What is MSME and How Does it Impact Small Businesses?
Learn about MSME (Micro, Small, and Medium Enterprises) and its impact on small businesses, including benefits, challenges, and government support.

India’s economy is heavily reliant on micro, small, and medium enterprises (MSMEs), which are essential for driving the economy forward by contributing considerably to the gross domestic product (GDP), creating employment opportunities, and fostering entrepreneurship.
For anyone operating their own little corner shop or planning to launch an initiative, a clear comprehension of the MSMEs remains practically indispensable. This article tells what is MSME and their significance within the Indian economy.
What is MSME?
The Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 identifies MSMEs based on two criteria – investment (those dealing with plant & machinery or equipment) and annual turnover, respectively. The businesses that fulfil the conditions outlined by this act fall under Micro, Small and Medium Enterprises.
Here’s Their Classification –
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Micro Enterprises – The investment limit is up to ₹1 crore, while turnover should range from 5 crores.
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Small Enterprises – Capital per unit does not exceed ₹10 crores, together with sales reaching 50 crore rupees at most.
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Medium Enterprises – An investment of up to ₹50 crores is permitted, but the annual turnover must fall within the range of ₹50 to ₹250 crores
MSMEs help in achieving economic balance between the rural and urban areas. According to information from the government of India, MSMEs also contribute about 30.50% to all the services provided in India. The total contribution of MSMEs to the GDP is 37.54%. (Source: Ministry of MSME, 2022).
Benefits of MSMEs for Small Businesses
MSMEs are essential for the survival of small businesses. The following are some of the ways MSMEs help in –
1. Access to Financing
The Indian government provides various schemes and financial aid to help these micro, small and medium businesses scale up. Banks and NBFCs have developed unique loan products with lenient conditions to accommodate such companies.
Often, the startup business loan eligibility conditions favour most local businesses that fall under this category, allowing them to expand their operations.
2. Creation of Employment Opportunities
MSMEs have over eleven crore such workers across India and thus stand as the second largest employer after the agriculture sector, offering a variety of jobs, including skilled and semi-skilled ones.
3. Infrastructure Development
This decentralised industrialisation approach promotes regional growth by taking industries from urbanized zones into village locations, whereby MSMEs play their part.
4. Support Schemes and Subsidies
The government provides subsidies, technology upgrades and credit support to MSMEs. Schemes like the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE) ensure that businesses can get loans free from any collateral security.
Key Government Initiatives For MSMEs
Numerous initiatives by the government of India seek to empower MSMEs. They include –
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PMEGP (Prime Minister’s Employment Generation Programme) – Offers grants to establish new companies.
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Stand-Up India Scheme – Focuses on finances for women as well as SC/ST entrepreneurs.
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Udyam Registration – An easy process where businesses register as small-scale entities and thus enjoy benefits such as tax holidays and easy loan procedures.
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MSME Samadhaan – This is a platform that helps resolve delays in payments to MSMEs.
Challenges Faced By MSMEs
1. Access to Capital – Due to the lack of formal credit history or collateral security, many MSMEs do not satisfy conditions that allow them to qualify for startup business loans.
2. Technological Upgradation – The adoption of advanced tools and techniques is hampered by a lack of access to small enterprises.
3. Late Payments – This disrupts the cash flow of MSMEs, as delayed payments from large corporations for goods purchased hinder their financial operations.
MSMEs Acting as Gateways for Opening New Marketplaces
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MSMEs empower small businesses
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MSMEs help the most vulnerable groups in local places
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For example, many startups in the e-commerce and manufacturing sectors have successfully scaled up by leveraging MSME benefits.
The Bottom Line
In India, MSMEs form the bedrock of small businesses within our economic landscape. They offer businesspeople opportunities and financial support besides facilitating innovations, but they do so for a more significant gain from them. Business owners running small setups must thus understand the government plans and their terms and conditions.
Any startup entrepreneur who wants to flourish can find endless possibilities when exploring MSME support structures as well as understanding startup business loan eligibility criteria.
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