Micro, Small and Medium Enterprise (MSME) sector has emerged as a very important

sector of the Indian economy, contributing significantly to employment generation,

innovation, exports, and inclusive growth of the economy. Micro, Small and Medium
Enterprises (MSME) are the backbone of the socio-economic development of our
country. It also accounts for 45 % of total industrial production, 40% of total
exports and contributes very significantly to the GDP. Manufacturing segment within
the MSME contributes to 7.09% of GDP. MSMEs also contribute to 30.50% of services.
The total contribution of MSMEs to the GDP is 37.54.

The MSMED Act, 2006, was enacted to provide enabling policy environment for
promotion and development of the sector by way of defining MSMEs, putting in place
a framework for developing and enhancing competitiveness of the MSME enterprises,
ensuring flow of credit to the sector and paving the way for preference in
Government procurement to products and services of the MSEs, address the issue of
delayed payments, etc. It is expected that the new law will be able to address the
major challenges, relating to physical infrastructural bottlenecks, absence of
formalisation, technology adoption, capacity building, backward and forward
linkages, lack of access to credit, risk capital, perennial problem of delayed
payments, etc. These problems are hindering the development of a conducive business
environment for expansion of the sector. The Ministry of MSME noted that a thriving
entrepreneurial eco-system is a policy imperative for realizing the potential of
the sector and ensuring sustainable growth of the sector.

Global trends in classifying the MSMEs show that it widely differs across
jurisdictions and depends upon the government policies of the country. Though, a
comparison of some of the countries revealed that most of them are using number of
employees as a variable to define MSMEs, in India, MSMEs are presently defined
based on investment in plant and machinery / equipment. To facilitate ease of doing
business, the Government has introduced the new criteria from 1st July 2020 for
classification of micro, small and medium enterprises turnover based, which will be
useful for MSMEs.