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.

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

Features of MSMEs 

Here are some of the essential features of MSMEs

  1. MSMEs are known to provide reasonable assistance for improved access to the domestic as well as export markets for businesses
  2. MSMEs support product development, design innovation, intervention, and packaging elements of a business
  3. MSMEs support the upgrading of technology, infrastructure, and the modernization of this sector as a whole
  4. MSMEs provide employment opportunities and loans 
  5. MSMEs provide credit limits or funding support to various banks in the country

Role of MSMEs in the Indian Economy

The MSME sector has proven to be a highly dynamic factor in the forecasting of the Indian economy. Since MSMEs produce and manufacture a variety of products for both domestic as well as international markets, they have helped promote the growth and development of various product segments and industries. 

MSMEs have played an essential role in providing employment opportunities in underprivileged areas. They have helped in the industrialization of such areas with a low capital cost compared to the larger industries in cities. MSMEs have also contributed and played an essential role in the country’s development in different areas like the requirement of low investment, flexibility in operations, low rate of imports, and a high contribution to domestic production.

UPDATE: New MSME definition based on investment and turnover (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.

Updated MSME Definition

Type of enterprise

Investment

Turnover

Micro

Rs 1 crore

Rs 5 crore

Small

Rs 10 crore

Rs 50 crore

Medium

Rs 50 crore

Rs 250 crore

 

The government had revised the MSME definition earlier as well.

The new MSME definition (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.

Revised MSME Classification

Composite criteria: Investment and annual turnover

Classification

Micro

Small

Medium

Manufacturing & services

Investment < Rs 1 crore and turnover < Rs 5 crore

Investment < Rs 10 crore and turnover < Rs 50 crore

Investment < Rs 20 crore and turnover < Rs 100 crore

 

Find out how to register your MSME online in India.

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

Old MSME definition based on investment, MSMED Act, 2006

 

Manufacturing Sector

Enterprises

Investment in plant and machinery

Micro enterprises

< or = Rs 25 lakh

Small enterprises

> Rs 25 lakh < Rs 5 crore

Medium enterprises

> Rs 5 crore < Rs 10 crore

 

Services Sector

Enterprises

Investment in equipment

Micro enterprises

< or = Rs 10 lakh

Small enterprises

> Rs 10 lakh < Rs 2 crore

Medium enterprises

> Rs 2 crore < Rs 5 crore

 

Headquartered 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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Frequently Asked Questions

Who are MSME companies?

The Ministry of Micro, Small, and Medium Enterprises, a branch of the Government of India, is primarily used for laying the foundation and administration of rules, regulations, and laws relating to micro, small and medium enterprises in India.

What is meant by MSME?

MSME stands for Micro, Small, and Medium Enterprises. It was introduced by the Government of India in agreement with the MSMED (Micro, Small, and Medium Enterprises Development) Act of 2006. As per this act, MSMEs are the enterprises involved in the processing, production, and preservation of goods and commodities.

What is the MSME limit?

* Investment limit for Micro Enterprises: Less than 1 crore INR * Investment limit for Small Enterprises: 1-10 crore INR * Investment limit for Medium Enterprises: 10-50 crore INR * The turn-over limit for Micro Enterprises: Less than 5 crore INR * The turn-over limit for Small Enterprises: 1-25 crore INR * The turn-over limit for Medium Enterprises: 25-250 crore INR

How can I avail MSME loan?

Individuals can easily avail of an MSME loan by following the mentioned steps below * Fill up the online application form for SME/MSME loan to apply. * Submit all the relevant documents to complete the process (KYC documents, address proof, business ownership proof, and financial documentation) * Get money in any bank within 24 hours.

How do you benefit from MSME?

Here are the following benefits of registering MSME in India: * You can avail collateral-free bank loans * You can easily acquire government tenders through the Udyam Registration Portal * Protection against delayed payments * SO Certification Charges Reimbursement

What are the types of MSME?

According to the provisions of the MSMED (Micro, Small & Medium Enterprises Development) Act of 2006, MSMEs are classified into two classes i.e. Manufacturing Enterprises and Service Enterprises. The enterprises are further categorized based on annual turnover and investment in equipment.

What is the UAM number?

UAM is a registration form that constitutes a self-declaration format under which the MSME will self-certify its existence, bank account details, promoter/owner's identity details, and other information required. There’s no fee for filing the UAM number.

Author

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

2 Comments

  1. Prof. Benaifer Dumasia Reply

    Very nicely framed concept of MSME with all recent amendments. I understood it thoroughly because the flow of content was systematic.

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