🏢 MSME Classification of Enterprises

The Micro, Small and Medium Enterprises Development (MSMED) Act was introduced in June 2006.
It received the President’s assent on June 16, 2006, and came into effect on October 2, 2006.

The MSMED Act classifies enterprises into three main categories based on their:

• 🏭 Investment in plant and machinery (for manufacturing), or

• 🛠️ Investment in equipment (for services)

📜 History of MSME Act

The first official definition of small-scale industry in 1950 was based on two major quantifiable criteria:

• 💰 The size of gross investment in fixed assets

• 👷 The strength of the workforce

These two factors were used to determine the scale of an industry and were aligned with the economic context of India at that time — where capital investment and employment generation were key developmental concerns.

In 2006, the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 was enacted in India.
This Act formally redefined the classification of MSMEs and notably excluded “workforce strength” (number of employees) as a criterion for classification.

Instead, the classification was based solely on:

• 🏗️ Investment in plant and machinery (for manufacturing)

• ⚙️ Investment in equipment (for services)

Later in 2020, the definition was again revised to include:

• 💰 Investment, and

• 📈 Annual turnover

🏭 MSME Classification – June 2006 onwards

📦 For Manufacturing Enterprises (based on investment in Plant & Machinery):

🛠️ For Service Enterprises (based on investment in Equipment):

🔁 Revised Criteria for Classification – June 2020 onwards

Effective from 1st July 2020, an enterprise is classified as:

1️⃣ Micro Enterprise

• 💰 Investment: Not more than ₹1 crore

• 📈 Turnover: Not more than ₹5 crore

2️⃣ Small Enterprise

• 💰 Investment: Not more than ₹10 crore

• 📈 Turnover: Not more than ₹50 crore

3️⃣ Medium Enterprise

• 💰 Investment: Not more than ₹50 crore

• 📈 Turnover: Not more than ₹250 crore

📌 Purpose of the Act

The Act consolidates various laws related to MSMEs and aims to:

• 🧩 Promote competitiveness

• 🤝 Enhance support services

• ⚖️ Provide a single legal framework for the sector