MSME Guide: Which businesses fall under MSME, and which don’t. See full list!

Posted on Tuesday, December 6th, 2022 | By IndusInd Bank

The MSME, or the micro, small and medium enterprises are considered the backbone of the Indian economy. The contribution of MSMEs in accelerating the economic growth of the nation has increased manifold in the last 5 years. In 2019-2020, the contribution of Indian MSMEs in the India’s GDP stood at a whopping 30 per cent. The MSME ministry expects this share to grow further. 

For developing nations like India, MSMEs play a vital role in eliminating the rural – urban disparity, providing employment opportunities, and supporting equitable growth. As per the data available on the MSME registration portal Udyam, India has registered 1.24 crore MSMEs till December 2022, which jointly employ 9.12 crore people. Over 23 per cent of these are women employees.  

In cognizance of the crucial role of MSMEs, the government of India has put a very strong handholding mechanism for MSMEs and new entrepreneurs. Ministry of MSME has a number of schemes and programmes to support and elevate small businesses. 

How does the government categorize MSMEs? 

On the basis of Investment, any enterprise whose investment in the plant, machinery or equipment is less than Rs. 1 crore will fall in the micro enterprise category. If the investment in the plant, machinery or equipment is between Rs. 1 to 5 crore, it will be considered a small enterprise. To qualify as a macro enterprise, the investment in the same has to be between Rs. 5 to 10 crore. 

Enterprises can be categorized into the micro, small and medium category on the basis on annual turnover as well. If the yearly turnover of the business is below Rs. 5 crore, it will be a small enterprise. If the turnover is over Rs. 50 crores, it will fall under the small enterprise category. For businesses with more than Rs. 250 crore turnover, the medium enterprise category is applicable. The criterion is based on the MSMED Act, 2006. 

What kind of businesses fall under MSME? 

The government of India states that ‘all business activities – services and manufacturing are covered in MSME sector’ as long as they meet the investment and turnover criterion mentioned above. However, there are certain exceptions to this as well, which we have listed out for you later in the article. (Source) 

Manufacturing business activities – Manufacturing business activities (producing finished goods from raw products) in the MSME segment contribute to 45 per cent of the total manufacturing output and 40 per cent of total exports. Combined with the collective attempt to popularize the ‘Made in India’ campaign within the country and globally, this share will only go upwards. 

Service sector business activities – An analysis of the Udyam MSME registration portal shows that MSMEs in service sector comprise a larger proportion of as compared to those MSMEs in manufacturing sector. Indian entrepreneurs have registered over 5.37 lakh enterprises under the manufacturing category and 8.65 lakh enterprises under the service sector. 

Here is a broad list of services and businesses shared on multiple financial portals that qualify as MSMEs:

Businesses that do not fall under MSME 

The MSME Ministry has stated via a notification that the following activities are not covered under MSMED Act, 2006: 

• Gambling and betting activities
• Forestry and logging 
• Fishing and aquaculture 
• Trade/repair of motorcycles (wholesale and retail) 
• Retail trade except of vehicles and motor cycles 
• Activities of households for domestic personnel 
• Goods and services produced via private households for personal use 
• Activities of extraterritorial organization and bodies 

Most popular industries amongst MSME businesses in India 

At present the share of service sector is 61% higher than manufacturing sector when it comes to MSME registration.  

The top 5 industrial sectors that are most popular amongst the MSMEs are:- 

1. Food products 
2. Textile 
3. Apparel 
4. Fabricated metal products 
5. Machinery & equipment  

The MSMEs have been continuously contributing to the expansion of entrepreneurship and business innovations. The Government of India has been acting dedicatedly to boost the expansion of MSMEs via various subsidies, exemptions, financial schemes, and trade fairs. We at IndusInd Bank are equally devoted to helping you grow your business and offer financial assistance that is tailored to your needs.  

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.