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Why Being a Micro, Small and Medium Enterprises (MSMEs) is Important?


Many aspects contribute to the growth of an economy and one such factor which acts as a backbone for India's economy includes the Micro, Small and Medium Enterprises (MSMEs). This particular sector is considered as the backbone of the country's economy as it is instrumental for attaining inclusive and sustainable growth. The sector acts as a nursery for innovations and enterprises as it forms the invisible root feeding for the survival of the majority of Indians.


The MSME is the sector which includes close to 36 million units and provides employment to over 80 million individuals in India. The sector is known to produce over 6000 products and contributes around 8% of gross domestic product (GDP). Apart from this, the total manufacturing output comes up roughly at 45% and the sector contributes to export 40% of goods from India.

Why Being a Micro, Small and Medium Enterprises (MSMEs) is Important?

New MSME Definition

The Finance Minister, Nirmala Sitharaman, recently redefined the definition of the Micro, Small and Medium Enterprises (MSMEs) during her address to the press while briefing about Atmanirbhar Bharat Abhiyan.

Definition of MSMEs:

As per the provisions of the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006, the MSMEs are classified under two categories and they are:

Manufacturing Enterprises

All the enterprises which are engaged in production or manufacturing of goods falling under any industry as specified in the first schedule of the Industries Development and Regulation Act of 1951 or the industries which employ plant and machines to process value addition to their final product which has a distinct name or use or character. So, a manufacturing enterprise is defined in terms of investment in plant and machinery.

Services Enterprises

Those enterprises which are engaged in rendering or providing services and are defined in terms of investment in equipment are known as Services Enterprises.

For many years till now, the above-mentioned definitions held good for manufacturing and services enterprises. But as per the new announcement made by the Finance Minister, on Atma - nirbhar Bharat, the existing differentiation between the manufacturing and service-based MSMEs were removed. The investment and turnover numbers were changed to larger values and this has resulted in a larger number of medium-sized enterprises.


Revised MSME Classification

Composite Criteria: Investment and Annual Turnover

Classification Manufacturing & Services
Micro Investment < Rs 1 Cr and Turnover < Rs 5 Cr
Small Investment < Rs 10 Cr and Turnover < Rs 50 Cr
Medium Investment < Rs 20 Cr and Turnover < Rs 100 Cr

Now let's understand the reasons as to Why Being an MSME is important?

MSMEs are eligible for Industrial Promotion Subsidy

Firms or enterprises which have registered themselves under MSMEs are eligible for Industrial Promotion Subsidy as prescribed by the government on its behalf.

Collateral Free Loans from Banks

The government of India launched the Credit Guarantee Fund Scheme especially for the MSMEs to help them provide collateral-free credit. Currently, both the existing and new enterprises are eligible to get coverage under the scheme.

Provides Subsidy on Patent Registration

All those firms or enterprises which have MSME registration certificate are eligible to secure 50% subsidy for patent registration. All they have to do is to apply to the respective ministry.

Get Protection Against Payment Delays

The Ministry of Micro, Small and Medium Enterprises protects the MSME Registered Business for the delay in payments from buyers and protects the right of interest on payment delays via conciliation, arbitration and settlement of disputes to be done within a minimum period.

If any of the micro or small enterprise having an MSME registration, supplies any of the goods or services, then the buyer has to make the necessary payments on or before the agreed date between the buyer and the micro or small enterprise. If the payment has defaulted on the said date, then the buyer has to make the necessary payments within 15 days of acceptance of goods or services.

The payment which is due to the MSMEs cannot exceed 45 days from the day of acceptance of goods or services. If it happens, then the interest amount should be borne by the buyer and the penal interest chargeable for delayed payment to an MSME enterprise stands at three times the bank rate notified by the RBI.

Get Concession on Electricity Bills

Firms or enterprises which have MSME Registration Certificate can avail concession on electricity bills by submitting an application to the relevant electricity department along with MSME Registration Certificate.

About the Author

Archana is a content writer at GoodReturns. She has been writing articles related to investment planning and personal finance for more than two years.

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