For those who are not sure what is MSME, it stands for Micro, Small and Medium Enterprises. The MSME industry contributes to 45% of India’s overall industrial employment and 50% of the country’s total exports. This sector manufactures above 6000 types of products. Initiated in the year 2006, MSMEs form the backbone of Indian economy.
Previously, the classification of MSMEs was based upon the investment made in plant and machinery. However, recently a bill which specified a company’s turnover as the classification parameter was passed. This bill was initiated first by Giriraj Sigh, the Minister of State (MSMEs) in the Lok Sabha, after he withdrew the 2015 bill on the same issue.
Previous Classification of what is MSME
For a product-centric company, the investment slabs were –
- Micro Enterprise: Should not exceed more than Rs. 25 Lakh.
- Small Enterprise: Should range between Rs. 25 Lakh and Rs. 5 Crore.
- Medium Enterprise: Ranges from Rs. 5 Crore to Rs 10 Crore.
For a service-oriented company the investment slabs were –
- Micro Enterprise: Up to Rs. 10 Lakh.
- Small Enterprise: Ranges from Rs. 10 Lakh to Rs. 2 Crore.
- Medium Enterprise: Rs. 2 Crore to Rs. 5 Crore.
Owing to the above classification, the Indian government incurred expenses for they had to actually verify the assets and investments made by these companies. Currently, the government passed the new bill stating that MSMEs shall be classified according to their annual turnover and not on investments.
New classification of what is MSME based on turnover:
For every product and service company –
- Micro Enterprise: Must have an annual turnover up to Rs. 5 Crore.
- Small Enterprise: Shall have a turnover ranging from Rs. 5 Crore to Rs. 75 Crore.
- Medium Enterprise: Rs. 75 Crore to Rs 250 Crore.
What Does this New Change Seek to Do?
- This move is said to improve the ease of conducting business. It avoids excessive inspections and lets the authorities verify claims by utilizing the sales data from their GST network.
- Considering annual turnover as the new parameter can help them to implement a non-discretionary and objective system.
- This latest classification incentives the growth of the MSME sector by including a cut in corporate tax from 30% to 25%.
- Additionally, the central bank has raised the repayment tenor of MSME loan scheme from 90 to 180 days before they are declared as bad loans or non-performing assets.
Growth of MSMEs – The Future Road
Every start-up requires financial assistance at some point or the other. The MSMEs need financial support when they move up the growth curve which may cover expenses like upgrading equipment, organising a small business, covering business expenses and more.
However, they no longer have to worry about sourcing substantial funds. With the advent of the MSME loan, funding for businesses have become a simplified affair. One can use these funds to –
- Invest in infrastructural development
- Expand business operations
- Purchase state-of-the-art plant and machinery
- Maintain inventory
- Increasing working capital
They can also utilise the loan to fund advertising and marketing of their business, vital to increase consumer outreach.
MSME loans are designed essentially to boost one’s business operations and help it reach new heights.
So, if your business fits the new classification system as mentioned above, you too can avail this loan. Make sure you check the MSME loan interest rate and additional charges (if any) before applying for a loan.