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The Micro, Small, and Medium Enterprises (MSME) stands as a cornerstone of the Indian economy. The vibrant and diverse MSME sector, with over 63 million units, contribute to around 30% of the country’s GDP and 45% of the manufacturing output. The MSME sector in India also contributes to over 40% of exports, provides employment to over 110 million people, fosters innovation and promotes regional development. We’ll take a look at the MSME classification in India based on investment and turnover, its contribution in boosting rural economy, and its indispensable role in India’s socio-economic narrative.

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MSME sector in India – Overview

Let’s start with an overview of the MSME sector in India. First, let’s understand the MSME full form.

MSME is the abbreviation used to describe the micro, small and medium enterprises in India. The concept of MSMEs was formally introduced with the enactment of the Micro, Small and Medium Enterprises Development (MSMED) Act in 2006. This legislation was pivotal in recognizing their existence and focusing on their growth and development, by providing them access to various government schemes and incentives.

Over the years, to align the MSME definition to changing time, it has been widened to keep it relevant and representative of the different sectors and segments. Listed below are some of the prominent industries that feature under the MSME sector.

MSME sector list – Example of businesses

The list includes businesses across the manufacturing and services sectors:

Examples of manufacturing businesses:

  • Leather products (e.g., shoes, bags, accessories for domestic demand and exports)
  • Textile manufacturing (e.g., garments), handloom and khadi
  • Chemical manufacturing, (e.g., dyes, paints, etc.)
  • Engineering and fabrication, and manufacturing of auto components or bicycle parts
  • Toy making and electronic goods manufacturing (small-scale)
  • Food processing and preservation units (e.g., snacks, spices, packaged food, etc.)
  • Equipment manufacturing (i.e., small-scale production of machinery for agriculture, textiles, construction etc.)

Examples of services sector businesses:

  • Placement and management consultancy services
  • Laundry and dry cleaning
  • Training and education institute
  • Laboratories and X-ray clinics
  • Salons and beauty parlours
  • Day care centres and cheches

Note – You can view a detailed list of MSME businesses to learn more about them and about businesses that are not included under MMSEs. You can also visit the Udyam portal and official MSME website for more information.

Also read: MSME logo – usage permissions and guidelines

MSME classification – How the sector is categorised based on MSME turnover limit and investment

While the concept was MSME was introduced in 2006, it evolved over the years especially in response to economic growth and the need to include more entities into its definition. Initially, the definition of MSMEs was limited to the investment made in plant and machinery for manufacturing and services sectors.

However, in 2020, the revised definition announced as a part of the Aatmanirbhar Bharat Abhiyan broadened the definition to include ‘annual turnover’ as an additional criterion. Today, the definition of MSMEs include the MSME turnover limit and investment thresholds. It’s a composite definition that does away with the distinction between services and manufacturing sector industries, and includes retailers and wholesalers (since July, 2021). This allowed more businesses to fall under the purview of MSMEs giving them access to the numerous MSME schemes, exemptions, and other benefits.

Also read: Limit of investment in small-scale businesses

New MSME classification as per investment and annual turnover limit (plus comparison with old)

Let us first take a look at the old definition of MSME sector for manufacturing and services industries based on investment made in plant and machinery.

Old MSME definition in India by investment
Manufacturing sector Services sector
Micro enterprises Not exceeding ₹25 lakhs Not exceeding ₹10 lakhs
Small enterprises Between ₹25 lakhs – ₹5 crores Between ₹10 lakhs – ₹2 crores
Medium enterprises Between ₹5 crores – ₹10 crores Between ₹2 crores – ₹5 crores

The revised MSME classification is a composite definition that applies the same categorisation for manufacturing and services sectors. This aims to remove any ambiguity or difficulty being faced when calculating the actual investment made. It considers all businesses with the same PAN details as a single entity and fetches the ITR details of the previous years for calculation purposes. On that note, let’s take a look at the new MSME limit.

Composite MSME classification based on investment made in plant and machinery/equipment and annual turnover
MSME investment made MSME turnover limit
Micro enterprises Not exceeding ₹1 crore Not exceeding ₹5 crores
Small enterprises Not exceeding ₹10 crores Not exceeding ₹50 crores
Medium enterprises Not exceeding ₹50 crores Not exceeding ₹250 crores

Now that we understand the revised MSME criteria, let’s take a look at how businesses can register themselves as a MSME and download the MSME certificate.

MSME registration & how to get your MSME certificate

MSME registration or Udyam registration is the online process by which an enterprise is categorised as a micro, small or medium entity. The registration can be done through self-declaration without submitting any documents. Upon completion, an Udyam Registration Number (URN) and e-Certificate (Udyam Registration Certificate) are issued.

Eligibility for MSME registration:

  • Businesses from manufacturing, services, wholesale and retail
  • Sole-proprietors, startups, entrepreneurs
  • LLP and Partnership firms
  • Private Limited Companies
  • Co-operative Societies

Note: eCommerce businesses can also register as MSMEs by visiting the Udyam portal and reap its benefits.

Documents required for MSME registration:

MSME registration on Udyam portal is based on self-declaration. You will require your Aadhaar number and PAN card only. All GST linked data is fetched directly for Income Tax and GSTIN systems. It’s an online, paperless process and requires no registration fees.

Udyam MSME registration process:

  • Visit the MSME website (msme.gov.in) and scroll to the Udyam Registration (Online Registration for MSME) tab – gov.in/Government-India/Ministry-MSME-registration.htm
  • Select ‘For New Entrepreneurs who are not Registered yet as MSME or those with EM-II’
  • Enter Aadhaar number, entrepreneur name, and click ‘Validate & Generate OTP’
  • Enter the OTP (sent to mobile linked with Aadhaar) and validate
  • Enter organisation details for PAN verification (Note – Business details related to turnover, investment, number of employees, bank details, NIC code, etc. requires to be provided)
  • Confirm the declaration and submit the application for final OTP
  • Enter the details to complete the MSME registration process

Downloading MSME certificate online (e-certificate):

Once the online registration is complete you will get the acknowledgement. You can verify your MSME registration number and download the MSME certificate online by visiting the website.

  • Browse over the ‘Print/Verify’ tab on the menu
  • Click on ‘Print Udyam Certificate’
  • Enter your URN and phone number and select the OTP option
  • Validate using OTP
  • Select the ‘Print’ option

You can use the MSME e-Certificate for exemptions, incentives, and other benefits.

Also read: 7 FAQs on Udyam portal registration you should know about

Popular MSME schemes in India

On 27 June, MSME day is celebrated in India and worldwide. It is a day to celebrate the contributions of the MSME sector and the pivotal role it plays in the economy.

The Ministry of MSME has accordingly introduced several MSME schemes that are targeted to drive growth in the MSME sector in India. These schemes are integral to empowering the MSME sector. Some of the top schemes for MSMEs are:

  • MSME Samadhaan scheme – A portal designed to settle delayed payments to MSMEs and disputes regarding it.
  • MSME Sambandh scheme – A monitoring mechanism to ensure that norms for public procurement policy are being followed.
  • MSME Sampark scheme – An initiative for businesses to post vacancies and job seekers to look for opportunities and hence reduce the gap between employees and businesses.
  • MSME Champion scheme – A scheme to provide financial assistance, foster innovation, upgrade skills, and enable MSMEs to stay competitive.

Apart from these, there are several other initiatives and departments working towards the growth of the MSME sector in India. For instance, the Development Commissioner of Micro, Small and Medium Enterprises (DC MSME), is a division that assists the Ministry to formulate, coordinate and implement policies for MSME growth.

MSME in India – The way ahead

The MSME sector is not without its own set of challenges. While the government is taking steps to lessen the challenges (e.g., revising the MSME limit, introducing new schemes, simplifying MSME registration, updating the MSME criteria, etc.) there are still certain areas that require additional support.

The sector at large, still faces challenges related to access to credit, internal and global competition, lack of awareness and access to information, obsolete technology usage etc. However, with digitisation, government support and a new entrepreneurial spirit, the future of the MSME sector looks promising.

At Tata nexarc we have designed a platform to accelerate growth for small businesses in India and offer a range of trusted and affordable solutions. Register on our platform today to explore our solutions across logistics, procurement of steel, and more.