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What is MSME – Meaning, full form, Eligibility, & importance

what is msme

Over the last five decades, the Micro, Small, and Medium Enterprises (MSME) sector has grown as a highly vibrant and dynamic segment of the Indian economy. It makes a significant contribution to the country’s economic and social development by encouraging entrepreneurship and creating large employment opportunities at low capital costs, next only to agriculture.

MSMEs are complementary to large industries as ancillary units and are expanding their domain across the economy, producing a diversified range of products & services to fulfil the needs of both domestic & international customers.

Latest Update about MSMEs (2nd July 2021)

  • Retail & wholesale businesses are now included under the ambit of MSMEs. After being excluded for 4 years, the MSME ministry added retails & wholesale trades to the list of MSMEs in India. These trades should take UAM registration to avail benefits of the different schemes available for MSMEs.
  • FIDC (Finance Industry Development Council) has requested MSME Minister Nitin Gadkari to extend the date of MSME registration to March 2022, from the earlier date of April 2021. The RBI had issued a circular stating Udyam Registration compulsory and mandatory document for MSME classification for any scheme benefit from 1st April 2021. RBI issued this following the MSME ministry’s notification dated 2021. This request by FIDC was made keeping in view the effect of COVID-19 2nd wave on MSMEs.

What is the full form of MSME?

MSME stands for Micro, Small, and Medium Enterprises. At present, there are 6,08,41,245 MSMEs in India, according to the Government’s annual report 2018-19. These MSMEs contribute around 29% to the country’s GDP and generate employment for approximately 11 crore individuals.

Businesses that come under MSME

MSMEs were categorized into two sections – Service Enterprises and Manufacturing Enterprises. And, these enterprises were further divided based on investment in annual turnover and equipment.

On the 13th of May, 2020, the Aatmnirbhar Bharat package announced a change in the MSME classification criteria. This was done in order to be realistic with time, build an objective classification system, and make doing business easier. The revised definition of MSMEs is applicable from 1st July 2020.

Old MSME definition based on investment, MSMED Act, 2006

Micro – The Micro enterprises has a manufacturing turnover of Rs. 5 crores with an investment of below Rs. 25 lakh whereas service turnover is Rs. 5 crores with an investment of less than Rs. 10 lakh.

Small – When it comes to small businesses, the manufacturing turnover is Rs. 50 crore and investments are more than Rs. 25 lakh but less than Rs. 5 crores. On the other hand, the service turnover is Rs. 50 crore with more than Rs. 10 lakh investment but less than Rs. 2 crores.

Medium – In the case of medium enterprises, the service turnover is Rs. 250 crores with an investment of more than Rs. 2 crores but does not go above Rs. 5 crores. Also, the manufacturing turnover is Rs. 250 crores with more than Rs. 5 crores but under Rs. 10 crore.

Revised MSME Classification

A micro enterprise, where the investment in plant and machinery or equipment does
not exceed Rs 1 crore and turnover does not exceed Rs 5 crore;

A small enterprise, where the investment in plant and machinery or equipment does
not exceed Rs 10 crore and turnover does not exceed Rs 50 crore; and

A medium enterprise, where the investment in plant and machinery or equipment
does not exceed Rs 50 crore and turnover does not exceed Rs 250 crore

Role of MSME in Indian Small Businesses

The Ministry of MSME (Micro, Small, and Medium Enterprises) was formed with the merger of the Ministry of Agro and Rural Industries and the Ministry of Small Scale Industries in 1961. In addition, MSMEs are engaged in manufacturing a huge spectrum of items for international and domestic markets as well. Moreover, it assists in promoting the development and growth of Coir, Village, and Khadi industries in collaboration with concerned stakeholders, state government, and ministries. 

Features of MSME

So far we have seen the MSME definition or MSME meaning and now check out for some of the important features of MSMEs which are given below:

  • MSMEs offer funding support or credit limit to banks.
  • They promote the up-gradation of skills and development of entrepreneurship by establishing training hubs.
  • MSMEs strive hard for the welfare of the artisans and workers by providing them with loans, employment, and other services as well.
  • It has been introduced to render logical support and assistance for enhanced access to the export and domestic markets. 
  • They are very supportive of the upgg infrastructure development, developmental technology, and modernization of the sector by all means.
  • Also, they provide quality certification services as well as advanced testing facilities.
  • Above all, MSMEs offer full support to design innovation, product development, packaging, and intervention as per the recent trends. 

Significance of MSME

Have a look at the significance of MSME in India which are as follows:

  1. Economic Stability in Terms of Leverage Exports and Growth:

It is to be noted that it plays an important role in contributing to the tune of 8% to GDP in India. By taking the contribution of MSME to employment, exports, and manufacturing into consideration, many other sectors are taking benefit from it. As MNCs are purchasing auxiliary and semi-furnished products from small companies in today’s era, it helps in building a bond between MSME and huge enterprises even after the adoption of the GST 40% in the MSME sector.

  1. Generates Large-Scale Employment Opportunities:

Organizations that are included in the sector of MSME need low capital to set up new business. In addition, it opens a wide employment opportunity for unemployed individuals. It provides the opportunity to a large number of freshers in one year itself. As of a note, the total number of engineers is around 0.8 million in India where 1.2 million graduates are produced per year. Of course, MSME offers good support to the fresh talents in the country.

  1. Minimum Overhead and Cheap Labor:

Being in large-scale enterprises, the challenging thing is to hold on to human resources with the help of efficient human resource management professional manager. However, the need for labour is limited in the case of MSME therefore it does not require highly skilled people. It thereby results in low indirect expenses from the side of the owner. 

  1. Easy Management Structure for Organizations:

One can begin MSME with the use of limited resources within the authority of the owner. This makes the management structure easy and efficient for enterprises. In contrast, a specialist is essential for all the departmental functioning in huge companies as it operates under a complex organizational structure. On the other hand, small companies do not require a specialist from outside for its management as the owner can manage it by himself. 

  1. Supports Inclusive Development:

The top agenda of the Ministry for small and medium-sized companies for several years is inclusive growth. Besides, deprivation and poverty discourage the development and growth of India. Apart from these, it consists of marginalised sections of society which is considered to be a huge challenge in front of the Ministry of MSME. 

  1. Important Role in the mission of “Make in India”:

The Prime Minister of India has brought the signature strategy “Make in India” which has become very easy with MSME. It stands like a backbone to make this dream come true. Furthermore, the government has given control over the financial institution to offer money to companies in the MSME sector. 

 FAQs related to MSME

1. Is there any scheme for helping MSMEs with the Rights of Intellectual Property?

There is a scheme called Building Awareness on Intellectual Property Rights (IPR) for the MSME that comes under the National Manufacturing Competitiveness Programme (NMCP). The goal of the scheme is to increase awareness of MSME about Intellectual Property Rights (IPRs) to safeguard business strategies and ideas. It allows the MSME sector to face the risks of liberalization that are being adopted below this scheme. 

2. What assistance is offered by the Ministry for Promotion of Information & Communication Tools (ICT) in the sector of MSME?

The Ministry adopts the ICT (Information and Communication Technology) scheme to help Indian MSMEs implement ICT Applications and Tools in their business processes and products and boost their competitiveness and productivity in the National and International Market. 

3. Can the Ministry of MSME indulge in matters of MSEFC?

Not at all. As per MSMED Act, only the MSEFCs have been authorized to make decisions with regards to its reference made with them. In short, the Ministry of MSME cannot indulge in the judicial activities of MSEFC. 

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