Setting Up of Business, Industrial and Labour Laws · Micro, Small and Medium Enterprises

National Board and Advisory Committee under the MSMED Act, 2006

Updated 11 October 2026 · Fact-checked

The National Board for MSMEs is a central body set up under section 3 of the MSMED Act, 2006. It reviews policies and recommends measures to promote the sector, and advises on use of Funds. The Advisory Committee, constituted by the Central Government under section 7(2), gives recommendations, especially before enterprises are classified.

Understand National Board and Advisory Committee for MSMEs

The MSMED Act, 2006 does not only define micro, small and medium enterprises. It also creates bodies to guide policy for the sector. Two of them are the National Board for Micro, Small and Medium Enterprises and the Advisory Committee. Neither one decides disputes or collects dues. Both are policy and advice bodies.

The Board is established under section 3 (section 2(c) defines it by reference to that section). Section 5 gives its functions, and it works subject to the general directions of the Central Government. It examines the factors affecting the promotion, development and competitiveness of MSMEs. It reviews the Central Government's policies and programmes and their impact on these enterprises. It makes recommendations, either on those matters or on any matter the Central Government refers to it. It also advises the Central Government on the use of the Fund or Funds constituted under section 12.

The Advisory Committee is defined in section 2(a) as the committee constituted by the Central Government under section 7(2). Section 7(2) lists its members: the Secretary to the Government of India in the Ministry or Department with administrative control of small and medium enterprises as Chairperson, ex officio; not more than five Central Government officers with expertise in MSME matters; not more than three State Government representatives; and one representative each of the associations of micro, small and medium enterprises. All are ex officio members. Under section 7(3), the Member-Secretary of the Board is also the ex officio Member-Secretary of the Advisory Committee.

The Committee's most important job is linked to classification. The Central Government must obtain its recommendations before classifying any class of enterprises under section 7(1) (section 7(4)). The Committee also examines matters the Board refers to it on the subjects in section 5 (section 7(5)). The Central Government may seek its advice on matters in sections 9, 10, 11, 12 or 14 (section 7(6)). The State Government may seek its advice on matters in the rules made under section 30 (section 7(7)).

When the Committee gives its recommendations or advice, it must consider five things under section 7(8): the level of employment in the class of enterprises, the level of investment in plant and machinery or equipment, the need for higher investment for technological upgradation, employment generation and competitiveness, the possibility of promoting entrepreneurship, and international standards for classifying small and medium enterprises. Do not confuse this Advisory Committee with the State-level Facilitation Council under section 21. That Council deals with delayed-payment disputes and has a different composition.

Key rules to remember

Establishment of the Board: National Board for MSMEs = established under section 3 (section 2(c)); Section 2(c) defines the Board by this reference. For the detailed composition of the Board, follow your ICSI study material. Do not guess numbers of members.
Functions of the Board (section 5): (a) examine factors and review policies and programmes; (b) recommend; (c) advise on the Fund or Funds under section 12; All functions are performed subject to the general directions of the Central Government.
Constitution of the Advisory Committee (section 7(2)): Chairperson: Secretary, Ministry or Department in charge of small and medium enterprises + up to 5 Central Government officers + up to 3 State Government representatives + 1 representative each of MSME associations; All are ex officio. Remember the limits: 'not more than five' and 'not more than three'.
Member-Secretary (section 7(3)): Member-Secretary of the Board = ex officio Member-Secretary of the Advisory Committee; This is the link between the two bodies.
Prior recommendation before classification (section 7(4)): Central Government must obtain the Advisory Committee's recommendations before classifying any class of enterprises under section 7(1); This is a mandatory step, not an option.
Other roles of the Committee (section 7(5) to (7)): Examines matters referred by the Board (subjects in section 5); advises the Central Government on sections 9, 10, 11, 12, 14; advises the State Government on matters in rules under section 30; The Central Government 'may seek' advice here, so it is optional, unlike section 7(4).
Matters to consider (section 7(8)): Employment level; investment level; need for higher investment; promoting entrepreneurship; international standards; Five factors. Learn them as a list.

How to solve National Board and Advisory Committee for MSMEs questions

Use the same order for any question on the Board or the Advisory Committee. It matches the ICSI style of provision, analysis, conclusion.

1Identify the body the question asks about: the Board, the Advisory Committee, or both. Check that it is not really about the Facilitation Council under section 21.
2State how the body comes into existence: the Board under section 3, the Committee constituted by the Central Government by notification under section 7(2).
3Write the composition if asked. For the Committee, list all four categories from section 7(2) with their limits. For the Board, give only what you are sure of and say it is constituted under the Act and the rules.
4List the functions or role with the section number: section 5 for the Board, section 7(4) to (8) for the Committee.
5Apply to the facts. Ask whether the step is mandatory (section 7(4)) or optional ('may seek') and who is acting, the Central or State Government.
6Close with a one-line conclusion that answers the exact question asked.

Quickest way: Body, Source, Role, Link

When to use it: Use this when you have only a few minutes for a short-note or 5-mark question.

Body: name it and say who creates it (Board under section 3; Committee by Central Government notification under section 7(2)).
Source: quote the section for composition or functions.
Role: Board reviews, recommends and advises on the Fund (section 5). Committee recommends before classification and advises on referred matters (section 7(4) to (7)).
Link: the Board's Member-Secretary is also the Committee's Member-Secretary (section 7(3)). End with the five factors in section 7(8) if space allows.

Common mistakes in National Board and Advisory Committee for MSMEs

Mixing up the Advisory Committee with the Micro and Small Enterprises Facilitation Council.
Both are bodies under the same Act and both have a Chairperson and a few members.
Fix: Remember the split. The Advisory Committee (section 7) is a central policy-advice body. The Facilitation Council (section 21) is a State-level body with three to five members, chaired by the Director of Industries or an officer not below that rank.
Saying the Advisory Committee classifies enterprises.
The Committee is closely tied to the classification section, so students assume it makes the decision.
Fix: Section 7(1) gives the power to classify to the Central Government by notification. The Committee only gives recommendations, which the Government must obtain first under section 7(4).
Writing exact numbers for the Board's membership from memory.
Students try to give a complete answer and guess figures they have not learnt properly.
Fix: Write only what you are sure of from your study material. A wrong number loses marks, while a correct but general statement of composition does not.
Leaving out the Fund function of the Board.
Students remember 'review' and 'recommend' and forget the third clause.
Fix: Learn section 5 as three limbs: (a) examine and review, (b) recommend, (c) advise the Central Government on the Fund or Funds under section 12.
Treating the Committee's members as elected or paid officers rather than ex officio members.
Students overlook the words 'ex officio' in section 7(2).
Fix: Write that the Chairperson and all categories of members are ex officio, and that the number of officers and State representatives is capped at five and three.
Saying the Board acts independently of the Government.
The word 'National Board' sounds like an autonomous regulator.
Fix: Section 5 says the Board performs its functions subject to the general directions of the Central Government. State this in your answer.

Worked examples

Example 1

Explain the functions of the National Board for Micro, Small and Medium Enterprises under the MSMED Act, 2006. (Short note)

Show the solution

Provision: The Board is established under section 3. Its functions are listed in section 5, and it performs them subject to the general directions of the Central Government.
Function (a): It examines the factors affecting the promotion and development of MSMEs. It reviews the Central Government's policies and programmes on facilitating promotion and development and on enhancing competitiveness, and the impact of those policies on the enterprises.
Function (b): It makes recommendations on the matters in clause (a) or on any other matter referred to it by the Central Government that, in that Government's opinion, is necessary or expedient for the promotion, development and competitiveness of MSMEs.
Function (c): It advises the Central Government on the use of the Fund or Funds constituted under section 12.
Conclusion: The Board is a policy review and advisory body. It does not itself classify enterprises or decide disputes.

Answer: Under section 5, the Board (a) examines factors and reviews policies and programmes, (b) makes recommendations on those matters and on matters referred by the Central Government, and (c) advises the Central Government on the use of the Fund or Funds under section 12, all subject to that Government's general directions.

Example 2

The Central Government proposes to notify a new classification of a class of manufacturing enterprises. A trade association argues that the notification is invalid because the Advisory Committee was not consulted. Examine, with reference to the MSMED Act, 2006.

Show the solution

Provision: Section 7(1) allows the Central Government to classify any class of enterprises by notification, having regard to sub-sections (4) and (5). Section 7(4) says the Government shall, prior to classifying any class of enterprises under sub-section (1), obtain the recommendations of the Advisory Committee.
Who is on the Committee: It is constituted by the Central Government under section 7(2). It is chaired ex officio by the Secretary of the Ministry or Department in charge of small and medium enterprises. It includes up to five Central officers, up to three State representatives and one representative each of the MSME associations.
Analysis: The word 'shall' makes the step mandatory. The Central Government cannot classify without first obtaining the Committee's recommendations. In giving them, the Committee must consider the matters in section 7(8): employment levels, investment levels, the need for higher investment, promoting entrepreneurship and international standards.
Limit: The Government must obtain the recommendations, but section 7(4) does not say it must adopt them. The power to classify remains with the Central Government.
Conclusion: If the Committee's recommendations were not obtained before the classification, the association's objection has force, because section 7(4) was not followed. If they were obtained, the objection fails.

Answer: Section 7(4) makes it mandatory for the Central Government to obtain the Advisory Committee's recommendations before classifying any class of enterprises. If this was not done, the classification is open to challenge. If the recommendations were obtained, the notification stands, since the Government is not bound to accept them.

Exam tips

Learn section 5 (Board) and section 7(2) to (8) (Committee) with their numbers. ICSI answers earn marks for citing the section.
If a question asks for the Advisory Committee's composition, give all four categories and the limits 'not more than five' and 'not more than three'. Say that members are ex officio.
Use the word 'shall' for section 7(4) and 'may seek' for section 7(6) and (7). Case-study questions often test mandatory versus optional.
Keep this topic separate from the Facilitation Council in section 21. If a question mentions delayed payment or disputes, it is likely about the Council, not the Board.
In a short note, finish with a one-line conclusion such as 'The Board and the Committee advise and recommend; the Central Government decides.'

Practice questions from Micro, Small and Medium Enterprises

National Board and Advisory Committee for MSMEs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalNational Board for MSME and Its Functions

National Board and Advisory Committee for MSMEs: frequently asked questions

What are the main functions of the National Board for MSMEs?

Under section 5, the Board examines factors affecting MSME promotion and development and reviews government policies and programmes. It makes recommendations on those matters and on matters the Central Government refers to it. It also advises the Central Government on the use of the Fund or Funds under section 12.

Who is the Chairperson of the Advisory Committee under the MSMED Act?

Under section 7(2)(a), the Chairperson is the Secretary to the Government of India in the Ministry or Department of the Central Government having administrative control of the small and medium enterprises. He or she is the Chairperson ex officio.

Is it compulsory for the Government to consult the Advisory Committee?

Before classifying any class of enterprises under section 7(1), yes. Section 7(4) says the Central Government shall obtain its recommendations first. For other matters in sections 9, 10, 11, 12 or 14, the Central Government may seek its advice, so that is optional.

How are the Board and the Advisory Committee connected?

Under section 7(3), the Member-Secretary of the Board is also the ex officio Member-Secretary of the Advisory Committee. The Committee also examines matters the Board refers to it in connection with the subjects in section 5.

Is the Advisory Committee the same as the Facilitation Council?

No. The Advisory Committee under section 7 is a central body that gives policy recommendations. The Micro and Small Enterprises Facilitation Council under section 21 is a State-level body of three to five members, chaired by the Director of Industries or an officer not below that rank.