Economics · Ch 10 — Industrial Sector
Micro, Small and Medium Enterprises (MSME)
Micro, Small and Medium Enterprises (MSME)
Micro, Small and Medium Enterprises form the backbone of India's — and Gujarat's — industrial structure by number of units and by employment, even though their individual scale is small. The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, as amended with effect from 1 July 2020, classifies enterprises uniformly for both manufacturing and service activities on the basis of investment in plant and machinery/equipment and annual turnover.
| Category | Investment in plant & machinery/equipment | Annual turnover |
|---|---|---|
| Micro enterprise | Up to ₹1 crore | Up to ₹5 crore |
| Small enterprise | Up to ₹10 crore | Up to ₹50 crore |
| Medium enterprise | Up to ₹50 crore | Up to ₹250 crore |
An enterprise satisfying either the investment limit or the turnover limit of a higher category is placed in that higher category — both criteria must be met for the lower classification. Registration is done online through the Udyam Registration portal, which is free, paperless, and based on self-declaration.
Importance of MSMEs.
- Employment: MSMEs are the second-largest employer in India after agriculture, absorbing labour with comparatively low capital investment per job created.
- Low capital-output ratio: because MSMEs generally use more labour-intensive techniques, they produce a given level of output with less capital than large-scale industry, which suits a labour-abundant, capital-scarce economy like India's.
- Regional dispersal of industry: MSMEs can be set up with relatively modest capital in small towns and rural areas, helping reduce regional imbalances that large-scale industry (which concentrates near ports, raw materials, or metropolitan markets) tends to create.
- Ancillary role: many MSMEs function as ancillary or feeder units, supplying components and semi-finished goods to large industries.
- Exports: MSMEs contribute a significant share of India's manufactured exports, particularly in textiles, leather, gems and jewellery, and engineering goods.
- Entrepreneurship: the low entry barrier of the MSME sector nurtures new entrepreneurs and self-employment.
Gujarat's MSME base is one of the most diverse in the country: Surat's power-loom and diamond-processing units, Rajkot's engineering, casting, and auto-component clusters, Morbi's ceramics and tiles cluster, and the chemical and dyeing units around Ahmedabad and Vapi are all predominantly MSME in scale, even where the aggregate output of a cluster is very large. …