Context:

Recently, the Indian government has notified revised criteria for classifying Micro, Small, and Medium Enterprises (MSMEs). The new classification, which will come into effect from April 1, introduces higher investment and turnover limits for each category of MSMEs.

What are the New Classification Criteria?

The revised criteria significantly raise both the investment and turnover limits for classifying MSMEs, as follows:

1.   Micro-Enterprises:

o    Investment limit: Up to ₹2.5 crore (previously ₹1 crore).

o    Turnover limit: Up to ₹10 crore (previously ₹5 crore).

These changes aim to provide greater flexibility and support to smaller enterprises by allowing them to qualify as micro-enterprises while maintaining relatively higher investments and turnovers.

2.   Small Enterprises:

o    Investment limit: Up to ₹25 crore (previously ₹10 crore).

o    Turnover limit: Up to ₹100 crore (previously ₹50 crore).

The enhanced thresholds for small enterprises are designed to encourage growth and scaling up, enabling more businesses to fall under this category while fostering innovation and competitiveness in the industry.

3.   Medium Enterprises:

o    Investment limit: Up to ₹125 crore (previously ₹50 crore).

o    Turnover limit: Up to ₹500 crore (previously ₹250 crore).

The substantial increase in the limits for medium enterprises aims to provide better access to funding, incentives, and opportunities for larger MSMEs to thrive and compete globally.

Why was the Criteria Revised?

The changes are aimed at:

• • Encouraging growth and expansion: The revised criteria enable more businesses to move up the MSME ladder, thus benefiting from more resources, government schemes, and financial assistance.
  • Boosting job creation: As MSMEs grow, they contribute to job creation, which is a key priority for the government in terms of economic recovery and employment generation.
  • Simplifying classification: With a wider range of MSMEs qualifying under higher categories, it simplifies the classification and better reflects the size and scope of today’s enterprises.

Definition of MSMEs

MSMEs are enterprises engaged in the production, manufacturing, and processing of goods and commodities. These enterprises are characterized by their limited investment in plant and machinery, as well as their limited turnover.

·        The Micro, Small and Medium Enterprises Development (MSMED) Act of 2006 provides the legal framework for the promotion and development of MSMEs.

·        This Act aims to facilitate the growth and development of MSMEs by providing a supportive environment, access to credit, and technological upgradation.

Conclusion

These changes are expected to improve access to finance and government schemes, encouraging MSMEs to innovate and scale up their operations. With over 5 crore registered MSMEs in India employing about 20 crore people and contributing to 36% of the country's manufacturing and 45% of its exports, these revisions are likely to have a significant impact on the nation's economic recovery and growth in the coming years