What is MSME? The backbone of Indian Economy!

5 min read

Micro, Small and Medium Enterprises (MSMEs) are businesses engaged in production, manufacturing, processing and preservation of goods and commodities. They are established under the Government of India’s Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

MSMEs significantly contribute for Social and Economic development of India employing more than 60 million people and is considered the backbone of Indian Economy. These businesses have substantially helped in building rural and backward areas. Amid the Covid-19 crisis, to boost the economy, the Union Government has altered the definition of these enterprises to rope in more businesses to these categories.

MSME Classification

Service and Manufacturing were classified separately under MSMED Act till May 2020. To boost the economic growth amid the crisis due to increasing Covid-19 cases, the Finance ministry considered a single categorization of both sectors. Here’s a look into the both new and old categorization of MSMEs.

New Classification

The distinction between Services and Manufacturing enterprises has been removed with similar slabs for investment and annual turnover among them.

Investment and Annual Turnover: Merged Criteria

Sector type Micro Enterprise Small Enterprise Medium Enterprise
Both Manufacturing and Service Sector Investment less than Rs.1 cr Turnover less than Rs.5 cr Investment less than Rs.10 cr Turnover less than Rs.50 cr Investment less than Rs.50 cr Turnover less than Rs.250 cr

Old Classification

By investment in Plant and Machinery

Sector type Micro Enterprise Small Enterprise Medium Enterprise
Manufacturing Shall not exceed Rs.25 Cr.More than Rs. 10 lakh, shall not exceed Rs. 2 Cr More than Rs. 5 Cr, shall not exceed Rs. 10 Cr
ServicesInvestment shall not exceed Rs. 10 lakh More than Rs. 10 lakh, shall not exceed Rs. 2 Cr More than Rs. 2 Cr, shall not exceed Rs. 5 Cr

Features of Ministry of MSME

  • Works for the welfare of artisans and workers
  • Provides credit limit or funding support from banks
  • Promotes entrepreneurship development and skill up gradation via specialized training centers
  • Supports technology up gradation, infrastructural development and modernization
  • Offers assistance for improved access to domestic and export markets
  • Provides modern testing facilities and quality certification
  • Supports packaging, product development and design intervention

Some of the entities that work under Ministry of MSME are as follows:

  • A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship (ASPIRE)
  • Khadi and Village Industries Commission (KVIC)
  • Mahatma Gandhi Institute for Rural Industrialization (MGIRI)
  • National Institute for Micro, Small and Medium Enterprises (NIMSME)
  • National Small Industries Corporation (NSIC)
  • Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

Role of MSMEs in Indian Economy

In 1961, with the merger of the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries; the Ministry of Micro, Small and Medium Enterprises (M/o MSME) was formed.

MSMEs produces and manufactures a wide variety of products for domestic, as well as international markets. MSMEs help in the promotion of growth and development of Khadi, Village and Coir industries, in co-operation with concerned ministries, state governments and stakeholders.

Importance of MSME

MSME was launched in 2006 to become an integral part of the supply chain for products and services; moreover, a creator of large-scale employment opportunities in rural India. MSMEs contribute to approximately 8% of India’s GDP, employs over 60 million people, has an enormous share of 40% in the exports market and 45% in the manufacturing sector.

Source: Paisa Bazaar

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