The year 2020 has been quite challenging for Indian businesses struggling to meet the revenue targets amidst the Covid-19 pandemic. As a part of economic measures covered under the Rs 20 lakh crore Atmanirbhar Bharat Abhiyan, the Union Cabinet approved the new definition of Micro, Small, and Medium Enterprises (MSMEs) officially on June 1, 2020, which was put into effect from July 1, 2020.
The news of revised MSME definition first came up at the end of 2019 when the government announced changes to the definition.
The resultant of the revised MSME definition is that a large number of enterprises now fall into the MSME category.
New MSME definition as per revision done in June 2020
As per the composite criteria, the updated MSME definition is defined as per the investment in plant and machinery, along with the annual turnover. For manufacturing enterprises and those rendering services, the new MSME definition is defined as follows as per the notification published in the Gazette of India dated June 1, 2020:
The updated MSME definition had to be implemented with an amendment for change in the MSME classification criteria. This amendment was later approved, thereby adding an additional principle of turnover along with the investment.
It means the above table can be read as:
A micro enterprise can be defined as the one in which an investment of less than Rs. 1 crore is made and it has a turnover of less than Rs.5 crores.
Find out more about the earlier definitions of Micro, Small, and Medium Enterprises.
Why was MSME definition changed in 2020?
The primary reason behind implementing the new MSME definition was to encompass more enterprises under the array of benefits offered under Atmanirbhar Bharat Abhiyan Package. The package was aimed at supporting MSMEs amidst the tough pandemic times. There were several reforms included in this package that aimed to revive the MSME sector in India, including the following:
- Collateral-free loans worth Rs. 3 Lakh crores
- Subordinate debt of Rs. 20,000 crores for stressed MSMEs
- Equity infusion of Rs. 50,000 crores through MSME fund
- Disallowance of global tenders of up to Rs. 200 crores to support self-reliant India initiative, and more
Old MSME definition as per MSMED Act, 2006
Previously, the classification of enterprises in micro, small, and medium categories was based on the criterion of the amount invested in plant and machinery. Also, the investment-based classification has different forms for both manufacturing and services sectors.
Old MSME definition for manufacturing sector | |||
| Investment in Plant and Machinery | Micro | Small | Medium |
| Less than or equal to Rs.25 Lakhs | Between Rs.25 Lakhs to Rs.5 crores | Between Rs.5 crores to Rs.10 crores | |
Old MSME definition for services sector | |||
| Investment in Equipment | Micro | Small | Medium |
| Less than or equal to Rs.10 Lakhs | Between Rs.10 Lakhs to Rs.2 crores | Between Rs.2 crores to Rs.5 crores | |
About Atmanirbhar Bharat Abhiyan at a glance
Atmanirbhar Bharat Abhiyan refers to the economic package announced by Prime Minister Narendra Modi in 2020 to tackle the crisis triggered on account of the Coronavirus pandemic. The package’s total worth is Rs. 2 trillion or 20 Lakh crores and is aimed to benefit farmers, laborers, taxpayers, and MSMEs.
The Atmanirbhar Bharat Abhiyan also lays greater emphasis on tax relief, EPF support, and MSME revival. The new MSME definition is a part of this package, along with other benefits like:
- Emergency credit line for MSMEs
- EPF support to businesses and employees
- Reduced EPF contribution
- Reduced TDS/TCS rates
- Direct tax amendments, and more
FAQs related to MSMEs
What is meant by an MSME?
As an acronym, MSME stands for Micro, Small, and Medium Enterprises. In the Indian context defined under MSMED Act, 2006, enterprises are divided into two categories: manufacturing and services.
What is the criterion for MSME classification?
The criteria to classify any enterprise as micro, small, or medium, were earlier based on the amount invested in plant and machinery. However, it has been recently changed to include turnover along with investment.
What has been changed in the new MSME definition?
Under the new definition of MSMEs, the government has considered various reform measures, including the following:
- Higher investment limit
- Inclusion of additional turnover criteria
- Elimination of difference between services and manufacturing sector
How many MSMEs are there in India?
India is home to around 6 crores MSMEs. As per data, the overall MSME sector contributes 29% towards the country’s GDP.
What can Paytm Startup Toolkit do for MSMEs?
MSMEs are indeed a crucial part of our economy. The changes made in the MSME definition are meant to enable various enterprises to plan for growth in a better way. This is where Paytm Startup Toolkit can be of great help. This comprehensive toolkit supports the MSME sector by allowing them to accept payments online. Sign up now and become a registered Paytm merchant today!
