Revised MSME Classification norms & Stimulus package

To boost MSME sector, the government has decided to amend MSMED act 2006 to revise the MSME classification norms. Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 presently classifies manufacturing and service enterprises into three categories based on investments in plant and machinery and equipments respectively. The classification of manufacturing units to micro, small and medium enterprises is based on the investment in plant and machinery (excluding land and building while that of service sector enterprises is based on investments in equipment.

Please refer article Micro, Small and Medium Enterprise: Classification and Original investment- MSMED Act, 2006 for details on MSMED Act 2006 and present classification norms.

Importance of MSME Sector

Micro, Small and Medium enterprises play vital role in the progress of the country by contributing towards Gross domestic Production, creating employment opportunities and earning foreign currency through exports. To promote the establishments in the MSME sector, government provides incentives through various channels. Banks have been permitted to include lending to micro, small and medium enterprises under priority sector lending. Further, to ensure credit flow to micro and small enterprises (MSE), Credit Guarantee Scheme (CGS) launched by CGTMSE extends guarantee to banks and financial institutions for the loans extended without collateral/ third party guarantee.

Crisis faced by MSME sector due to Covid-19

Majority of establishments in MSME sector are small units that works with thin capital and hence are vulnerable to stress in economy. MSME establishments mainly supply their products to established players and challenges faced by the big players affect the survival of MSME units too. Because of the unprecedented economic crisis arising on account of spread of Covid-19, established players have been facing unmatched challenges. The situation has put the MSME units in a very precarious situation.

Stimulus packages to MSME sector as part of Atmanirbhar Bharat Yojna

In order to bring the country out of the economic crisis and to make the country self reliant, Prime Minister announced Rupees Twenty lakh crore stimulus package. As part of this package, Finance Minister on May 14, 2020 announced six schemes for MSME sector. They include:

1. An emergency collateral free credit line of rupees three lakh crore to MSME sector from banks and NBFCs, being 20 per cent of balance outstanding as on February 29, 2020.
2. 20,000 crore loan to promoters of stressed MSMEs by banks to infuse as subordinate debt.
3. Additional equity infusion of Rs. 50,000 to MSME units through fund of funds.
4. Government of India tenders up to Rs. 200 Cr to be reserved for Indian MSMEs alone.
5. E-market linkage and release of pending funds to MSMEs from government and government owned companies in next 45 days.
6. Revision in the definition of MSME classification

Revised MSME Classification norms for definition of Micro, Small and Medium classification

Present classification of micro, small and medium enterprises in manufacturing and service sectors are based on the investment in plant and machinery and equipment respectively as shown below:

Many units in MSME sector fear that growing beyond the levels of MSME will affect various incentives being received from government and they prefer to continue with the present size.  In order to support them to grow in size without affecting various incentives, government has decided to classify the micro, small and medium enterprises with the following definitions.