Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

MSMEs have not been defined well — and micro enterprises pay the price for this


From UPSC perspective, the following things are important :

Prelims level: MSMEs;

Mains level: Reviewing the Category of Micro-Enterprises

Why in the News?

A parliamentary panel suggested separating micro-enterprises from the broader MSME category and recommended revising definitions every five years.

  • A government order for timely MSME payments has exposed knowledge gaps and unintentionally marginalized smaller enterprises, highlighting issues in understanding their structure and operations.

Present Status:

  • According to the National Sample Survey Organisations (NSSO) Unorganised Enterprise Survey 2016, 95% of the enterprises surveyed reported revenues under Rs 50 lakh per annum. Of them, 89% reported an annual revenue of under Rs 12 lakh.
  • In the Annual Survey of Industries (ASI), more than 66% of the enterprises reported an annual revenue of less than Rs 50 lakh, and of them, 45% reported annual revenues of Rs 12 lakh.

What are the Categories of Micro-Enterprises?

  • Category 1 – Micro: More than 98% of the MSMEs are within this category, with reporting annual revenue of Rs 50 lakh and less.
  • Category 2 – Small: The MSMEs that are reporting annual revenue of Rs 50 lakh to Rs 5 crore.

Present Ambiguity and structural Gap in defining MSMEs

  • Lack of Clarity and Consistency in defination: In India, the MSMED Act of 2006 categorized MSMEs based on investment in plants and machinery, which led to industries keeping their plants small to maintain MSME advantages.
    • However, the MSMED Amendment Bill, 2018 proposed defining MSMEs solely based on yearly turnover, which has been criticized for under-reporting of qualifying enterprises.
  • Quantitative vs. Qualitative Approaches: There are two main techniques for defining MSMEs: quantitative and qualitative, with MSMEs typically defined using a quantitative approach. Quantitative criteria like number of employees, total assets, and yearly revenue have limitations as they vary by industry and sector.
  • Impact on Micro Enterprises: The ambiguity in defining MSMEs negatively impacts micro-enterprises, leading to issues like delayed payments and limited access to benefits and support schemes.
    • Moreover, the unregistered micro-enterprises have been worse hit by the COVID-19 pandemic than small and medium enterprises, with micro-enterprises accounting for more than two-thirds of all MSMEs and having a higher rate of informality.

Way forward:

  • Enhanced Data Collection: Conduct regular and comprehensive surveys to gather detailed data on MSMEs, particularly focusing on micro-enterprises.
  • Further Classification within Micro-Enterprises: Establish sub-categories within the micro-enterprise category based on revenue thresholds (e.g., below Rs 10 lakh, Rs 10-25 lakh, Rs 25-50 lakh).
  • Revenue Diversity: Significant variation in revenue among micro-enterprises necessitates further classification.
  • Targeted Policies: Addressing classification gaps can enhance policy effectiveness, supporting micro-enterprise growth and sustainability.


Program and Policies Explanation
MSME Development Act, 2006 Provides the legal framework for defining MSMEs and their classification into micro, small, and medium enterprises.
Credit Guarantee Fund Scheme for Micro and Small Enterprises Provides credit guarantee cover of up to 75% of the credit to micro and small enterprises.
Udyog Aadhaar A simple online process for MSME registration, requiring only the Aadhaar number and a self-declaration.
MSME Samadhaan Mechanism to facilitate the promotion and development of MSMEs, including Khadi, Village, and Coir Industries.
Mudra Yojana Provides loans up to 10 lakh to non-corporate, non-farm small/micro enterprises.
ZED Scheme Aims to enhance the manufacturing capabilities and competitiveness of MSMEs through Zero Defect Zero Effect (ZED) certification.
Stand-Up India Facilitates bank loans between 10 lakh and 1 crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch


Make in India: Focuses on making India a global manufacturing hub, with MSMEs playing a crucial role.

Stand-Up India: Facilitates bank loans between 10 lakh and 1 crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch

Mains PYQ:

Q Account for the failure of manufacturing sector in achieving the goal of labour-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports. (UPSC IAS/2017)

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