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What is MSME? Meaning, Full Form, Features, Role and Importance in India

Published on Nov 29, 2023Updated on May 20, 2024

What is MSME? Meaning, Full Form, Features, Role and Importance in India

Micro, small, and medium enterprises (MSME) play a pivotal role in fostering economic growth and inclusivity in India. The term "MSME" encompasses a spectrum of enterprises, each contributing significantly to the country's industrial landscape. This sector, characterized by its diverse range of businesses, has become a cornerstone of economic development, driving innovation, generating employment, and empowering entrepreneurs across the nation.

This guide explores the intricacies of MSMEs, shedding light on their meaning, full form, distinctive features, importance, and the pivotal role they play in shaping India's economic landscape. Understanding MSMEs is essential for comprehending the dynamic and inclusive nature of India's business environment.

What is SME/MSME? - Meaning, Definitions & Full Form

SME/MSME stands for Small and Medium Enterprises or Micro, Small, and Medium Enterprises, representing businesses falling within a specific range of size and turnover. These enterprises play a crucial role in the economic development of a country. In India, they are categorized based on investment in plant and machinery for manufacturing units and on investment in equipment for service enterprises. SMEs are crucial contributors to economic growth, fostering innovation, generating employment, and supporting entrepreneurship. The definitions and criteria for SMEs may vary across countries, but they generally encompass businesses with limited size and scale compared to large enterprises.

MSME Classification

The MSME classification categorizes businesses based on their annual turnover and investment in plant and machinery or equipment. Micro-enterprises have the smallest size, followed by small enterprises and medium enterprises. These classifications help in determining eligibility for various government schemes, subsidies, and incentives aimed at promoting the growth and development of micro, small, and medium-sized enterprises.

Type of enterprise




INR 1 crore

INR 5 crore


INR 10 crore

INR 50 crore


INR 50 crore

INR 250 crore

Difference Between SMEs and MSMEs

SMEs (small and medium enterprises) encompass a broader range of businesses, including both small and medium-sized enterprises. On the other hand, MSMEs (Micro, Small, and Medium Enterprises) specifically refer to micro, small, and medium-sized enterprises, with micro-enterprises being the smallest category.





Manufacturing & Service Sector

The investment should be less than INR 1 crore.

Turnover should not be more than INR 5 crore.

The investment should be less than INR 10 crore.

Turnover should not be more than INR 50 crore.

The investment should be less than INR 50 crore.

Turnover should not be more than INR 250 crore.

How to Register as an MSME?

To register as an MSME in India, businesses can follow a smooth online process through the Udyam Registration portal. Entrepreneurs need to provide essential details such as their Aadhar number, PAN, and other business-related information. No documents or proof are required to be uploaded, as the registration is based on self-declaration and government databases.

The registration is free of charge, and upon verification, an Udyam Registration certificate is issued, facilitating access to numerous benefits and schemes provided by the government to promote the growth of micro, small, and medium enterprises. It facilitates these businesses in availing of various government benefits, such as priority lending, subsidies, and easier access to credit. By obtaining an MSME certificate, businesses can enhance their credibility and participate actively in government initiatives tailored for their support.

Role of MSMEs in the Indian Economy

Micro, Small, and Medium Enterprises (MSMEs) play a pivotal role in the Indian economy, contributing significantly to various aspects of growth and development.

1. Export

MSMEs are crucial contributors to India's export sector, engaging in the production and export of diverse goods and services. Their participation enhances the country's global trade presence.

2. Employment

MSMEs are major employment generators, providing job opportunities to a substantial portion of the population. Their decentralised nature contributes to inclusive economic growth by distributing employment across regions.

3. Entrepreneurship

MSMEs foster entrepreneurship by enabling individuals to establish and manage their enterprises. The sector is a breeding ground for new business ideas, encouraging innovation and business ownership.

4. Innovation

MSMEs contribute to innovation and technological advancements. Their adaptability and agility allow for the quick implementation of innovative practices, driving progress in various industries.

In essence, MSMEs serve as dynamic engines of economic growth, playing a multifaceted role in promoting trade, employment, entrepreneurship, and innovation in the Indian economy.

Must Read:  MSME and its Roles & Impact on the Indian Economy

What are the Types of MSMEs?

Micro, small, and medium enterprises (MSMEs) in India are classified into two categories: Manufacturing and Service. Each category is further divided based on investment in plants and machinery or equipment. These classifications aim to provide targeted support and benefits to businesses of varying scales in both the manufacturing and service sectors.

1. Manufacturing Enterprises

These MSMEs are involved in the production of goods, ranging from small-scale units crafting handmade products to larger manufacturing units. They contribute significantly to industrial output and job creation. For manufacturing MSMEs, micro-enterprises are those with an investment up to INR 25 lakhs*ss, small enterprises with an investment between INR 25 lakhs* and INR 5 crores, and medium enterprises with an investment between INR 5 crores and INR 10 crores.

2. Service Enterprises

Service-based MSMEs focus on providing various services, such as IT, consulting, healthcare, education, and more. They play a crucial role in the service sector's growth and employment generation. For service MSMEs, the investment limits are the same, but they are based on equipment rather than plant and machinery.

Importance & Features of MSMEs to Indian Economy

Micro, small, and medium enterprises (MSMEs) form the backbone of India's economy, playing a crucial role in fostering economic growth, generating employment, and promoting entrepreneurship. Their significance lies in contributing to GDP, enhancing inclusive growth, actively participating in exports, nurturing innovation, and being the focus of various government initiatives. MSMEs embody the dynamism and diversity of the Indian economic landscape, making them pivotal to the nation's progress and development.

1. Economic Growth and Employment Generation

MSMEs are pivotal for India's economic growth, contributing significantly to GDP and generating employment across diverse sectors, fostering economic development.

2. Inclusive Growth

MSMEs promote inclusive growth by providing opportunities to a wide range of entrepreneurs, including those from marginalised sections, contributing to a more equitable economy.

3. Contribution to Exports

Many MSMEs engage in export activities, boosting India's global trade. Their participation enhances foreign exchange earnings and strengthens the country's position in the international market.

4. Promotion of Entrepreneurship

MSMEs are hotbeds for entrepreneurship, encouraging individuals to start and grow their businesses. This fosters innovation, creativity, and self-reliance in the entrepreneurial landscape.

5. Government Initiatives

The government recognizes the importance of MSMEs and has introduced various initiatives and schemes to support their growth, including financial assistance, technological upgradation, and skill development programs.

MSMEs play a multifaceted role in the Indian economy, driving growth, fostering inclusivity, and contributing significantly to India's global standing.

How to Avail MSME Loans?

Securing loans for micro, small, and medium enterprises (MSMEs) involves a systematic process.

To apply for a MSME loan with SMFG India Credit, follow these steps:

  • Check your eligibility: Ensure that you meet the complete eligibility criteria, such as the age range, credit score, business turnover, etc., before starting your application.
  • Collect your documents: Prepare all your updated documents as listed on the website and keep them handy when applying for the loan.
  • Fill out your application: Fill out the application form with updated and accurate information, and once your pre-assessment and eligibility has been confirmed, upload all your documents, and submit the form.
  • Loan Disbursal: Upon successful verification, your request will be approved and the loan amount will be disbursed into your bank account within 72 hours* of approval.
Must Read:  MSME and its Roles & Impact on the Indian Economy

How is the Government Helping MSMEs?

Governments, both at the central and state levels, are actively supporting MSMEs through various measures. These include financial assistance, subsidies, tax incentives, and dedicated schemes to address the sector's unique challenges. Initiatives like the Credit Linked Capital Subsidy Scheme (CLCSS), Prime Minister's Employment Generation Programme (PMEGP), and the MSME Development Act aim to provide a conducive environment for MSMEs to thrive. These efforts not only facilitate financial support but also focus on skill development, technological upgradation, and market access to enhance the overall competitiveness of MSMEs.

MSME Loan Schemes initiated by the Govt. of India

The Government of India has introduced several loan schemes specifically tailored for the MSME sector. These schemes aim to address funding constraints, promote innovation, and boost the overall growth of MSMEs. Some notable schemes include the Micro Units Development and Refinance Agency (MUDRA) Yojana, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), and the Interest Subvention Scheme for Incremental Credit to MSMEs. These initiatives provide financial support, ensure credit availability, and encourage entrepreneurship by offering favourable loan terms and conditions for MSMEs across various sectors.


In conclusion, Micro, Small, and Medium Enterprises (MSMEs) play a pivotal role in the Indian economy, contributing significantly to economic growth, employment generation, and inclusive development. SMFG India Credit recognizes the significance of supporting these enterprises.

Our commitment to empowering MSMEs is reflected in our tailored financial solutions, specifically designed to address the unique needs and challenges faced by businesses in this sector. Apply now to access the specialized loan offers and financial support that can be the catalyst for your business success.

*T&C Apply

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us


What is the Full Form of MSME?

The full form of MSME is Micro, Small, and Medium Enterprises.

What is the full form of SME?

SME stands for Small and Medium Enterprises.

What is meant by an MSME?

MSME refers to micro, small, and medium enterprises, encompassing businesses with varying levels of capital investment and workforce.

What is the criterion for MSME classification?

MSME classification is based on investment in plant and machinery or equipment for manufacturing units and on turnover for service-oriented enterprises.

How many MSMEs are there in India?

India has millions of MSMEs, making it a significant segment of the business ecosystem.

What are the prominent features of MSMEs?

Features include limited investment, a smaller workforce, flexibility, local focus, and significant contributions to economic development.

Who can apply online for MSME registration?

Any business falling within the MSME criteria can apply online for registration.

Why is a credit rating important for MSMEs?

A good credit rating enhances MSMEs' credibility, making it easier to secure loans and attract investors.

What are the factors influencing MSMEs?

Factors include government policies, market conditions, technology adoption, and financial support.

What is the MSME limit?

MSME limits are defined based on investment and turnover, categorising businesses as micro, small, or medium.

What is the UAM number?

UAM (Udyog Aadhaar Memorandum) is a unique identification number provided to MSMEs upon registration.

Can I get an MSME loan for a new business?

Yes, MSME loans are available for new businesses, supporting their initial capital requirements.

How many days will it take to get an MSME certificate?

The timeframe for obtaining an MSME certificate varies but is typically a few days from application submission.

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