MSMEs

Notes

Micro, Small and Medium Enterprises (MSMEs) are the backbone of India's economy, second only to agriculture in providing employment. They are governed by the MSMED Act, 2006 and supervised by the Ministry of MSME.

Classification (composite criteria of investment and turnover)

The 2020 revision (Atmanirbhar Bharat, effective 1 July 2020) removed the distinction between manufacturing and services: Micro: investment up to ₹1 crore and turnover up to ₹5 crore; Small: up to ₹10 crore and ₹50 crore; Medium: up to ₹50 crore and ₹250 crore.
Budget 2025-26 raised these limits (investment about 2.5 times and turnover about 2 times, effective 1 April 2025: micro ₹2.5 crore/₹10 crore, small ₹25 crore/₹100 crore, medium ₹125 crore/₹500 crore).
Udyam Registration (online, from 1 July 2020) replaced Udyog Aadhaar.

Importance: about 30% of GDP, about 45% of exports, over 11 crore jobs, balanced regional development, and a source of entrepreneurship and innovation.

Institutions and schemes

SIDBI (1990), NSIC (1955), KVIC (1956), Coir Board.
PMEGP (a credit-linked subsidy for new enterprises), CGTMSE (collateral-free credit guarantee; limits enhanced in 2025), Mudra loans, SFURTI (clusters), TReDS (invoice discounting platform, 2014), the Emergency Credit Line Guarantee Scheme (ECLGS) during Covid, and a Fund of Funds for MSMEs.
Public procurement policy: 25% of procurement from MSEs (including 3% for women-owned and 4% for SC/ST-owned enterprises).
Delayed payments: the Samadhaan portal; the MSMED Act's 45-day payment rule; and Section 43B(h) of the Income Tax Act (a deduction only when paid within the time limit).
Committees: Abid Hussain (1997), U.K. Sinha (2019).

Challenges: access to formal credit, delayed payments, technology gaps, informality, compliance burden (GST), market access, and competition from imports.

Key Points

MSMED Act, 2006; revised classification in 2020 and 2025 (investment and turnover).
Contribute about 30% of GDP, 45% of exports and over 11 crore jobs.
Udyam Registration; SIDBI, NSIC, KVIC support them.
Schemes: PMEGP, CGTMSE, TReDS, Mudra.
Challenges: credit, delayed payments, technology.

MCQs

Q1. MSMEs in India are governed by the: (a) Companies Act, 2013 (b) MSMED Act, 2006 (c) Industries Act, 1951 (d) Factories Act, 1948 Ans: (b).

Q2. Udyam Registration replaced: (a) Udyog Aadhaar (b) GST registration (c) Mudra card (d) PAN Ans: (a).

Q3. TReDS is a platform for: (a) Discounting of MSME trade receivables (b) Stock trading (c) Foreign exchange (d) Crop insurance Ans: (a).