The definition and classification of Micro, Small, and Medium Enterprises (MSMEs) in India were revised in 2020 to align with changing economic conditions and to provide a more inclusive and growth-friendly environment for these enterprises. This redefined classification, based on investment in plant and machinery/equipment and annual turnover, aims to broaden the coverage of MSMEs and provide easier access to various government schemes.
MSME Classification as of 2020
The current MSME classification includes both manufacturing and service enterprises under the same criteria. Earlier, the two were classified separately.
| Category | Investment in Plant & Machinery/Equipment | Annual Turnover |
|---|---|---|
| Micro | Up to ₹1 crore | Up to ₹5 crore |
| Small | Up to ₹10 crore | Up to ₹50 crore |
| Medium | Up to ₹50 crore | Up to ₹250 crore |
Key Points of the Latest MSME Definition:
- Unified Criteria: The revised classification uses a common framework for both manufacturing and service enterprises, making it simpler and more inclusive.
- Investment and Turnover-Based: The dual criteria of investment and annual turnover provide a balanced measure of business size, capturing not only the scale of operations but also financial capacity and market reach.
- Self-Declaration and Udyam Registration: MSMEs can self-declare and register under the new criteria using the Udyam Registration portal. This simplified registration enhances ease of doing business and reduces compliance burdens.
- Dynamic Classification: MSMEs can adjust their classification based on changes in investment or turnover, making it flexible and growth-oriented.
- Integration with GST Network: The MSME classification is linked to the GST Network, ensuring transparency and accuracy in reporting turnover.
Benefits of the New MSME Definition
- Broader Eligibility for Benefits: The revised limits enable more businesses to qualify for MSME benefits, including credit facilities, subsidies, and tax incentives.
- Encouragement for Growth: The flexibility in classification allows MSMEs to grow without the fear of losing incentives as they expand from micro to small or small to medium categories.
- Increased Support from Financial Institutions: With a clearer and broader MSME classification, banks and other institutions can offer targeted support to these businesses, knowing they align with government-backed growth policies.
Registration Process under the New Definition
To register as an MSME under this new classification, businesses need to complete the Udyam Registration:
- Online registration through the Udyam Registration Portal.
- Requires only basic details such as Aadhar, PAN, and GSTIN (if applicable).
- A unique Udyam Registration Number (URN) is provided upon successful registration.
Conclusion
This updated MSME definition makes it easier for small businesses to access government support, thereby enabling growth, job creation, and enhanced economic contribution. It aligns with India’s vision to foster an inclusive economic environment for businesses of all sizes.
