Who is MSME ? Proposed Changes to the Definition

The real Indian economy is still in the hands of MSMEs, and are the backbone , real strength to bring resilience despite the economies around the world are suffering with low-stagnated growth. But who is the MSME in India ?

MSME, a word that is often mentioned every news paper, often had a vague definition.

Who is MSME ?

MSME referred to “Micro, Small, and Medium Enterprises”, it’s similar definition that most western countries anonymously use as SME.

Per Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, there are two types of enterprises in MSME based on type of activity.

  1. Manufacturing Enterprises – those who produce Goods
  2. Service Enterprises – those who render Services

The current classification of Micro, Small, Medium enterprises are mainly based on the investments made in to the enterprise.

Manufacturing Sector
Type of EnterpriseInvestment in Plant & Machinery
Micro Enterprise<= Rs. 25 Lakhs
Small Enterprisebetween Rs. 25 Lakhs to 5 Crores
Medium Enterprisebetween Rs. 5 to 10 Crores
Service Sector
Type of Enterprise Investment in Equipment
Micro Enterprise <= Rs. 5 Lakhs
Small Enterprise between Rs. 10 Lakhs to 2 Crore
Medium Enterprise between Rs. 2 to 5 Crores

What is the Proposed Change to MSME Definition ?

With the increased economic activity in last decade plus in India, and the share of MSME contribution to Indian GDP is around 30%, possibly way higher with the consideration of gross root economy, Union Minister Nitin Gadkari in Oct 2019 revised the definition to be more uniform across Manufacturing and Service Sectors.

Also to encourage the supporting incentives based on the revenue rather just a mere investment.

Revenue thresholds

Type of EnterpriseTurnover
Micro Enterpriseup to Rs. 5 Crores
Small Enterprise between Rs. 5 to 75 Crores
Medium Enterprise between Rs. 75 to 250 Crores

Per above definition, > 90% of MSMEs are in Micro segment alone and which may defeat the purpose in classifying.

While the new definition is not enacted yet as on this article is published, the turnover thresholds may need a 2nd look to match with the real Indian Economy.

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