(Micro, Small and Medium Enterprises)

A pink pig is shown on the black background.


MSME is Micro, Small, and Medium Enterprises. The Government of India has introduced MSME in agreement with Micro, Small and Medium Enterprises Development (MSMED) Act of 2006. These enterprises specialise in manufacturing, processing, or storage of goods and commodities.

According to the government’s annual report (2018-19), India has roughly 6.3 crore MSMEs. MSMEs in India account for around 33% of the country’s GDP and over 50% of exports. MSME is a critical source of livelihood for nearly 110 million jobs. In a developing country like India, this can be referred as the ‘Backbone of the Country.’ MSMEs are a vital part of the Indian economy and have made significant contributions to the country’s socioeconomic growth. It not only creates job possibilities, but it also contributes to the development of the country’s backward and rural areas.


In 2006, India came up with a definition for MSMEs. Some changes were made in 2018, such as the classification standards being changed from ‘investment in plant and machinery and equipment’ to ‘annual turnover.’ On the 13th of May, 2020 a modification to the MSME definition was announced in the Atmnirbhar Bharat package. The Government of India decided on a further upward revision of the MSME Definition on June 1, 2020 for medium-sized businesses. Previously, the criteria for manufacturing and service units were separated. The differences between manufacturing and service MSMEs are no longer being made. They will all be defined in the same way.

So, according to the revised definition of MSMEs on 2020, the enterprises are classified as follows:

1. Micro Enterprises:

  • Previously, the definition was based on investment thresholds of up to Rs 10 lakh for service MSMEs and Rs 25 lakh for manufacturing MSMEs.
  • Now MSMEs with investments of up to Rs 1 crore and sales of less than Rs 5 crore will be referred to as micro units.

2. Small Enterprises:

  • Previously, the definition of small enterprises was based on investment thresholds of up to Rs 2 crore in service MSMEs and up to Rs 5 crore for manufacturing MSMEs.
  • • Now he investment requirement for an MSME to be classified as a small unit has been raised from Rs 5 crore to Rs 10 crore if it has a turnover of less than 50 crore for all MSMEs.

3. Medium Enterprises:

  • The investment and turnover limits for medium units have been raised to Rs. 20 crore and Rs. 100 crore, respectively13th of May, 2020, previously which has investment limits up to Rs 10 crore for manufacturing enterprises and Rs 5 crore for service enterprises.
  • The Government of India decided on a second upward revision of the MSME Definition on June 1, 2020. Medium-sized businesses will now be required to invest Rs. 50 crore and generate Rs. 250 crore in revenue.

MSMEs will be benefited from the new definition. There has always been a fear, even among successful MSMEs, that if they outgrow the definition of an MSME, they will lose their entitlement benefits. This is why MSMEs prefer to stay within the parameters rather than expand. MSMEs won’t have to worry about growing their size now that the definitions have been revised, and they’ll still be able to take advantage of the benefits.

With 630.52 lakh estimated companies, the micro sector accounts for more than 99 % of all MSMEs. The small sector, with 3.31 lakh estimated MSMEs, and the medium sector, with 0.05 lakh estimated MSMEs, respectively, accounted for 0.52 % and 0.01 % of total estimated MSMEs. Rural MSMEs account for 324.88 lakh (51.25 %) of the estimated 633.88 million MSMEs. In the urban areas, there are 309 lakh MSMEs (48.75 %).


  • MSMEs are guaranteed a credit rating of 100 percent.
  • MSMEs can get loans with no collateral.
  • A 12-month moratorium period is being offered to MSMEs.
  • MSM has been given a 48-month repayment period.
  • MSMEs will profit from reclassification in the amount of 45 lakh units.
  • A credit agreement worth Rs. 3 lakh crore has been reached with MSMEs.


  • MSMEs seek to improve the lives of workers and craftsmen. They assist them by offering employment, loans, and other services.
  • MSMEs provide banks with credit limits or funding assistance.
  • MSMEs are known for providing reasonable support in gaining entry to domestic and international markets.
  • They are in favour of improving developmental technologies, expanding infrastructure, and modernising the industry as a whole.
  • They encourage the growth of entrepreneurship as well as the upgrading of skills by establishing specialised training institutes.
  • MSMEs are now supporting product development, design innovation, intervention, and packaging, in line with contemporary developments.
  • They also provide quality certification services and contemporary testing facilities.


1. It generates large-scale employment:

In this area, inclusive enterprises require little capital to start up. Furthermore, it provides a large number of opportunities for unemployed people to take advantage of it. India generates over 1.2 million graduates per year, with approximately 0.8 million engineers. So far, no economy has been able to offer such a vast number of freshers in a single year. MSME is a godsend for India’s young talent.

2. The primary role in the “Make in India” mission:

The Prime Minister of India’s trademark campaign, “Make in India,” has been made easy with MSME. It serves as a foundation for making this ambition a reality. Furthermore, the government has urged the financial institution to offer more credit to small and medium-sized enterprises.

3. Economic stability in terms of Growth and leverage Exports:

Exports are India’s most important economic driver. Because of MSME’s contribution to manufacturing, exports, and jobs, it benefits other industries as well. MNCs are increasingly purchasing semi-finished and auxiliary items from small businesses, such as clutches and brakes by vehicle manufacturers. Even after the GST is implemented, it is useful in bridging the gap between small and large businesses.

4. Cheap labour and minimum overhead:

One of the primary challenges in large-scale firms is retaining human resources through an effective human resource management professional manager. However, when it comes to MSME, the labour requirement is lower, and it does not necessitate the use of a highly skilled labourer. As a result, the owner’s indirect expenses are also minimal.

5. Encourages Inclusive Growth:

For numerous years, the Ministry of Medium, Small, and Medium-sized Enterprises has prioritised inclusive growth. Poverty and deprivation, on the other hand, constitute a barrier to India’s progress. Furthermore, it comprises socially underprivileged groups, which is a major concern for the Ministry of MSME.


Since its inception, the MSME sector has shown to be a highly active sector of the Indian economy. MSMEs create and produce a wide range of items for both domestic and international markets. They have aided in the establishment and growth of the khadi, village, and coir industries. They have coordinated and worked with relevant ministries, state governments, and stakeholders to help rural areas in their development. MSMEs have been critical in offering employment opportunities in rural areas. In comparison to huge companies, they have aided in the industrialisation of these areas at a cheap capital cost. The MSME sector has made a significant contribution to the country’s socioeconomic growth by acting as a complement to major industries.

MSMEs also contribute and play an important part in the country’s growth in a variety of ways, including minimal investment, operational flexibility, location mobility, low import rates, and a large contribution to domestic output. With the ability and capacity to develop appropriate local technology, provide fierce competition in domestic and international markets, technology-savvy industries, contribute to the development of defence materials, and generate new entrepreneurs through the provision of knowledge, training, and skill up-gradation through specialised training centres.


The micro, small, and medium-sized enterprise (MSME) sector is the backbone of the Indian economy. This sector has shown to be critical to the nation’s prosperity, leveraging exports, and producing a large number of job opportunities for the unskilled, recent graduates, and underemployed. It also provided banks with greater options to provide credit to MSME businesses. The government should pay special attention to the importance of MSME in terms of offering more and more MSME Registration benefits by enacting improved rules that allow financial institutions to provide more credit at lower interest rates, ensuring the sector’s long-term viability.


MBA in Rural Management, 1st Division

Utkal University, Chandikhole Campus