MSME, an abbreviation for Micro, Small and Medium Enterprises, is a business category recognized by the finance ministry of India. According to Section 7 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, enterprises.

  1. which are engaged in the manufacture or production of any goods of industries specified in the first schedule of Industries Development & Regulations Act, 1951,
  2. have a certain level of investment in plant & machinery,
  3. and specifies enterprises engaged in the specified service with certain investment in equipment
  4. will be treated as a Micro, Small and Medium (MSM) Enterprise.

MSMEs, as a whole, give much-needed acceleration to the Indian economy. The sector contributes to 45% of India’s total industrial employment, 45% of India’s total exports and 95% of all industrial units of the country. They also employ about 11 crore people across the country, thus providing livelihood opportunities for a major section of people. Apart from these, the sector also contributes about 30% of the country’s gross domestic product (GDP).

MSMEs have a significant role to play in the urban economy. However, it is the rural economy that MSMEs are most intertwined with, given that more than half of the MSMEs operate in rural India. Let us know more about the difference between Micro, Small and Medium Enterprises, their types and the new regulations regarding them.

Types of MSMEs

For all business compliances, MSMEs are classified into two main categories; Manufacturing Enterprises and Service Enterprises.

  1. Manufacturing: Enterprises engaged in the manufacture or production of goods of any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951) or employing plant and machinery in the process of value addition is defined under the Manufacturing sector.
  2. Services: Enterprises engaged in providing or rendering services and are defined in terms of investment in equipment come under the Services sector.

    Before the revisions on the investment & revenue amount by India’s finance ministry, Manufacturing and Service sectors had different definitions for Medium, Small and Micro Enterprises. However, effective as of July 2020, Micro, Small and Medium Industries have the same investment and revenue cappings for manufacturing as well as the Service industry.

Difference between Micro, Small and Medium Enterprises

a) Micro Enterprises:

As per the revision to the MSME definitions by India’s finance ministry (w.e.f 01.07.2020), Micro Enterprises are small everyday industries around us that can have investments up to 1 crore with a turnover of less than five crores. From small cafes to local grocery shops to ice-cream parlours, Micro Enterprises are everywhere around us. Small businesses like these usually operate with less than ten people and are started with a minimal amount of capital. The number of Micro Enterprises depends on the growth of the economy. If it’s a developing economy, Micro Enterprises can represent a vast majority of small business sectors, either due to low formal jobs or no proper training. These Micro Enterprises create an ecosystem of their own, thus lowering the overall cost of business. Earlier, the investment cap for Micro Enterprise was less than 25 lacs for Manufacturing sectors and less than 10 lacs for Services Enterprises.

b) Small Enterprises

Small enterprises or small businesses are capped with an income between 1 and 10 crores and can have a turnover of up to 50 crores. These industries employ a small number of workers and do not have a high sales volume. Some examples of everyday Small Enterprises range from a well-performing restaurant to a small manufacturing plant or even a small bakery. The employment number for Small Enterprises is slightly more than that of the Micro enterprises, with an average of 50 employees.

Small enterprises can also differ in terms of revenues, sizes, and regulatory requirements. Some small businesses such as a home accounting or a regular showroom may only require a business license. Some others, like orphanages, daycares and retirement homes, are heavily regulated. Earlier, the investment cap for Micro Enterprise was less than 5 crores for the Manufacturing sectors and less than 2 crores for the Services sector.

c) Medium Enterprises

As defined by the new revisions, a medium-sized business or a Medium Enterprise can have an investment of up to 50 crores and should have a turnover between 50 and 250 crores. In terms of employment numbers, a medium enterprise generally has an average of 200-250 employees. Technically, Medium Enterprises are small and micro businesses that have steadily grown over time. When small industries start and grow, they reserve their revenue for buildings, equipment or hiring purposes, thus deviating themselves from small scale businesses and turning into a Medium Enterprise. Earlier, the investment cap for Medium Enterprise was less than ten crores for the manufacturing sector and less than five crores for the services sector.

All categorized businesses like Small & Medium Enterprises (SME) and MSME have certain privileges they enjoy, depending upon the enterprise’s size, revenue, or structure. For example, while Micro and Small businesses used to enjoy Octroi tax exemptions (which has now been replaced with GSTs) and can get concessions in electricity bills, Medium Enterprises do not receive such benefits. But due to their respective ecosystems, Micro, Small and Medium Enterprises have their own importance in the development of the economy.