On June 26, 2020, the government brought a new structure of MSME classification criteria for MSMEs in India. This was aimed to broaden the classification scope, allowing a greater no. of companies for MSME registration in country.
The prior MSME classification framework limited the inclusion of a significant portion of companies. The recent amendment is anticipated to draw a substantial number of entities in the years to come. These adjustments involved an expansion of the existing parameters, such as Turnover and Investment. In this blog, let’s examine the new structure of MSME classification.
What Amendments Are Made to the Existing Structure?
The new structure of MSME classification introduces increased flexibility in terms of coverage. Unlike its predecessor, the updated framework permits new entities, particularly medium enterprises, to become part of the MSME ecosystem.
New structure of MSME classification:
The new structure of MSME classification involves:
| Category | Criteria | Classification |
| Micro Enterprise | Any enterprise with investment up to Rs 1 crore and annual revenue below Rs 5 crore will be categorised as “Micro.” | Micro |
| Small Enterprise | Any enterprise having an investment up to Rs 10 crore and annual revenue up to Rs 50 crore will be classified as “Small.” | Small |
| Medium Enterprise | Any enterprise with an investment of up to Rs 20 crore and annual revenue below Rs 100 crore will fall under the category of “Medium.” | Medium |
Previous Structure of MSME Classification:
For manufacturing units, the classification under the previous MSME structure was determined by the investment in machinery and plant. The criteria were as follows:
| Classification | Investment Limit |
| Micro Enterprises | Capped at 25 lakhs rupees |
| Small Enterprises | More than 25 lakhs rupees, not more than 5 crore rupees |
| Medium Enterprises | More than 5 crore rupees, not above 10 crore rupees |
For the service sector, the classification was based on the investment in equipment:
| Enterprise Type | Investment Limit |
| Micro Enterprises | Up to ten lakh rupees |
| Small Enterprises | More than Rs 10 lakh but not more than Rs 2 crore |
| Medium Enterprises | More than Rs 2 crore but not more than Rs 5 crore |
Key Announcements Under Atmanirbhar Bharat Abhiyan
Some main point of announcements on new structure of the MSME classification under Atmanirbhar Abhiyan were:
1. Financial Assistance for Small Businesses:
An economic relief plans of Rs 3 lakh crores has been introduced and all qualified applicants with existing debts up to 25 crores and an annual revenue of INR 100 Crore can benefit from this initiative.
2. Repayment Conditions and Grace Period:
The repayment period is only uptil 4 years, with a 12 month grace period for the repayment of the principal amount.
3. Expanded Definition of MSME Categories:
The recent modification significantly expands the definition of MSME categories. Previously, entities were divided into manufacturing and service sectors. With the latest adjustment, these distinctions are considered within a unified framework, encompassing both investments in plants and machinery or equipment and annual turnover.
4. Joint Advancement of the Industry:
The adjustment is anticipated to incorporate a variety of enterprises into the MSME ecosystem, fostering joint advancement within the industry.
Existing Schemes That Are Accessible to Entities Under MSME Registration:
The existing schemes accessible to entities under MSME registration are:
1. Prime Minister’s Employment Generation Programme
2. 2nd Loan for up-gradation of the existing PMEGP / MUDRA units
3. MMDA
4. ISEC
5. Work-Shed Scheme for Khadi Artisans
6. Strengthening of Infrastructure of Existing Weak Khadi Institutions and Assistance for Marketing Infrastructure
7. Rojgar Yukt Gaon
8. Honey Mission Programme / Beekeeping
9. Mission Solar Charkha
10. Mahatma Gandhi Institute for Rural Industrialisation
11. National SC-ST Hub
12. Micro & Small Enterprises Cluster Development Programme
13. MSME Technology Centres
14. Credit Guarantee Scheme for Micro & Small Enterprises
15. Credit Linked Capital Subsidy Component
16. Interest Subvention Scheme for MSMEs-2018
17. Promotion of MSMEs in NER and Sikkim- a sub-component of Central Sector Scheme “Technology and Enterprise, Resource Center”.
18. Procurement and Marketing Support scheme
19. ZED Certification Scheme
20. Lean Manufacturing Competitiveness for MSMEs
21. Design Clinic for Design Expertise to MSMEs
22. Digital MSME
23. Entrepreneurial & Managerial Development of SMEs via Incubators
24. Awareness on Intellectual Property Rights
25. ESDP Scheme
26. Assistance to Training Institutions Scheme
27. International Cooperation Scheme
28. Science & Technology
29. Coir Industry Technology Upgradation Scheme
30. Skill Upgradation and Mahila Coir Yojana
31. Export Market Promotion
32. Domestic Market Promotion
33. Trade & Industry Related Functional Support Services
34. Welfare Measures
Challenges Faced by MSMEs in COVID-19 Pandemic
Some challenges faced by MSMEs in Covid were:
1. Absence of Timely & Adequate Banking Finance:
MSMEs encounter difficulties in securing timely and sufficient banking finance.
2. Limited Capital & Knowledge:
Many MSMEs face constraints in terms of both capital and knowledge resources.
3. Non-availability of Latest Generation Technology:
The lack of access to modern technology hinders the growth of MSMEs.
4. Low Production Capacity:
MSMEs often struggle with limited production capacities.
5. Ineffective Marketing Strategy:
Not having of an effective marketing strategy bring challenges for MSMEs in reaching their target audience.
6. Limitation of Modernisation and Expansions:
MSMEs may encounter limitations in modernising and expanding their operations.
7. Absence of Skilled Labor at Affordable Cost:
Finding skilled labor at an affordable cost is a persistent challenge for many MSMEs.
8. Follow-up with Government Authorities:
MSMEs face challenges in following up with government authorities to address issues, often due to a lack of manpower and knowledge.
It is crucial to consider these points while assessing the new structure of MSME classification, including composite investment and turnover. If an enterprise surpasses the ceiling limit in its respective category for both criteria, it automatically moves into the next category. However, meeting the ceiling limit ensures that the enterprise’s position remains unchanged. Additionally, entities with GSTIN listed against one PAN number are treated as a single entity, with investment and turnover figures considered collectively for classification.
Final Thoughts
The new structure of MSME classification, implemented to enhance inclusivity and adaptability, marks a significant stride in economic policy. With expanded parameters like turnover and investment, the new structure of MSME classification accommodates a broader spectrum of enterprises, fostering a more comprehensive representation within the MSME ecosystem. This strategic shift anticipates heightened growth and resilience among Micro, Small, and Medium Enterprises. The new structure of MSME classification showing a commitment to catalysing collective development, especially in the aftermath of economic challenges such as the COVID-19 pandemic. Overall, the new MSME classification structure aligns with the dynamic needs of businesses, promoting a more vibrant and strong entrepreneurial sector.
