The Indian MSME sector is the backbone of the national economic structure and has unremittingly acted as the bulwark for the Indian economy, providing it resilience to ward off global economic shocks and adversities.

What’s MSME?

MSME (Micro, Small, and Medium Enterprise) term was introduced by the Government of India in agreement with the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006.

As per the revised classification applicable w.e.f 1st July 2020 , MSMEs are classified into:

(Composite Criteria – Investment in Plant & Machinery/equipment and Annual Turnover)

Micro

Investment in Plant and Machinery or Equipment: Not more than Rs.1 crore and

Annual Turnover ; not more than Rs. 5 crore.

Small

Investment in Plant and Machinery or Equipment: Not more than Rs.10 crore and

Annual Turnover ; not more than Rs. 50 crore.

Medium

Investment in Plant and Machinery or Equipment: Not more than Rs.50 crore and

Annual Turnover ; not more than Rs. 250 crore.

Now, there will be no difference between manufacturing and service sectors.

What is the contribution of MSME sector to India economy?

With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India’s manufacturing output.

They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from India.

There is deployment of significant rural workforce in the MSME sector and thus these enterprises play an important part in promoting sustainable and inclusive development as well as generating large scale employment, especially in the rural areas.

Do all bank loans to the Micro, Small and Medium Enterprises qualify under the Priority Sector Lending?

In terms of Master Direction on ‘Priority Sector Lending (PSL) – Targets and Classification’ dated September 4, 2020, all bank loans to MSMEs conforming to the conditions prescribed therein qualify for classification under priority sector lending.

According to these directions, MSMEs should be engaged in the manufacture or production of goods, in
any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 or engaged in providing or rendering of any service or services. All bank loans to MSMEs conforming to the above guidelines qualify for classification under priority sector lending.

PRACTICE QUESTIONS

QUES . Consider the following statements with reference to India: UPSC 2023

1 . According to the ‘Micro Small and Medium enterprises Development (MSMED) Act, 2006, the ‘medium
enterprises’ are those with investments in plant and machinery between Rs. 15 crore and Rs. 25 crore.

2 . All bank loans to the Micro, Small and Medium Enterprises qualify under the Priority sector.

Which of the statements given above is/are correct?

(a) 1 Only

(b) 2 Only

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans (d)