What is the effect of Change in Definition of MSME - ForumIAS

What is the effect of Change in Definition of MSME

Government changed the definition of micro, small and medium enterprises (MSMEs) as part of the Atma Nirbhar Bharat Abhiyan (self-reliant India) economic relief package. 

Under the new definition, the distinction between manufacturing and services enterprises has been eliminated. Under the new definition of MSMEs, the investment criteria for such enterprises have been revised upwards, while an additional criterion of turnover has been introduced.

What is the likely effect of the same ? 

What do you think is the rationale behind this move? 




According to the FM, 

There always was this fear, in very successful MSMEs also, that if they outgrow the size of what is defined as an MSME, they'll lose the benefits that they get as an MSME itself. Outgrowing this definition meant outgrowing and going out of receiving benefits. Therefore MSMEs preferred to remain within the definition rather than grow. Now we are coming with a change in the definition of MSMEs so that they need not worry about growing in size; they will still be able to get quite a lot of benefits which otherwise, as an MSME, they have got.


Change in MSME definition has been demanded by the sector’s key players since a  long time.

One main reason/rationale behind such a revision is to enable the MSMEs grow in size and also to continue the benefits that MSMEs get as compared to large corporates. 

MSMEs are private enterprises and the main aim is to maximise their profit earnings and one way to increase profit is by reducing costs.

Some benefits that MSMEs get are;-

  1. Financial access in terms of cheap credit.
  2. Financial and other various kinds of support by the government. 
  3. Fixed procurement by various CPSEs.

With the aforementioned benefits , it can be ascertained that via these, MSMEs are able to establish a stable and continuous production along with various kinds of support measures.

It is rightly said by the FM that many MSMEs do want to grow in size but not at a cost of getting excluded from the MSME bracket/cohort and hence, such a revised definition to enable the small and medium enterprises grow in size without losing the entitled benefits  is definitely a positive move. With this revision and a further future favourable attitude of the government towards this sector, the MSMEs would be able to procure more, produce more, hire more and will play a vital role in India’s pursuit towards happiness of achieving  USD 5 trillion dollar economy. 

With this revision, Maybe in the coming one or two decade, we will again put the example of the bravery and significance of how the MSME sector helped India in sailing through the tough times put forward by the COVID pandemic of 2020 as was witnessed post 2008 global crisis.

Neyawn,Naadan_Parindaand3 otherslike this

@TheNotorious Very well summarized. 

Also, a common doubt which I have seen is, whether such preferential treatment will come in way with WTO agreements?

As far as government procurement from the MSME sector is concerned, it would not attract any kind of action from other countries as the Indian government is not a signatory to the WTO agreement on public procurement.

Any other thoughts on this?


Thank you very much!

And I guess this treatment will  not draw WTO’s or any other global organisation’s concern/ire.(My personal opinion)

India is a sovereign country and it has full authority to decide from whom it wants to purchase or sell to just like any other sovereign country.

We are supporting our MSMEs so that they can produce goods and services to satisfy the domestic demand first(true sense of aatma-Nirbhar). We are not offering any kind of subsidies or concessions to MSMEs which results in reduction in  domestic price or global price. We are just supporting them so that they can produce in a better way. The goods and services will still be sold at prevailing market price without any severe distortion. If any other nation who feels that Indian produce is of better quality, then they will be free to decide if they want to import these produce. By strengthening our MSMEs we are not forcing any other nation to make deals with us only.

Lastly, I would like to say that India’s decision few months back to not join RCEP was a smart one at that time and maybe because of that we are at present not bound to such major international commitments in respect to trade and hence we are able to go the self-reliant way via strengthening MSME sector

Also, not to upset the global community, one thing that can be done is to allow/incentivise foreign companies to come in collaboration/partnership/joint venture kind of thing with the Indian MSMEs. By doing this, we will be able to strike two aims with a single arrow. Supporting MSMEs will cater to the project “Make In India” and incentivising foreigners to collaborate with these MSMEs will cater to the project “Assemble in India”.

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