Micro, Small and Medium Enterprises Redefined

Micro, Small and Medium Enterprises Redefined
What is MSME?
MSME stands for Micro, Small and Medium Enterprises. The Government of India had formulated an
Act called (MSMED Act) Micro, Small and Medium Enterprises Development Act in 2006 particularly
to set the provisions for regulations, governance and development of micro, small and medium
enterprises. MSME’s is a significant sector contributing substantially to the economy by employing
millions of workers. According to the MSMED Act 2006, MSME’s were classified into two categories
as per the investment size. The two categories were:
 Manufacturing enterprises: It was defined in terms of investment in Plant & machinery.

 Service enterprises: It was defined in terms of investment in Equipment.
Category Micro Small Medium
Investment is less Investment is less Investment is less

Manufacturing Enterprises than 25 lacs than 5 crore than 10 crore

Service Enterprises than 10 lacs than 2 crore than 5 crore
Table 1: Investment Size, 2006
But, the key challenge is that the government authorities find difficulties in identifying such MSME
industries. For example, when the medium enterprises increase their investments to more than 10
crores to 20 crores or above, they should become large enterprises but they still show themselves
under MSME category to avail numerous MSME benefits given by the government. Therefore, in
February 2018, the government had decided to remove the investment criteria and to put
manufacturing and services enterprises under one category and count only in terms of annual
turnover criteria especially after the arrival of GST because under GST it is easy to identify the
turnover (sales) of the enterprises.
Annual Revenues
Manufacturing And Services of less than or Turnover between Turnover between
Enterprises equal to 5 crores 5 Cr - 75 Cr 75Cr -250 Cr
Table 2: Turnover Size, 2018
But somehow the turnover size criteria did not get implemented therefore the MSME’s continued
functioning based on the previous investment size criteria (Table 1).
Why MSME’s are important for our economy?
 MSME sector accounts for 31% of India’s GDP.

 45% of India’s total industrial employment comes from MSME’s.
 50% of India’s total exports comes from MSME’s.
 More than 6000 products are manufactured in MSME industries.
 Out of 6.34 crore MSME’s in India, 51% is found in rural India and rest 49% is found in urban
India, according to the data.
 MSME’s provide employment to 12.5 crore people out of which 55% is in urban India,
according to the data.
What are the benefits under MSME’s for the companies?
 All micro and small business sectors get collateral-free credit available to them by the
government.
 Hefty 50% subsidy is given to the enterprises that have the certificate of registration granted
by MSME.
 The banks give cheaper loans to MSME’s as the interest rates are very low. MSME also get
the benefit of 1% on the bank overdraft.
 Various tax rebates are exclusively offered for MSME’s. They also get a subsidy for Industrial
promotion.
 MSME’s also get the privilege to collect the interest payments delayed from the buyer’s end.
 Many government tenders are open only to MSME industries.
 MSME’s get a concession on electricity bills.
 MSME’s get a higher preference for government license and certification.
What are the problems faced by MSME’s?
The MSME sector is grappling with several issues that are hindering it to perform to its optimum.
 99.5% of the MSME’s fall in Micro category while remaining 0.5% fall under medium and
small enterprises. Since micro refers to a single man or woman working from home on their
own therefore most of them are not registered anywhere because they are too small.
 MSME’s have inadequate and untimely access to funds due to which they cannot invest
much in production and face difficulties in purchasing raw materials in time. They have lack
of access to new technologies and lack of skills.
 Lack of access to new technologies constrain MSME’s to prosper. The new technologies can
be tailor-made according to the local region in which they operate targeting specific issues
faced by MSME’s within the region.
 GST has become a biggest compliance for MSME’s since GST has some threshold and most
micro enterprises do not qualify.
 Being out of network, micro enterprises do not have to pay taxes or adhere to any
regulatory reforms to lower their costs.
 MSME’s borrow finances majorly from non-formal sources and less from formal sources like
banks and consequently there is an addressable credit gap. So, the banks cannot supply
credit to MSME’s that it can potentially do otherwise. Banks also dither from extending loans
to MSME’s from the fear of high Non-Performing assets (NPA’s).
 Since these micro enterprises are not mapped properly and hence receives very little
benefits when RBI and the government take any new measures in the economy especially
during the time of crisis.
 Amidst COVID-19 pandemic, MSME’s are going through a slowdown since they have a heavy
cash crunch mainly due to the delays in getting timely refunds from the government and the
shutdown of economic activities due to the nationwide lockdown. Some MSME’s say they
will not be able to survive with the available cash in hand and will have to shut down their
businesses if the economic activity remains shut for some more time.
Exclusive Measures taken by the government in MSME sector:
On 13th May 2020, the finance minister of India under the leadership of Modi Government, has
announced some relief measures exclusively for MSME’s amidst COVID – 19 pandemic. The
government of India has decided to extend the limits of micro, small and medium enterprises based
on the fact that if MSME industries show themselves under small category then they will be able to
avail more benefits from the government. The government will now count MSME’s under single
category of manufacturing and services enterprises instead of two separate enterprises and classify
them based on the investment and turnover criteria both.

than 1 crore and than 10 crore and than 20 crore and
Manufacturing And Services Turnover is less Turnover is less Turnover is less than
Enterprises than 5 crore than 50 crore 100 crore
Table 3: Recommended Investment and Turnover Size, 2020
Key observations under new measures:
 The companies having investment size of more than 20 crores earlier used to come under
large enterprises category, but under the revised measures taken, the same company would
now be covered under medium enterprise category.
 Earlier, the medium enterprises with investments of less than 10 crores would now be
covered under small enterprises category.
 The small enterprises with investment size of less than 5 crores would now be considered in
micro enterprises under new measures taken.
Final Thoughts:
Amid fear of recession, there are job cuts in various industries and rising unemployment, MSME’s
can play a major role if aided well by the government. Government of India can also handhold the
MSME industries thereby facilitating easy availability of raw materials, marketing their products and
creating a boost in the demand for their products, assuring immediate refunds, providing more
liquidity to rural MSME setups in India and probably providing some tax reliefs in GST and corporate
tax. The Government of India leaves no stone unturned to uplift this sector with as many efforts as
possible.

Micro, Small and Medium Enterprises Redefined

Uploaded by

Copyright:

Available Formats

Micro, Small and Medium Enterprises Redefined

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Micro, Small and Medium Enterprises Redefined

Uploaded by

Copyright:

Available Formats

Micro, Small and Medium Enterprises Redefined

 Manufacturing enterprises: It was defined in terms of investment in Plant & machinery.

Category Micro Small Medium

Investment is less Investment is less Investment is less

Investment is less Investment is less Investment is less

Category Micro Small Medium

Why MSME’s are important for our economy?

 MSME sector accounts for 31% of India’s GDP.

What are the problems faced by MSME’s?

Exclusive Measures taken by the government in MSME sector:

Category Micro Small Medium

Investment is less Investment is less Investment is less

Key observations under new measures:

You might also like