UPSC Prelims 2023 Q71: Indian Economy – Infrastructure & Industry
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (b) 2 only
Explanation
MSME Act 2006 and Bank Loans
| Statement | Claim | Verdict | Correct Facts |
|---|---|---|---|
| 1 | Under MSMED Act 2006, 'medium enterprises' = investment in plant/machinery between ₹15–25 crore | FALSE | The 2020 MSME classification revision changed the definitions. Under the revised criteria, medium enterprises are defined by investment up to ₹50 crore AND turnover up to ₹250 crore. The original 2006 limits (₹5–10 crore for manufacturing) and the ₹15–25 crore figure cited do not match current definitions. |
| 2 | All bank loans to MSMEs qualify under priority sector | TRUE | RBI mandates that all bank loans to Micro, Small, and Medium Enterprises qualify for Priority Sector Lending (PSL) classification — banks must lend 40% of net credit to priority sectors, and MSME loans count toward this. |
Answer: (b) 2 only.
Why each option is right or wrong
- (a) Incorrect. Statement 1 alone — Statement 1 has incorrect figures for medium enterprise classification.
- (b) CORRECT. Only Statement 2 is correct — all bank loans to MSMEs qualify under priority sector lending. Statement 1's investment figures are inaccurate.
- (c) Incorrect. 'Both 1 and 2' — Statement 1 uses investment figures that do not match either the original 2006 definitions or the 2020 revised definitions.
- (d) Incorrect. 'Neither' — Statement 2 is clearly correct; MSME loans are universally classified as priority sector.
Key point
All MSME bank loans = Priority Sector Lending (PSL). ✓ MSMED Act 2006 original medium enterprise limits ≠ ₹15–25 crore (wrong figures). 2020 revision: medium = investment ≤ ₹50 cr + turnover ≤ ₹250 cr. Statement 1 has wrong investment thresholds.
Remember
All bank loans to MSMEs qualify under the Priority Sector Lending framework (Statement 2 correct). The investment limit for medium enterprises under the revised 2020 MSME definition is up to ₹50 crore (not ₹15–25 crore as stated in Statement 1).
Common mistakes
- Not verifying the specific investment figures — ₹15–25 crore doesn't match either the original 2006 Act or 2020 revised definitions for medium enterprises.
- Not knowing all MSME loans are priority sector — RBI's PSL guidelines specifically include all MSME credit.
- Confusing different editions of MSME definitions — the 2020 revision brought in turnover as an additional criterion and increased investment limits.
Exam tip
2020 MSME revised: Micro = ₹1 cr invest + ₹5 cr turnover. Small = ₹10 cr + ₹50 cr. Medium = ₹50 cr + ₹250 cr. PSL = all MSME loans qualify. Statement 1 trap = wrong figures. When numbers appear in constitutional/economic acts, verify carefully.
Sources
- MSME Ministry — MSMED Act 2006 and 2020 Revision
- RBI — Priority Sector Lending Guidelines