Full Form Of MSME

MSME Full Form

In this write up we are going to understand the concept of MSME. We will be discussing its full form, its definition, functions, importance, and setbacks faced by the enterprises in the corporate world.

Let us begin with the full form of MSME:

The acronym MSME stands for Micro, Medium and Small Enterprises. It is a branch of the Government of India that comes under the Ministry of MSME.


The Micro, Small, and Medium Enterprise (MSME) sector is the second-largest employment generating sector after agriculture in India. It accounts for almost 45% of the output in India.

 The MSME plays a crucial role in providing large capacity employments at comparatively lower capital investment than large industries in the country.

They also play a major role in the industrialization and development of rural areas that are not at par in the development as urban areas of the country.


The Government of India takes constant and necessary steps to ensure the proper functioning of this sector as it is considered the backbone of the Indian Economy.

This is because as already we have mentioned that this sector provides the second largest employer in the country.

The Ministry of MSME takes care of the administration and formulation of rules and regulation for micro, medium and small enterprises in India and overseas and also takes all the important decisions related to this sector in order to boost it.

The Central Government comes with a lot of schemes and loan programs for MSMEs so as to flourish this sector and more and more industries get into start-ups because they are the leading source of providing bread and butter to a large section of Indian society.

About MSME

New Definition:

MSME includes small, micro, and medium enterprises. Initially, their investment and annual turnover caps were as below:

Micro Enterprises: The micro industries have an investment of less than Rs 1 crore in plant and machinery and their turnover should not be more than Rs 5 crore.

Small Enterprises: The companies in this section should not have investment more than Rs 10 crore in plant and machinery and setup. And their turnover should be maximum of Rs 50 crore only. Such companies are eligible under MSME registration.

Medium Enterprises: They should not exceed investments more than Rs 50 crore in both plant and machinery and their turnover should not be more than Rs 250 crore.

The revised caps of these enterprises are mentioned in the below table with effect from May 2020

Revision to MSME

EnterpriseInvestmentAnnual Turnover
MICROUp to INR 10 MillionUp to INR 50 Million
SMALLUp to INR 100 MillionUp to INR 500 Million
MEDIUMUp to INR 200 MillionUp to INR 1 Billion


The eligibility criterion to get the loan for any enterprise would be:

Your business needs to be operating for at least 6 months before applying for the loan.

The minimum amount of turnover would be Rs 90,000 for the past three months before applying for the loan.

The business should not have been blacklisted or else its loan application will be rejected.

The physical location of the enterprise should not be in the area that is blacklisted by the government.

MSME Registration & who can apply to it?

The registration is not a mandatory process for the business to get started in the country but it can be done online at msme.gov.in and if you get it done then you can avail a lot of benefits offered by the government.

There are certain eligibility criteria that need to be fulfilled to get an MSME status for your industry or business.

The MSME status can be gained if you are:

Having Proprietorship

Belong to Hindu undivided family

Own a one person company

Have a Private Limited Company

A Limited Company

Producer Company

Any association of Persons

Co-operative Society

An Undertaking

All the above business entities are entitled to get MSME status in India.

COVID-19 Pandemic & Indian Economy

The revised definition of MSME was introduced recently by the Finance Minister, Smt. Nirmala Sitharaman to provide the essential aid to the MSME sector amid Covid 19 pandemic outbreak.

In order to revive the Indian Economy in this pandemic outbreak, the Government of India announced an economic package under Atmanirbhar Bharat Abhiyan.

The Government announced a massive budget of 3 lakh crore to provide assistance to MSMEs in this lockdown phase.

Do You Know About NABARD: National Bank for Agriculture and Rural Development

Like all the other sectors of the economy, MSMEs have also been hit badly because of the measures taken to tackle the pandemic. However, even before the current situation, there were several challenges that the MSME sector was facing to cope up with.

Reasons for giving credit guarantee:

A credit guarantee by the government assures the bank that even if MSME fails to repay the loan amount, the government will complete the payments.

There were many efforts made by the government to pump liquidity via banks but they were not that effective because banks don’t want to lend money when they are not being assured of the repayments.

Banks already justified the reason that the new loans will only add up to their existing non-performing assets (NPAs).

So the main problem was that banks had money but they were not willing to lend them money to credit starving sections of the economy unless they were guaranteed the repayments.

Thus, the government came with a solution to break the barrier and provide credit guarantees so that the sectors can get the loan for being able to perform in the economy.

Significance of MSMEs

We can already see the significance of MSME in our economy as it is the second-largest employment provider sector in the country after agriculture.

At present, in India, there are about 56 million enterprises that are providing employment sources to about 124 million people. Out of these 14% are women-led enterprises and around 60% are based in rural India.

All in all, MSME accounts for 8% of India’s GDP and 45% of merchandise exports are through these industries. This is the reason that MSME is called the growth engine of the Indian Economy.

MSMEs are mostly focused on promoting inclusive growth by generating employments for rural dwellers and people belonging to weaker sections.

These industries create opportunities for people to use banking services and products in tier II and tier III cities.

Challenges faced by MSME:

Though there are several steps taken to support MSMEs in the country still there are many issues faced by these industries and the necessary steps to be taken to tackle them.

1. Access to credit remains the biggest hurdle for MSMEs and has deeply constrained their growth. 90% of these enterprises are dependent on informal sources of funding.

They suffer a huge lack of sufficient capital to be able to grow and achieve the high working needs of the economy.

2. They have been facing low market accessibility and the nonavailability of new markets.

They have major concerns about not getting a skilled labor force to run the industries that create a deadlock in the development and employment generation.

They have been facing issues to sell products to government agencies.

3. With the weak financial standing, most of the MSMEs don’t have access to the latest technology available to ease their labor work and increase production.

They are still struggling to adapt to the latest technologies especially in the sectors of unorganized enterprises.

4. The industries are still using the traditional machinery that results in compromising the quality of the final product which has higher chances of getting rejected for export because of great competitiveness in the global market.

5. The MSMEs have to go through very long procedures of government to get approval and follow their rules for establishing new units that only increases the burden of the manufacturer as he has to run to multiple departments.

Payment of taxes, getting construction permits, trading across border permissions, etc. continues to hamper the smooth operation of the business.

6. The financial crunch and lack of credit availability can hamper manufacturing, purchasing power, and labor for an enterprise. All of these factors can be of great loss to a particular industry.

Steps to be taken to overcome these challenges

1. The government has launched a “59-minute loan portal” to enable easy access to MSMEs where they can apply for credit loans and will get a response in an hour.

The government has also announced the subvention of 2% of GST for all the registered MSMEs on fresh or incremental loans.

TReDS- Trade Receivables e-Discounting System has been launched to enable access to credit systems.

2. The union government also enabled e-governance platforms for selling products from MSMEs and boost their productivity and enable them to keep performing in the sector.

Public sector companies have been mandated to procure 25% of the produce of MSMEs and boost their sales.

The government also launched a Government e-Marketplace (GeM) portal that provides transparency to MSMEs to directly reach out to buyers.

3. To ensure the improved quality of the products for exports, the government introduced the Zero Defect Zero Effect policy. There is a great need to meet the product quality of Indian goods to that of the global standards.

There are many subsidies allocated to the manufacturers for getting certifications and other licenses from national and international bodies.

4. There are many e-Governance portals launched by the government to provide assistance to MSMEs. Some of them are:

Udyami Mitra Portal: It is launched by SIDBI to improve accessibility and handholding services to MSMEs.

MSME Sambandh: This portal helps monitor the public procurement from MSMEs by central public sectors.

MSME Samadhan: This portal empowers MSMEs, directly to register their cases relating to their delayed payments by the ministries and government authorities.

Digital MSME Scheme: This enables MSMEs to be able to access the internet and utilize IT infrastructure to cope up with the digitized era.

5. There are many steps taken by the government to improve the ease of doing business in India. You will be surprised to know that in 2014 India stood at 142nd place in the Ease of Doing Business Report and in 2020 it climbed to 63rd position.

6. Efforts should be made to create self-sufficient clusters which means that our MSMEs should depend less on the imports of certain raw materials and equipment and instead manufacture dedicated Made in India products.

This could be achieved by increasing domestic manufacturing capabilities. It will also create more potential by increasing employment opportunities, selling and purchasing parity among industries, adding to the GDP of the country, and boosting the overall economy.

Way Forward:

The recent package of 3 lakh crore collateral-free assistance to the MSMEs under Atmanirbhar Bharat Abhiyan is a step in the right direction by the government of India.

The government also needs to divert its attention to the issue of moral hazard that has been present in MSMEs and needs to be curbed at the earliest.

Moral Hazard occurs in this case because the borrower is not bounded to pay back the loan as the government has taken a guarantee to pay back to the banks. We already discussed this in the above segment.

Therefore the borrower ultimately gets the credit and also has nothing to lose.

Also, the banker is assured the repayment by the government itself so it makes him no issue to check in to the borrower whether he is capable to get the loan or not.

However, this financial assistance may not be a permanent solution until and unless adequate reforms are made to solve the current problems that MSMEs are facing and dilute the hurdles with proper solutions.


We hope this article was helpful to you in understanding all the terms and their meanings that were related to micro, Small, and Medium Enterprises. Yes, we agree it is a complex topic and that is why we tried to explain each topic in a very simplified manner so that the reader gains the utmost information from this article and gets the answer to all of his queries regarding this topic.

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