What is MSME?

MSME stands for micro small and medium enterprises. MSME enterprises are engaged in the manufacturing, processing, and production of goods and services and are categorized into two classes: manufacturing and service enterprises. Manufacturing enterprises are engaged in the production of goods, whereas service enterprises are engaged in providing services.

The MSME Development Act (MSMED)was launched in 2006, and since then, MSMEs have become a significant and integral part of the economy. MSMEs in India produce over 6,000 unique products, contribute to ~48% of the country’s exports, and have a 45% share in the manufacturing sector. After China, India has the largest base of MSMEs in the world, contributing to ~30% of the country’s GDP. In short, MSMEs act as a backbone of the economy.

They have become the accelerators of growth. It all started in 1961 when the Ministry of MSME merged with the Ministry of Agro and Rural Industries. MSMEs contribute a great deal to the employment generation after the agricultural sector. They employ approximately 110 million people in the country, especially providing opportunities to the underprivileged and rural population. Over 50% of the MSMEs in India operate in the rural sector.

MSMEs constantly promote innovation and provide great opportunities to budding entrepreneurs to create and build innovative and breakthrough products that augment the growth of businesses and, in turn, the economy.

Classification of MSMEs and Statutory Bodies

The classification is based on the investment amount that sets up these enterprises and the business’s turnover. Below is the latest classification by the government for both services and manufacturing MSMEs in India according to the Micro, Small, and Medium Enterprises Development Act, 2006.

Manufacturing Enterprises

Enterprise Type

Investment Amount (in INR)

Turnover (INR)

Investment in P&M/Equipment

Micro Enterprises

< 25 lakhs

< 5 crores

< 1 crore

Small Enterprises

< 5 crores

< 50 crores

< 10 crores

Medium Enterprises

< 10 crores

< 250 crores

< 50 crores

Service Enterprises

Enterprise Type

Investment Amount (in INR)

Turnover (INR)

Investment in P&M/Equipment

Micro Enterprises

< 10 lakhs

< 5 crores

< 1 crore

Small Enterprises

< 2 crores

< 50 crores

< 10 crores

Medium Enterprises

< 5 crores

< 250 crores

< 50 crores

Note: These turnover brackets do not include the turnover from exports for these enterprises. To ease the business operations, the government has decided to exclude.

Studies state that there are approximately 2.2 million micro-enterprises, 0.29 million small, and ~ 10,981 medium enterprises in India. The Y-o-Y growth of MSMEs in the country is 18.5%. Uttar Pradesh has the largest share of MSMEs in the country, followed by West Bengal with 14.2% and 14%, respectively. Maharashtra and Tamil Nadu each contribute to 8% of the total MSMEs.

There are four statutory bodies in the MSME ministry:

  1. Khadi and Village Industries Commission (KVIC)

  2. National Small Industries Corporation Limited (NSIC)

  3. National Institute for Micro, Small and Medium Enterprises (NI-MSME)

  4. Mahatma Gandhi Institute for Rural Industrialization (MGIRI)

The KVC is responsible for strengthening and developing the rural economy by promoting khadi and other village industries. Generation of employment opportunities for the rural population is one of the key focus areas of this body. NSIC promotes, aids, and fosters the growth of micro and small enterprises (the commercial aspect of these businesses). NI-MSME is more focused on budding entrepreneurs, formulation of policies, and promoting enterprises. Lastly, MGIRI promotes and encourages rural and village economies and strives to empower rural populations by introducing innovation and technology.

Government Policies for MSMEs

The Indian government acknowledges the role of MSMEs in the economy and developed policies to encourage these businesses and help them grow.

MSME Registration: How to Register and Benefits of MSME Registration

From July 1, 2020, it is mandatory to obtain “Udyam” registration for all the existing MSMEs in the country and new MSMEs. It is a simple registration that can be done online by self. Aadhaar number is the mandatory certification required to obtain the MSME Udyam registration online.

In the case of a proprietorship company, the Aadhaar number would be of the proprietor (individual). For a partnership organization, the managing partner’s Aadhaar is needed. For a Hindu Undivided Family (HUF), Karta’s Aadhaar number must be entered into the system. In the case of a Limited Liability Partnership (LLP) or a trust/cooperative society, the authorized signatory’s Aadhaar has to be provided.

Once you complete the online MSME registration process, the company (MSME Unit) will be provided with a “Udyam Registration Certificate.” There is no expiry for this certificate. Till the time the business follows ethical practices and is financially viable, the certificate is valid. There are multiple benefits to having an MSME registration online. If there are multiple units or plants, or entities, the certificate is needed only for the parent entity where the details will be mentioned. Post-registration, the minimum alternate tax can be carried forward 15 years (initially it was 10 years), and it is easier to get government tenders. The government has the authority to deregister the company in case of any violations, namely, if the investment is more than the limit mentioned under the MSME act or manufactures any products requiring other licenses (industrial or any statutory license).

Government Policies Benefits

The pandemic and the country-wide lockdown impacted economic growth and has put severe financial stress on businesses, especially micro and small businesses. Considering this, the finance minister announced the Atmanirbhar Bharat Abhiyan program. Moreover, an economic package with new initiatives and policies was introduced to help businesses navigate and channelize capital better. The government has announced various subsidy programs and schemes to make the market more competitive and help them grow.

Other Benegits Of Government Policies for MSMEs

Although there are numerous benefits, schemes, policies in favor of these businesses, they still face a significant number of challenges that are the roadblocks affecting their growth, namely, lack of innovation and adoption of new technological tools, low capacity of production, inadequate facilities (infra, power, roads, water), inefficient supply chain processes, lack of visibility, inadequate manpower (skilled and unskilled), limited financing options, high cost of credit, and limited access to global markets. The government and the startup ecosystem are constantly evaluating these challenges and providing businesses with various incentives to overcome these challenges.

Opportunities for MSMEs in India

The government owns and runs an e-commerce website called Government e-Marketplace (GeM), wherein MSMEs can market and sell their products. The various ministries and the public sector companies source their goods from this platform. As of September 2020, the platform has witnessed transactions worth $7.5 billion (INR 55,000 Crores).

The government provides immense opportunities for entrepreneurs who set up enterprises and contribute to the economy and employment of the country. MSMEs are extensively supported and promoted.

Wrapping Up

The Government of India is working with the World Bank to facilitate and ease the accessibility of credit to MSMEs. They collectively focus on various policies, fintech platforms, initiatives, systems to channelize and operationalize this. With its consistent focus on MSMEs and domestic production, the economy will witness exponential growth with MSMEs driving as a core engine.

The government aims to double the Indian economy to a $5 trillion market by 2025, and MSMEs are one of the key contributing factors. More investments in R&D, subsidy schemes, access to new-age technologies and product innovations, subsidization of global resources, and skill development are some of the initiatives the government envisions to provide to MSMEs to help them accelerate their growth.

The role of MSMEs in the Indian economy is pivotal and significant and will continue to be so. With the right initiatives, policies, and technology, this sector will demonstrate immense growth and contribute significantly to the country’s economy.

MSME Frequently Asked Questions

  1. What is MSME?
  2. MSMEs are an important sector for the Indian economy introduced by the Indian government. These MSME or Micro, Small, and Medium Enterprises primarily engaged in the production, manufacturing, processing, or preservation of goods & commodities.

  3. What is the full form of MSME?
  4. The full form of MSME is Micro, Small, and Medium Enterprises. MSME industries are the backbone of the economy in a developing country like India.

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