Businesses with a turnover, investment and workforce below a certain threshold are classified as SMEs in India. These businesses may be in the service sector or manufacturing sector.
SME full form
SME full form is small and medium-sized enterprises.
See also: All about small scale industries
How are SMEs classified?
Indian SMEs are classified under the law, ‘Micro, Small and Medium Enterprises Development Act, 2005’ (MSME Act).
Under the MSME Act, the classification depended on two factors:
- Investment in plant and machinery.
- Turnover of the enterprise.
Moreover, different thresholds were prescribed, based on the aforesaid factors, for enterprises in the manufacturing and services sectors.
However, the classification was revised, via a notification dated June 1, 2020. The new classification included a composite criterion for both, investment in plant and machinery and annual turnover of the enterprises. The distinction between the manufacturing sector and the services sector was also done away with.
| Classification of companies | Investment threshold | Annual turnover |
| Small enterprise | Investment in plant and machinery/equipment not more than Rs 10 crore. | Not more than Rs 50 crore. |
| Medium enterprise | Investment in plant and machinery/equipment not more than Rs 50 crore. | Not more than Rs 250 crore |
In most nations, SMEs account for the great majority of firms and continue to be a significant component of economic growth, innovation and variety.
See also: All you need to know about MSME
The significance of the SME sector in India
Without a significant impetus for industrialisation and liberalisation, no practical and notable step toward the provision of jobs and the increase of the country’s general prosperity can be taken. While large corporations contribute significantly to the overall health of the economy, the lack of opportunities in every field, to establish various other types of enterprises typically kills prospects for the national economy and fails to instill the spirit of economic freedom and opportunities in the population. The expansion and development of the SME sector needs to be geared toward meeting these principles.
According to the Confederation of Indian Industries (CII), SMEs currently contribute 24.63% of total GDP in the services sector and roughly 6.11% of overall GDP in the manufacturing sector. This is more than enough to demonstrate the importance of these industries in the economy.
When it comes to employment, these industries employ over 120 million people. They also account for roughly 45% of total national exports. Needless to mention, this sector achieves the dual goals of economic growth and increased national income, as well as the social responsibility of providing large-scale employment. There are almost 63.4 million registered and unregistered SMEs in India.
Housing News Desk is the news desk of leading online real estate portal, Housing.com. Housing News Desk focuses on a variety of topics such as real estate laws, taxes, current news, property trends, home loans, rentals, décor, green homes, home improvement, etc. The main objective of the news desk, is to cover the real estate sector from the perspective of providing information that is useful to the end-user.
Facebook: https://www.facebook.com/housing.com/
Twitter: https://twitter.com/Housing
Email: editor@housing.com
