94 Micro and Small-Scale Industries in India
Micro, Small and Medium Enterprises (MSMEs) form the backbone of India’s industrial economy. They account for roughly 30 % of GDP, 45 % of manufacturing output and over 110 million jobs (MSME Annual Report 2023-24). The sector is governed by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, modified by the Atmanirbhar Bharat Abhiyan announcement of 13 May 2020 and the consequent revised classification notified on 1 July 2020 — and further upgraded in Union Budget 2025 which expanded the investment and turnover thresholds.
| Term | Working definition |
|---|---|
| MSMED Act, 2006 | The principal Indian legislation that defines, classifies and supports micro, small and medium enterprises in both manufacturing and service sectors. |
| Composite criterion | The post-2020 classification using both investment in plant and machinery / equipment and annual turnover, on whichever criterion places the unit in a higher category. |
| Udyam registration | The online MSME registration portal launched on 1 July 2020 (replacing UAM); registration is free, paperless and self-declaratory. |
94.1 Evolution of MSME Definition
| Year | Definition / Act |
|---|---|
| 1950s | “Small-scale industry” defined administratively |
| 1977 | Tiny industry sub-category created |
| 1991 | New industrial policy reserved 836 items for SSI |
| 1999 | Ministry of SSI & Agro and Rural Industries created |
| 2006 | MSMED Act consolidates Micro, Small and Medium definitions |
| 2020 | Composite criterion (investment + turnover) replaces investment-only criterion; manufacturing & services unified |
| 2025 | Budget revises thresholds; Investment limits raised 2.5×, turnover limits 2× |
94.2 MSMED Act 2006 — Original Classification (Investment-only)
| Class | Manufacturing | Services |
|---|---|---|
| Micro | ≤ 0.25 | ≤ 0.10 |
| Small | 0.25 – 5 | 0.10 – 2 |
| Medium | 5 – 10 | 2 – 5 |
94.3 Revised Classification (effective 1 July 2020)
| Class | Investment in plant & machinery / equipment | Annual turnover |
|---|---|---|
| Micro | ≤ ₹1 crore | ≤ ₹5 crore |
| Small | ≤ ₹10 crore | ≤ ₹50 crore |
| Medium | ≤ ₹50 crore | ≤ ₹250 crore |
A unit must satisfy both criteria to remain in a category — failing the higher of the two criteria escalates the unit to the next class. Manufacturing and services share the same thresholds.
94.4 Budget 2025 Threshold Revision
| Class | Investment ceiling | Turnover ceiling |
|---|---|---|
| Micro | ₹2.5 crore | ₹10 crore |
| Small | ₹25 crore | ₹100 crore |
| Medium | ₹125 crore | ₹500 crore |
94.5 Significance of MSMEs
| Metric | Approx. share |
|---|---|
| GDP | ~ 30 % |
| Manufacturing output | ~ 45 % |
| Total exports | ~ 45 % |
| Employment | 110 million+; second-largest after agriculture |
| Number of enterprises | ~ 6.3 crore (NSS 73rd round) |
MSMEs are credited with equitable distribution of national income, regional balance, mobilisation of latent entrepreneurship, and ancillarisation of large industry.
94.6 Problems Faced by MSMEs
| Domain | Constraints |
|---|---|
| Finance | Credit rationing, high cost, collateral requirement, delayed payments |
| Technology | Obsolete machinery, low R&D capacity |
| Marketing | Limited brand, distance from formal markets, post-demonetisation distress |
| Raw materials | Shortage, high cost, dependence on intermediaries |
| Infrastructure | Poor power, transport, water |
| Manpower | Skill shortage, attrition to large firms |
| Compliance | Multiple labour, tax, environmental laws |
The MSME Samadhaan portal (2017) addresses delayed payment grievances under Sections 15-24 of the MSMED Act; the buyer must pay within 45 days of acceptance, failing which compound interest at three times the bank rate is payable.
94.7 Promotional Architecture
| Tier | Body |
|---|---|
| Apex | Ministry of MSME, Government of India |
| Statutory | National Board for MSMEs (NBMSME) |
| Operational | DC-MSME, KVIC, Coir Board, NSIC |
| Field | MSME-DIs (formerly SISIs) in every state |
| State | State Directorates of Industries, DICs |
| Financial | SIDBI, NABARD, scheduled commercial banks, RRBs |
| Trade | EPCs, FIEO, FISME, CII, FICCI, ASSOCHAM |
94.8 Major Schemes for MSMEs
| Scheme | Year | Brief |
|---|---|---|
| CGTMSE — Credit Guarantee Fund Trust for Micro and Small Enterprises | 2000 | Collateral-free credit up to ₹500 lakh |
| PMEGP | 2008 | Credit-linked subsidy via KVIC for new micro-enterprises |
| Cluster Development Programme (MSE-CDP) | 2003 | Common Facility Centres in clusters |
| ZED Certification | 2016 | Zero Defect Zero Effect quality scheme |
| TReDS (Trade Receivables Discounting System) | 2017 | RBI-licensed bill discounting platform |
| Public Procurement Policy | 2012 | Mandatory 25 % procurement by CPSEs from MSEs |
| ECLGS — Emergency Credit Line Guarantee Scheme | 2020 | COVID-19 emergency credit line |
| Self-Reliant India (SRI) Fund | 2021 | ₹50 000 cr equity infusion fund of funds |
| RAMP — Raising and Accelerating MSME Performance | 2022 | World Bank-supported, ₹6 000 cr |
94.9 Reservation of Items and De-reservation
The Industries (Development and Regulation) Act, 1951 originally reserved several items exclusively for SSI manufacture (peaking at 836 items in 1989). Liberalisation gradually de-reserved items; the last 20 items were de-reserved in April 2015, ending the era of product reservation.
94.10 MSME Cluster Approach
A cluster is a “geographical concentration of enterprises producing similar / complementary products”. UNIDO and DC-MSME identify ~6 000 clusters in India (e.g. Tirupur knitwear, Moradabad brassware, Surat diamond, Ludhiana hosiery, Jaipur gems). The cluster approach delivers Common Facility Centres, brand-building, and market linkage.
94.11 Practice Questions
Q 01 Act Easy
The principal legislation governing MSMEs in India is:
View solution
Q 02 Classification Medium
Under the classification effective from 1 July 2020, a “Small Enterprise” must have investment up to:
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Q 03 Udyam Easy
Udyam Registration, the online portal for MSME registration, was launched on:
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Q 04 CGTMSE Medium
The CGTMSE provides:
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Q 05 Procurement policy Medium
Under the Public Procurement Policy 2012, what minimum percentage of total annual procurement by Central PSEs must be sourced from MSEs?
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Q 06 Delayed payments Medium
Under the MSMED Act, a buyer must pay an MSME supplier within how many days?
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Q 07 De-reservation Hard
Reservation of items exclusively for the SSI sector ended in India in:
View solution
Q 08 Match the following Hard
Match the scheme / institution with its purpose:
| (P) CGTMSE | (1) ZED quality certification |
| (Q) ZED | (2) Bill discounting platform |
| (R) TReDS | (3) Collateral-free loan guarantee |
| (S) SRI Fund | (4) ₹50 000 cr equity fund of funds |
View solution
- MSMED Act 2006; revised composite criterion (investment + turnover) effective 1 July 2020; Budget 2025 raised thresholds.
- 2020 thresholds: Micro ≤ ₹1 cr / ₹5 cr; Small ≤ ₹10 cr / ₹50 cr; Medium ≤ ₹50 cr / ₹250 cr.
- Udyam Registration replaced UAM on 1 July 2020.
- 45-day rule for buyer payment; compound interest at 3× bank rate; MSME Samadhaan portal.
- CGTMSE (2000), PMEGP (2008), Public Procurement Policy 2012 (25 % from MSEs), TReDS (2017), ECLGS (2020), SRI Fund (2021), RAMP (2022).