The Ministry of Micro Small and Medium Enterprises , a branch of the Government of India, is the apex body for the formulation and administration of rules, regulations and laws relating to micro, small and medium enterprises in India.
The difference between these three types of enterprise is understood on the basis of investment ceilings i.e., the total investment made in plant and machinery/ equipment.
The MSM Enterprises are classified into two parts:
a) Micro Enterprises: The enterprises engaged in manufacturing of goods and having investment in plant and machinery up to Rs. 25 lakhs .
b) Small Enterprises: above Rs. 25 lakhs but does not exceed Rs. 5 crores
c) Medium Enterprises: above Rs. 5 crores but not exceeding Rs. 10 crores.
For service sector enterprises, the investment ceiling is as under:
a) Micro Enterprises: The enterprises engaged in rendering services and having investment in equipment up to Rs. 10 lakhs.
b) Small Enterprises: Rs. 10 lakhs but not exceeding Rs. 2 crores
c) Medium Enterprises: Rs. 2 crores but not exceeding Rs. 5 crores.
Importance of MSME:
The contribution of MSME sector in the India’s economic development has been immense. This sector constitute an important segment of the industrial and service sectors of India due to their growth potential, employment generation, exports and their role as seedbed to new entrepreneurship.
1. Industrial Output and Expansion of Service Sector:
According to World Bank Report, in low income countries, with Gross National Product (GNP) per capita between $ 100 and $ 500, MSMEs account for over 60% of the GDP.
2. Exports: The MSME sector is important in increasing the exports and earning foreign exchange. According to government statistics, this sector accounts for about 40% of the total exports of the country.
3. Employment Generation: The MSMEs are mainly labour intensive and generate immediate and large scale employment opportunities with relatively low investments. This is how they help to eradicate unemployment problem from the country. The employment generating capacity of this sector is eight times that of large scale sector.
Large scale industriesare mostly concentrated in and around the big cities.
Resultantly, the small towns and rural areas are deprived of the benefit of industrialization and remain industrially backward. Due to unique features of MSME sector like low investment, use of local resources etc., it is possible to disperse the industries to all over the country and remote corners . This facilitates balanced regional development.
5. Use of local raw materials and other resources:
Most of the MSMEs are based on the processing of locally produced raw materials which helps tap the local resources , idle savings etc.
The MSME sector encourages effective mobilization of country’s untapped resources.
6. Equitable distribution of national income:
The growth of large scale enterprises results in concentration of economic power in the hands of few people.
However, the MSME are organized in the forms of proprietary or partnership concerns and the ownership is widely dispersed in rural and backward areas.
Hence, the income generated in large number of MSME is dispersed widely.
7. Supplements large scale industries and agriculture:
Most MSMEs are engaged in manufacturing of ancillary products or the parts which are utilized by large scale manufacturers.
8. Training ground for local entrepreneurs:
This sector provided the environment that encourages the entrepreneurs to grow. On the basis of skill and knowledge acquired, the small entrepreneurs may grow into medium to large sized entrepreneurs.
9. Improves the level of standard of living:
Because of self-employment, more employment opportunities, income generation, demand-supply balance etc. the level of living standard of people improves.