In India, the coverage of MSME is vast, encompassing businesses in both the manufacturing and services sectors that meet specific criteria for investment in plant, machinery, or equipment and annual turnover.
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 provides a comprehensive regulatory framework for the promotion, development, and competitiveness of MSMEs in India. It covers both manufacturing and service enterprises with precise definitions based on investment and turnover criteria.
Coverage of MSMED Act
The Act applies to all business activities in the manufacturing and service sectors, excluding specific categories such as gambling, forestry, fishing, and certain retail activities. MSMEs in India contribute significantly to manufacturing output, exports, and employment and are pivotal for economic growth and innovation. The Act facilitates access to credit, priority in government procurement, protection regarding payments, and support through developmental schemes
Definitions under MSMED Act
MSMEs are classified as follows:
Updated MSME Classification Criteria (Effective April 1, 2025)
The MSME (Micro, Small, and Medium Enterprises) classification in India, effective from April 1, 2025, uses a composite criterion based on both investment in plant & machinery/equipment and annual turnover as under.
Micro Enterprises:
- Investment: Not more than ₹2.5 crore.
- Turnover: Not more than ₹10 crore.
Small Enterprises:
- Investment: Not more than ₹25 crore.
- Turnover: Not more than ₹100 crore.
Medium Enterprises:
- Investment: Not more than ₹125 crore.
- Turnover: Not more than ₹500 crore.
Key Aspects
- No Sector Distinction:
The revised criteria, effective since July 1, 2020, and updated with effect from April 1, 2025, eliminated the separate classification for manufacturing and service sectors.
- Composite Criteria:
The classification now uses a combination of both investment and turnover limits.
- Revised Limits:
The limits for investment and turnover have been significantly revised, with the current thresholds set in 2025.
Examples of Service Sectors
Under the new system, service-based businesses can qualify if they meet the investment and turnover criteria. Examples include:
- Events and personal services
- Food businesses
- Local transport and logistics
- Renewable and utility services
- Digital and smart services, such as drone mapping, 3D printing, and cybersecurity consultants
Composite Criteria:
- The classification is based on both investment and turnover, providing a uniform system for manufacturing and service sectors.
- Increased Thresholds:
- The updated limits are significantly higher than the previous definition, allowing more businesses to qualify as MSMEs and access various benefits, government schemes, and financial support as they grow.
Purpose:
- The revision aims to empower MSMEs to expand, invest in technology, and remain competitive without losing their essential benefits.
Sector Inclusion and Exclusion
MSMED Act includes diverse sectors: food processing, textiles, metal products, machinery, electronics, IT-enabled services, training institutions, retail trading, and more. The Act explicitly excludes activities like gambling, forestry, fishing, certain household and extraterritorial activities from MSME coverage.
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