Upward revision of MSME definition

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Subject: Economy

Context:

Cabinet Committee on Economic Affairs (CCEA) approved the upward revision of MSME definition

Concept:

  • Formally, MSMEs are defined in terms of investment in plant and machinery
  • But this criterion for the definition was long criticized because credible and precise details of investments were not easily available by authorities.
  • In February 2018, the Union Cabinet decided to change the criterion to “annual turnover”, which was more in line with the imposition of GST.
  • According to the new definition, limit of micro unit was increased to Rs. 1 crore of investment and Rs 5 crore of turnover and limit of small unit was increased to Rs. 10 crore of investment and Rs 50 crore of turnover. Similarly, the limit of a medium unit was increased to 50 crore of investment and Rs. 250 crore of turnover. 
  • It may be noted that this revision was done after 14 years since the MSME Development Act came into existence in 2006.

Category and distribution

  • According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country.
  • Around 51 per cent of these are situated in rural India. Together, they employ a little over 11 crore people but 55 per cent of the employment happens in the urban MSMEs.
  • 5 per cent of all MSMEs fall in the micro category. While micro enterprises are equally distributed over rural and urban India, small and medium ones are predominantly in urban India.

  • The medium and small enterprises — that is, the remaining 0.5% of all MSMEs — employ the remaining 5 crore-odd employees.