The MSME Act, 2006, lays out definitions which classify businesses into micro, small, or medium enterprises. According to last known data, these definitions have been used in the market since 1st July 2020, when they were formally put into place.
In this article, we will first explore each of these categories individually and then look at the major differences between the three tiers.
Understanding the three tiers
Micro enterprises
Micro enterprises dominate the Indian economic landscape. These are mostly family-owned, home-based businesses or small shops that are dotted in every single city, town, or village in the country. Examples of micro enterprises include kirana stores, street vendors, small tailoring units, and home-based bakers.
With limited resources and manpower, micro enterprises often face challenges in formalisation of their operations, obtaining financing loans and capital, and navigating regulations according to state and municipality.
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Small enterprises
Small enterprises are businesses that are a bit larger and exhibit rapid growth, employing up to 50 people and operating in diverse sectors like manufacturing, hospitality, and IT services. These include local manufacturing units, restaurants, small travel agencies, and IT service providers.
Small enterprises usually require term loans for added expansion, hire skilled labour, and become working capital efficient over time.
Medium enterprises
Medium enterprises are the largest businesses in this spectrum and play a critical role in job creation in the economy. These businesses include textile mills, pharmaceutical companies, educational institutions, and large retail chains.
Medium enterprises have many of the same problems as small enterprises but face additional challenges like fighting complex regulations for expansion across states or jurisdictions, capital for competing in global markets, and gaining access to specialised corporate funding.
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Major differences between micro, small, and medium enterprises at a glance
| Feature | Micro Enterprise | Small Enterprise | Medium Enterprise |
| Capital expenditures | Up to ₹1 Crore | Up to ₹10 Crore | Up to ₹50 Crore |
| Turnover | Up to ₹5 Crore | Up to ₹50 Crore | Up to ₹250 Crore |
| Number of Employees | Up to 10 | Up to 50 | Up to 250 |
| Financing Needs | Small working capital loans, equipment finance | Term loans for expansion, business development loans | Large infrastructure projects, working capital management for larger operations |
| Challenges | Lack of formalisation, limited access to finance, competition from larger players | Scaling operations, managing working capital efficiently, attracting skilled workforce | Access to specialised funding, navigating complex regulations, competing in global markets |
You should note, however, that these limits are only government-defined and are baked on ballpark numbers. While these standards are good to make estimations with, they are hardly rigid silos.
Businesses often transition between these stages as they grow and certain enterprises could be part of more than one of these categories at the same time as well.
Also read: Micro, Small and Medium Enterprises in India – Here’s all you need to know!
Conclusion
The distinction between micro, small, and medium enterprises is important to understand because they are all very important contributors to the Indian economy. These businesses all face different kinds of challenges owing to different growth strategies, and have to navigate regulation in their own way. We hope that this article helped you better understand their differences.
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