to 1956.

The correct answer is A, Industries Development and Regulation Act, 1951. Under this Act a licence from the government was needed to set up a new factory, to expand capacity, to change the product line or to shift the location of a plant, which is how the state controlled the pattern of industrial growth until 1991.

Option B is wrong because the MRTP Act of 1969 dealt with the concentration of economic power and restrictive trade practices, and it worked alongside licensing rather than creating it. Option C is wrong because the Foreign Exchange Regulation Act of 1973 controlled foreign exchange and foreign shareholding, and it was later replaced by FEMA of 1999. Option D is wrong because the Companies Act of 1956 governed the incorporation and management of companies. Associate 1951 with the licence, 1969 with monopoly and 1973 with foreign exchange.

The correct answer is A, Competition Act, 2002. The MRTP Act had been framed for an economy of licences and was concerned with the size of firms; the Competition Act shifted the focus to conduct, prohibiting anti competitive agreements and the abuse of a dominant position and regulating combinations, and it created the Competition Commission of India to enforce these rules.

Option B is wrong because the Consumer Protection Act of 1986, later replaced by the Act of 2019, protects individual consumers through consumer commissions and is a separate line of law. Option C is wrong because the Insolvency and Bankruptcy Code of 2016 replaced the machinery for sick and insolvent companies, not the monopoly law. Option D is wrong because FEMA of 1999 replaced FERA of 1973 in the field of foreign exchange. Learn the three replacements as a set, since they are set as one another's distractors.

The correct answer is B, industrial explosives. After the New Industrial Policy of 1991 licensing was abolished for almost all industries, and only a short list was kept under licence for reasons of security, health and social policy: defence equipment and aerospace, industrial explosives, specified hazardous chemicals, tobacco products such as cigarettes, and the distillation of alcoholic drinks.

Option A is wrong because cement was freed from licensing and control and is today an open industry. Option C is wrong because cotton textiles, once the most regulated of Indian industries, no longer needs a licence. Option D is wrong because sugar was also delicensed, although it remains a controlled commodity in matters of pricing and cane supply. The short list is the whole answer to this family of questions, so learn its five heads and treat everything else as delicensed.

The correct answer is A, Khadi and Village Industries Commission. The employment generation programme gives a bank loan with a government margin money subsidy to help a person set up a micro enterprise, and the Commission, set up in 1957 under the Ministry of MSME, is the national nodal agency, working through state boards and district industries centres.

Option B is wrong because SIDBI, founded in 1990 with its headquarters at Lucknow, is the apex refinance institution for small industry and not the agency that runs this scheme. Option C is wrong because NABARD, set up in 1982, is the apex body for agriculture and rural development finance. Option D is wrong because the National Small Industries Corporation of 1955 helps units with machinery, raw material and marketing. Keep the four bodies and their years apart, since questions mix the scheme with the wrong agency.

The correct answer is B, forty five days. The Act provides that a buyer shall pay on or before the date agreed in writing and that in no case may the period exceed forty five days from the day the goods were delivered or the service rendered and accepted. Beyond that, compound interest becomes payable, and the enterprise may take its complaint to the Samadhaan portal or to the Micro and Small Enterprises Facilitation Council of the state.

Option A is wrong because thirty days is not the outer limit; it is the default period where there is no written agreement, which is why it tempts candidates. Option C and Option D are wrong because no provision of the Act allows sixty or ninety days for payment to a micro or small enterprise. The reason for the rule is the working capital problem of small units, whose money is otherwise locked in receivables.

The correct answer is B, 1990, Lucknow. SIDBI was set up in 1990 as the principal financial institution for the promotion, financing and development of micro, small and medium enterprises, and it works mainly by refinancing banks and other lenders rather than by lending directly to every unit. Its headquarters are at Lucknow in Uttar Pradesh.

Option A is wrong because 1982 and Mumbai belong to NABARD, which was carved out of the Reserve Bank for rural and agricultural credit. Option C is wrong because 1991 is the year of the New Industrial Policy and not of this bank. Option D is wrong because the year 2000 belongs to the credit guarantee trust for micro and small enterprises, and Kanpur is not the headquarters of any of these institutions. Questions often combine a year with a city, so learn both together.