Micro, Small, and Medium Enterprises (MSMEs) is a classification concept and a legal provision formally established by the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006. The Act was created to promote and facilitate the growth of these enterprises, which are considered the backbone of the Indian economy, contributing significantly to employment and exports. The apex body overseeing the sector is the Ministry of Micro, Small, and Medium Enterprises.
The mechanism for classification has undergone significant change. Originally, the MSMED Act, 2006 classified enterprises based only on investment in plant and machinery or equipment, with separate criteria for manufacturing and services. This was replaced in 2020 as part of the Aatmanirbhar Bharat Abhiyan package, which introduced a composite criterion based on both investment and annual turnover, simultaneously eliminating the distinction between manufacturing and service enterprises.
The classification limits were further revised in 2025, effective April 1, 2025, to allow a greater number of businesses to qualify for benefits. 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 investment up to ₹25 crore and turnover up to ₹100 crore; and a Medium enterprise has investment up to ₹125 crore and turnover up to ₹500 crore.
Key provisions of the MSMED Act, 2006 include protection against delayed payments, mandating that buyers must pay MSME suppliers within a maximum of 45 days from the date of acceptance of goods or services. Failure to comply attracts compound interest at three times the RBI-notified bank rate. The Act also established Micro and Small Enterprises Facilitation Councils (MSEFCs) to resolve payment disputes. Related institutions that support the sector include the Small Industries Development Bank of India (SIDBI) and the Khadi and Village Industries Commission (KVIC).