Micro, Small and Medium Enterprises (MSMEs) is a legal classification and concept defined under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, which covers both manufacturing and service entities. The Act was notified in 2006 and came into effect in October 2006. Its creation was based on recommendations from the Abid Hussain Committee (1997) and the S.P. Gupta Study Group (2000), aiming to provide a single, comprehensive legal framework for the sector and facilitate its development.
The mechanism for classification, outlined in Section 7 of the Act, was significantly amended in July 2020 to adopt a composite criterion based on both Investment in plant and machinery/equipment and Annual Turnover, replacing the previous investment-only criteria. The Union Budget 2025 further revised these limits, effective from April 1, 2025. Under the current criteria, a Micro Enterprise has an Investment up to ₹2.5 crore and Turnover up to ₹10 crore; a Small Enterprise has an Investment up to ₹25 crore and Turnover up to ₹100 crore; and a Medium Enterprise has an Investment up to ₹125 crore and Turnover up to ₹500 crore.
The MSME framework is connected to the Ministry of Micro, Small and Medium Enterprises (M/o MSME). Registration is done through the Udyam Registration portal, which replaced the earlier Udyog Aadhaar system in July 2020. A key provision of the Act is the protection against delayed payments, which mandates that a buyer must pay an MSME supplier within 45 days if there is an agreement, or 15 days if no agreement exists. Failure to comply makes the buyer liable to pay compound interest at three times the bank rate. The core delayed payment provisions and the establishment of the National Board for MSMEs have remained consistent.