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Context:

The revised MSME classification in 2025 Budget has sparked concerns among micro and small enterprises about potential benefits being overshadowed by larger firms.

What Changed in the MSME Rules?

Before April 1, 2025 

• Micro Enterprises: Could invest up to ₹1 crore and have a turnover of ₹5 crore.
• Small Enterprises: Could invest up to ₹10 crore and have a turnover of ₹50 crore.
• Medium Enterprises: Could invest up to ₹50 crore and have a turnover of ₹250 crore

Under the new rules

• Investment limit for each category has been raised by 2.5 times, and the turnover limit has doubled. For example; Micro enterprises now have an investment cap of Rs 2.5 crore, and their turnover cap is now Rs 10 crore.

Finance Minister Nirmala Sitharaman said in her Budget speech that these changes would help MSMEs become more efficient and access better technology and capital.

Concern

An organization called Laghu Udyog Bharati (which supports micro and small enterprises) wrote a letter to the government saying the new rules are unfair. They argue that the changes will benefit bigger companies at the expense of smaller ones.

Benefits for Smaller Firms Will Be Taken Away: In India, micro and small enterprises get special benefits like:

• A 25% quota in government purchases.
• Access to priority loans from banks, with extra focus on micro firms. But with the new rules, medium-sized firms (which are fewer in number) might now qualify for these benefits instead of the smaller firms that really need them

Impact of the Pandemic: Laghu Udyog Bharati also pointed out that MSMEs were hit hard by the COVID-19 pandemic in 2020 and 2021. Many small businesses are still struggling to recover. They believe it is too early to make such big changes without properly assessing how the last set of changes (made in 2020) worked.

Banks Favor Bigger Firms: Even though priority loans are supposed to help micro and small firms, banks often prefer lending to bigger companies because it’s easier for them to meet their targets by dealing with fewer clients. This issue has been raised with the government and RBI.

Significance of the Step

Inflation and rising raw material costs have increased the turnover of businesses. The new limits reflect this reality and help businesses stay competitive.

Currently, many small businesses avoid growing vertically (becoming bigger and more efficient) because they lose special benefits when they grow too large. They expand horizontally by creating multiple small firms, which increases costs, and is also inefficient. -> New rules aim to fix this by encouraging vertical growth.

By raising the investment limits, the Government aims to attract foreign investors who want to set up joint ventures. These investors can now invest larger amounts while still qualifying as MSMEs, which gives them access to priority loans.

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Source:

INDIAN EXPRESS

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