Micro, Small, and Medium Enterprises in India – An Explainer
India’s Micro, Small, and Medium Enterprises (MSMEs) base is the largest in the world after China.
The sector provides a wide range of services and is engaged in the manufacturing of over 6,000 products – ranging from traditional to hi-tech items.
Given the government of India’s latest ‘Make in India’ push, along with a significant jump in the FDI flows, the Indian MSMEs sector is poised for rapid growth and integration with major global value chains.
As per the official estimates, there are about 63.05 million micro industries, 0.33 million small, and about 5,000 medium enterprises in the country.
The state of Uttar Pradesh has the largest number of estimated MSMEs with a share of 14.20 percent of the total MSMEs in the country. West Bengal comes as close second with a share of 14 percent, followed by Tamil Nadu and Maharashtra at eight percent.
How do you qualify as an MSME in India?
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, governs the coverage and investment ceiling of MSMEs in India.
According to the Act, there are two categories of MSMEs in the country – manufacturing and services.
For the manufacturing sector, the definition of an MSME is based on a company’s capital investment in plant and machinery. The threshold limits are:
- Micro: when investment does not exceed Rs 2.5 million (US$34,040);
- Small: when investment is more than Rs 2.5 million (US$34,040) but does not exceed Rs 50 million (US$680,875); and
- Medium: when investment is more than Rs 50 million (US$680,875) but does not exceed Rs 100 million (US$1.3 million).
For the services sector, the definition of an MSME is based on a company’s investments in equipment. The threshold limits are:
- Micro: When investment does not exceed Rs 1 million (US$13,617);
- Small: When investment is more than Rs 1 million (US$13,617) but limited to Rs 20 million (US$272,350); and
- Medium: When investment is more than Rs 20 million (US$272,350) but less than Rs 50 million (US$680,875).
Earlier this year, the union cabinet of India approved the changes in the classification of MSMEs. According to the revisions, both the manufacturing and services sectors will be classified based on the amount of annual turnover instead of the investment limits, as given below.
The new classification of MSMEs, however, is yet to be enforced by amendment.
- Micro: a unit where the annual turnover does not exceed Rs 50 million (US$680,875);
- Small: a unit where the annual turnover is more than Rs 50 million (US$680,875) but does not exceed Rs 750 million (US$10.1 million); and
- Medium: a unit where the annual turnover is more than Rs 750 million (US$10.1 million); rupees but does not exceed Rs 2.5 billion (US$33.8 million).
What are the opportunity areas for MSMEs in India?
- Domestic manufacturing of low-cost mobile phones, handsets, and devices;
- Manufacturing of telecom networking equipment, including routers and switches;
- Manufacture of base transceiver station equipment;
- Mobile customer data analytics – services oriented toward analytical solutions; and
- Development of value-added services
- Manufacturing of low-cost medical devices, and medical accessories such as surgical gloves, scrubs, and syringes;
- Low-cost surgical procedures to reduce the cost of healthcare;
- Medical tourism; and
- Diagnostic labs.
- Domestic manufacturing of low-cost consumer electronics, consumer durables;
- Nano-electronics and microelectronics;
- Electronic Systems Design and Manufacturing including semiconductor design, electronic components design and hi-tech manufacturing under India’s ‘National Electronics Mission; and
- Strategic electronics, as the government is keen on encouraging the domestic manufacturing of products needed by the security forces.
What are the benefits available?
These include schemes ensuring the quality of products, especially those meant for exports, technology up-gradation, incubation, credit-linked capital subsidy, and UID linked schemes which facilitate ease of receiving a subsidy.
Some of the other concessions available to the MSMEs are listed below:
- Collateral free loans from banks;
- 50 percent subsidy on patent registration;
- 1 percent exemption on the interest rate on overdraft;
- Concession on power utility bills;
- Eligible for industrial promotion subsidy;
- Protection against delayed payments; and
- Reimbursement of ISO certification charges.
How to register as an MSME in India?
To encourage MSME registration in India, the ministry of MSME has notified a simple one-page registration form called ‘Udyog Aadhaar Memorandum’.
The entrepreneurs in the MSME sector can file the form online, and instantly get a unique Udyog Aadhaar Number (UAN). The information sought includes personal Aadhar number, industry name, address of the business, bank account details, and other general information. Applicants can provide this information on a self-certification basis and do not need any supporting documents.
Businesses must note that they must deregister their MSME if:
- The investment limit increases more than the limit prescribed under the Act; or
- If the registered enterprise starts manufacturing any new item or items that require an industrial license or another kind of statutory license.
Editor’s note: This article was first published on November 1, 2018, and was republished with amendments on September 4, 2019