The new MSME definition and what it could mean for your business

msme government change in definition

Giving insights into the economic plan which comes as an integral part of the Atma Nirbhar Bharat Abhiyaan, Nirmala Sitharaman, the Finance Minister of India, announced major revisions in the definition of MSME or Micro Small and Medium Enterprises. 

The announcement was made on Wednesday, May 13th, and what came as a complete upside-down case for the MSMEs is the change in their definition. Earlier, investments marked the basis of the definition of the MSMEs, but now with the new definitions coming in, company turnover would also be used for defining an MSME.

The minister also announced that distinctions on the grounds of Service MSMEs and Manufacturing MSMEs would no longer be made. She stated, ‘Earlier, the grounds for differentiating service units and manufacturing units were varied’. Now those differentiations between service MSMEs and manufacturing MSMEs have been removed. All of them will be defined similarly.’

Micro Units

Now the MSMEs will be called micro-units if they witness investments of around Rs 1 crore with turnovers of under Rs 5 crore. Earlier, the definition depended on an investment of around Rs 1 Lakh for the Service MSMEs and Rs 25 Lakh for the Manufacturing MSMEs.

Small Units

MSMEs will be small units if their investment ranges between Rs 5 crore and Rs 10 crore along with turnovers of not more than Rs 50 crore. The condition goes for all the MSMEs. This will also include the Service companies that were earlier marked under the investment of around Rs 2 crore.

Medium Units

Companies with investments of around Rs 20 crore and turnovers of under Rs 100 crore now come under the category of medium units as per the revised MSME definitions. Earlier, the investment limit for the medium units was Rs 10 crore or less and that for the Service companies was Rs 5 crore and less.

For the proposal of revising the definition of MSMEs to take effect, major amendments are vital in the law.

The change in definition matters greatly to the MSMEs because there are several benefits associated with it. The benefits range from relief from regulators and government and loans under priority sector schemes to 25% share in the procurement by the government-owned enterprises and the government along with promoters getting the permission of bidding for the stressed assets coming under insolvency law. 

The Finance Minister further added, ‘The changes in MSME definitions are for the benefit of the MSMEs. Successful MSMEs have always had this fear that in case they outgrew their business service size that has been initially defined as MSME; they might lose all entitled benefits. It is only because of this reason that the MSMEs make it a point to remain within the definition instead of growing. The revised MSME definitions will take this worry out of the MSMEs and help them grow in size while still availing the benefits.’

The announcement made by Nirmala Sitharaman comes as a great relief for the MSMEs, giving them the scope of expanding their areas of growth without worrying about losing benefits.

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