The new MSME definition is making news ever since October 2019.

With a hope to create five crore job opportunities in the MSME sector, the Government had announced about making changes to the MSME definition, where turnover will define an MSME, and not the investment put into it.

UPDATE: New MSME definition based on investment and turnover (June 2020)

On 1st June, Monday, the Union Cabinet headed by Prime Minister Narendra Modi officially revised the MSME definition. The recent changes in the definition of micro, small, and medium-sized enterprises made as a part of the Atmanirbhar Bharat Abhiyaan relief package were approved. 

The investment and turnover figures were changed to larger values, thereby resulting in a larger number of medium-sized enterprises.MSME definition The government had revised the MSME definition earlier as well.

The new MSME definition (May 2020)

Investments will no longer characterize MSMEs.

On 13th May, Wednesday, the center officially revised the MSME definition.

In October 2019, Union Minister Nitin Gadkari had said that the revised definition of micro, small, and medium enterprises may grant a unified description for all things related to taxation, investment, and more.

The changed definition was to be implemented via an amendment that would further refine the business scenario for Indian enterprises. The Union Cabinet had approved the amendment to change the criteria to classify MSMEs from “investment in plant and machinery” to “annual turnover.”

On 13th May 2020, Finance Minister Nirmala Sitharaman added the additional principle of turnover along with the investment.MSME definition

MSME definition – why the change

As Finance Minister Nirmala Sitharaman made the announcement about the change, she also addressed the reasons behind it. She said the new definition will bring about many benefits that will aid MSMEs to grow in size.

This was made under Atma-nirbhar Bharat Abhiyaan Economic Package to assuage India’s economic predicament amidst the pandemic.

Combined with all previous economic stimulus efforts, the total amount of the relief package comes to a whopping Rs. 20 lakh crore.

Read more: Highlights from Atma-nirbhar Bharat Abhiyaan Economic Package

Key announcements of Atma-nirbhar Bharat Abhiyaan

  • Rs 3 lakh crore collateral free automatic loans for MSMEs
  • Rs 50,000 crore equity infusion through MSME Fund of Funds
  • Rs 20 crore subordinate debt for MSMEs
  • Extension of registration and completion date of real estate projects under RERA
  • Immediate pending refunds issuance to all non charitable trusts
  • Extension of the due date for ITR for FY’19-20 to November 30, 2020

What is MSME? – An Introduction

MSME stands for Micro, Small, and Medium Enterprises. In accordance with the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, the enterprises are classified into two divisions.

  1. Manufacturing enterprises – engaged in the manufacturing or production of goods in any industry
  2. Service enterprises – engaged in providing or rendering services

Old MSME definition based on investment, MSMED Act, 2006

new definition of MSMEsHeadquartered in New Delhi, the Ministry of MSME is a branch of the Indian Government, which is the apex body for the formulation and administration of rules, and laws, pertaining to micro, small, and medium-sized enterprises in the country.

Having created 11 crore job opportunities in India while contributing to the GDP by 29%, we can say that MSMEs are the heart of the Indian economy. And the change in the definition will enable Indian enterprises to carry out their businesses better.

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Harshitha Rao
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Harshitha is a content marketer at the future-forward RazorpayX. She has an insatiable love for travel and culture, rock music, and the work of Neil Gaiman.

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