How The MSME Sectors New Definition Benefits Your Business

The MSME sector is an important pillar of the Indian economy and accounts for about 45% of manufacturing output and about 40% of exports. It also generates employment for about 110 million people, according to government estimates. More importantly, a large number of MSMEs are located in rural areas, helping prop up the village economy and creating jobs where they are needed the most.

In 2006, the government notified the Micro, Small and Medium Enterprises Development (MSMED) Act with an aim to resolve policy issues impacting these enterprises, make it easier for them to do business and raise funds, and make them more globally competitive.

Two years ago, in a bid to help the small-scale industry after the outbreak of the COVID-19 pandemic, the government notified a new definition for micro, small and medium enterprises. The new definition increased investment limits, introduced new turnover criteria, and eliminated the difference between manufacturing and service MSMEs.

The New MSME Definitions

According to the new definitions, micro enterprises are companies where investment in plant and machinery or equipment is less than Rs 1 crore and turnover is less than Rs 5 crore. Earlier, the investment limit was Rs 25 lakh for manufacturing companies and Rs 10 lakh for service micro enterprises.

Companies with investment less than Rs 10 crore and turnover less than Rs 50 crore have been classified as small enterprises.

Similarly, companies with investment of Rs 50 crore and turnover of Rs 250 crore have been classified as medium enterprises.

Benefits Of New Definitions

The new definition of MSMEs has significantly increased investment limit, which was last revised in 2006. The Indian economy has grown leaps and bounds since then and the new definition takes into account the ground realities.

Along with the new definition, the government has also introduced an easy registration process for MSMEs based on self-declaration.

The new definition provides room for MSMEs to grow without the fear of losing their MSME status. The government has also exempted export earnings from the turnover criteria, allowing MSMEs to expand by focusing on exports without losing the MSME status.

The new definition will mean more smaller companies will be covered under the MSME definition and will be eligible for various government incentives including collateral-free loans from banks, access to priority-sector lending from banks, reservation of products and preference in government tenders.

As part of the Atmanirbhar Bharat package, the government has announced a number of schemes for MSMEs including Emergency Credit Line Guarantee Scheme, collateral-free automatic loans, and equity infusion through a fund of funds.

In addition, the government has extended the Emergency Credit Line Guarantee Scheme till March 2023 and expanded the guarantee to Rs 5 lakh crore.

Conclusion

The new definition will give a boost to the MSME sector, which was severely hit by a triple whammy – introduction of the Goods and Services Tax, demonetisation of currency notes, and COVID-19. It will help the small-scale sector to focus on growth without fearing about losing the MSME status.

So, if you are an entrepreneur, do register your enterprise as an MSME to avail various government benefits and easy credit that can help your business expand.