MSME categorisation

Latest MSME Classification Explained: Criteria, Structure, Features

December 24, 2022 • 112480 views

On 13th May 2020, the Ministry of Micro, Small, and Medium Enterprises (MSME) announced the Atmanirbhar Bharat package for MSMEs where it revised the definition of MSMEs and added a new MSME classification.  A total of Rs.20 Lakh Crore of Financial Aid Package was announced by the hon’ble Finance Minister Ms Nirmala Sitharaman. The package focused on boosting economic growth by supporting MSME and building India into a self-reliant country.

Revised MSME Classification Criteria

Earlier, the definition based on the Micro, Small, and Medium Enterprise Development (MSMED) Act 2006, manufacturing and services units were considered under different categories. With the new definition announced in May, the difference between manufacturing based MSMEs and Services based MSMEs has been removed. Another vital change that was introduced with the MSME classification is the inclusion of turnover in the definition of MSME. Earlier, MSMEs were determined based on investments.

The revised MSME classification will help the MSMEs to strengthen their enterprises and boost their growth. MSMEs can export goods without the fear of losing the advantage of MSMEs. By excluding exports, the government is encouraging MSMEs and enhancing economic growth by creating more employment in the country.

After the announcement of the package in May, the Ministry of Micro, Small, and Medium Enterprises made an upward revision in the definition of MSME based on feedback received from different stakeholders. The new definition and criteria came into effect on 1st July 2020.

Below is the revised or new MSME classification:

Sr. No

Type of Enterprise

Investment

Turnover

1.

Micro Enterprise

Not more than Rs.1 Crore

Not more than Rs.5 Crore

2.

Small Enterprise

Not more than Rs.10 Crore

Not more than Rs.50 Crore

3.

Medium Enterprise

Not more than Rs.50 Crore

Not more than Rs.250 Crore

 

According to the latest MSME classification, MSMEs are classified under two criteria of investment in plant and machinery and turnover. For micro-enterprises - the revised upwards limit for investment is Rs.1 Crore and turnover Rs.5 Crore. For small enterprises – the revised upwards limit for investment is rs.10 Crore and turnover is Rs.50 Crore. For Medium enterprises – the revised upward limit for investment is Rs.50 crores and turnover are Rs.250 crore.  According to the new definition, exports will not be considered as a part of turnover for any micro, small and medium enterprise.

Also Read: What is MSME? Meaning, Features, Role, and Importance in India

MSME Scheme in India

The announcement of the Atmanirbhar Bharat package for MSMEs has motivated numerous entrepreneurs to pursue their creative business ideas. Along with the Atmanirbhar Bharat package, there are several financial and non-financial supports that the government and other financial institutions are currently providing to MSMEs. 

Under government schemes, MSMEs can apply for the Market Promotion & Development Scheme (MPDA), Coir Vikas Yojana (CVY), Trade and Industry Related Functional Support Services (TIRFSS), Export Market Promotion (EMP), Domestic Market Promotion (DMP), Revamped Scheme of Fund for Regeneration of Traditional Industries (SFURTI), CGS (Credit Guarantee Scheme for Micro and Small Enterprises), Mudra loan scheme, SMILE (Small Industries Development Bank of India Loan for Small Enterprises), NSIC, NABARD, Credit Link Capital Subsidy Scheme for Technology Upgradation, Market Development Assistance Scheme, Stand-Up India Scheme, Technology and Quality Upgradation Support, Mini Tools Room and Training Centre Scheme, etc.

Features and benefits of MSMEs

Once an enterprise is registered as an MSME, it is eligible for numerous benefits provided by the Government. Few of them are mentioned below:

  • lower interest rates
  • subsidy on patent registration
  • tax exemption
  • electricity bill concessions
  • reimbursement of ISO certification
  • collateral-free bank loans, etc.

These benefits can be availed of by MSMEs so that they can work towards the welfare of the employees along with making business profit and create more employment. Along with creating employment, the government provides support for up-gradation of technology, development of infrastructure, and modernization. Moreover, there are various such features that MSMEs offer such as the promotion of entrepreneurship, development, and upgradation of skills.

MSMEs also help in improving access to domestic and export markets.

Following is some of the features of MSMEs that make them very important to the socio-economic development of the country:

  • MSMEs are the backbone of the Indian economy, providing employment and livelihood to Crores of India across the length and breadth of the country.
  • According to the Indian Brand Equity Foundation (IBEF), MSMEs contribute 29% to India’s GDP.
  • MSMEs also contribute 40% to India’s exports and 45% to India’s manufacturing output.

Who can apply for a Business Loan for MSME?

MSMEs can avail of Business Loans for MSMEs from various financial institutions such as banks and new-age NBFCs. Before applying for Business Loan for MSMEs, you must meet the following criteria - The business owner should be between the age of 24 and 65 years, the minimum annual turnover required for a business is Rs.6 Lakh, and at least 2 years of business vintage (continuous operations). These criteria are not fixed and may vary slightly from lender to lender.

Also Read: Does Company Type Affect Your SME Business Loan Eligibility

To Conclude

The new classification of MSME will allow more enterprises to be classified under this MSME categorization. This classification is introduced to boost the morale of entrepreneurs and promote new businesses in the country. If your business falls under the MSME sector, this blog will provide more clarity on what is included in the definition of MSME.

Frequently Asked Questions Related to MSME

Which enterprise can be classified as an MSME?

An enterprise with an annual investment between Rs.1 Crore and Rs.50 Crore and an annual turnover between Rs.5 Crore and Rs.250 Crore is termed as an MSME (Micro, Small and Medium Enterprise). The exact bifurcation into Micro, Small and Medium Enterprises based on investment and turnover is as per the table mentioned above in the article.

What are some examples of MSME enterprises?

X-Ray Clinics, Xeroxing shop, Leather Product factory, Laundry and Dry-Cleaning services, Furniture and Wood manufacturing, etc. are some examples of MSMEs.

How many types of MSMEs are there?

There are three types of MSMEs which include micro-enterprise, small enterprise, and medium enterprise. These enterprises are bifurcated based on turnover and investment.

What is the structure classification of MSME in India?

  • An enterprise with an investment of not more than Rs.1 Crore and a turnover of not more than Rs. 5 Crore is classified as a Micro Enterprise.
  • An enterprise with an investment of not more than Rs.10 Crore and a turnover of not more than Rs. 50 Crore is classified as a Small Enterprise.
  • An enterprise with an investment of not more than Rs. 20 Crore and a turnover of not more than Rs. 100 Crore is classified as a Medium Enterprise.  

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Business Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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