India with its population of over 1.4 billion people represents 17.31% of the world’s populations. India over a period since its independence has slowly and steadily accelerated its economic growth. Policy reforms, removal of License Raj, industrial reforms and other initiatives taken by the government led to the overall economic transformation of the country. It can now be said that India can succeeded in transforming itself from third world country to the 4th largest economy of the world and is also considered to become the world’s largest economy by 2050, overtaking US and China. Such is the potential of the country.

What drives Indian economy is its young workforce. The statistics indicate that over 60% of country’s population is the youth and over 40% of the total population falls in the employable population. This make the youth to the biggest asset for the country. India’s GDP stands at US $4.06 trillion as compared to US GDP which stands at US $14.72 trillion. Also the GDP has witnessed a healthy growth rate of 8.2% and is projected to grow at over 9% annually. With this growth rate, India would not take even 40 more years to achieve the GDP figure at par with US and China.

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.

Revised Classification applicable w.e.f 1st July 2020

Classification of Micro, Small and Medium Enterprise (MSME) sector
Composite Criteria Investment in Plant & Machinery/equipment and Annual Turnover
Classification	Micro	Small	Medium
Manufacturing and Service Sector Enterprises	Investment in Plant and Machinery or Equipment upto Rs.1 crore and Annual Turnover does not exceed Rs. 5 crore	Investment in Plant and Machinery or Equipment upto Rs.10 crore and Annual Turnover does not exceed Rs. 50 crore	Investment in Plant and Machinery or Equipment upto Rs.50 crore and Annual Turnover does not exceed Rs. 250 crore