BharatNotes
MSME Sector — Definition and Classification
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 provides the legal framework for MSME classification in India. A major revision was notified on 1 June 2020 (Gazette Notification S.O. 1702(E)) and became effective on 1 July 2020 as part of the Aatmanirbhar Bharat package.
Key Changes in 2020 Revision
- Composite criterion — Both investment in plant and machinery and annual turnover are now used (earlier, only investment was the criterion).
- Manufacturing and services merged — The earlier distinction between manufacturing and services enterprises was removed; a single set of thresholds now applies.
- Upward reclassification rule — If an enterprise crosses the ceiling in either investment or turnover, it moves to the next higher category. However, it can move down only when it falls below ceilings in both criteria.
MSME Classification (w.e.f. 1 July 2020)
| Category | Investment in Plant & Machinery | Annual Turnover |
|---|---|---|
| Micro | Up to Rs 1 crore | Up to Rs 5 crore |
| Small | Up to Rs 10 crore | Up to Rs 50 crore |
| Medium | Up to Rs 50 crore | Up to Rs 250 crore |
Budget 2025-26 Revision (w.e.f. 1 April 2025)
The Union Budget 2025-26 enhanced MSME thresholds further — investment limits raised by 2.5 times and turnover limits by 2 times (Notification S.O. 1364(E), dated 21 March 2025).
| Category | Investment (Revised) | Turnover (Revised) |
|---|---|---|
| Micro | Up to Rs 2.5 crore | Up to Rs 10 crore |
| Small | Up to Rs 25 crore | Up to Rs 100 crore |
| Medium | Up to Rs 125 crore | Up to Rs 500 crore |
This revision aims to allow growing MSMEs to retain benefits for longer and encourage expansion without fear of losing MSME status.
MSME Sector — Key Data
The MSME sector is the backbone of India's economy. Key metrics (as per the Union Minister for MSME and PIB, 2025):
| Indicator | Figure |
|---|---|
| Contribution to GDP | 30.1% |
| Share of manufacturing output | 35.4% |
| Share of total exports | 45.73% |
| Registered MSMEs (Udyam + UAP) | ~7.46 crore (as of January 2026) |
| Employment (registered MSMEs) | ~31.33 crore (as of November 2025) |
| MSME exports growth | Rs 3.95 lakh crore (FY21) to Rs 12.39 lakh crore (FY25) |
Udyam Registration Portal, launched on 1 July 2020, provides free, paperless, Aadhaar-based self-declaration registration. The Udyam Assist Platform (UAP), launched on 11 January 2023, helps informal micro enterprises access formal benefits such as Priority Sector Lending.
Key MSME Schemes
1. Pradhan Mantri MUDRA Yojana (PMMY)
Launched in April 2015 to provide collateral-free loans to micro and small enterprises through Member Lending Institutions (MLIs).
| Category | Loan Amount | Target Segment |
|---|---|---|
| Shishu | Up to Rs 50,000 | New businesses, initial capital |
| Kishore | Rs 50,001 to Rs 5 lakh | Established businesses needing expansion |
| Tarun | Rs 5 lakh to Rs 10 lakh | Businesses seeking significant scale-up |
| Tarun Plus | Rs 10 lakh to Rs 20 lakh | Borrowers who have repaid a Tarun loan (introduced in Budget 2024-25) |
Progress: As of February 2025, cumulative disbursement under PMMY crossed Rs 32.40 lakh crore, covering more than 52 crore loan accounts since inception.
2. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Jointly set up by the Ministry of MSME and SIDBI to facilitate collateral-free institutional credit to MSEs.
| Feature | Detail |
|---|---|
| Guarantee ceiling | Up to Rs 5 crore per borrower (raised from Rs 2 crore) |
| Coverage — Micro enterprises (up to Rs 5 lakh) | 85% |
| Coverage — General MSEs (Rs 5 lakh to Rs 5 crore) | 75% |
| Coverage — Women-owned MSEs | 90% |
| Coverage — SC/ST, PwD, Aspirational Districts, ZED-certified, Agniveer-promoted | 85% |
3. Udyam Registration
Free, paperless, online MSME registration based on self-declaration linked to Aadhaar and PAN. Replaced the earlier Udyog Aadhaar Memorandum (UAM) system from 1 July 2020.
4. PM Vishwakarma
Launched on 17 September 2023 (Vishwakarma Jayanti) as a Central Sector Scheme for artisans and craftspeople working with hands and tools across 18 traditional trades (carpenter, blacksmith, goldsmith, potter, cobbler, tailor, barber, mason, etc.).
| Component | Benefit |
|---|---|
| Recognition | PM Vishwakarma certificate and ID card |
| Training | Basic (5-7 days) + Advanced (15+ days); stipend of Rs 500/day |
| Toolkit incentive | Up to Rs 15,000 via e-voucher |
| Enterprise loans | Up to Rs 3 lakh in two tranches at 5% interest (8% GoI subvention) |
| Marketing support | Quality certification, branding, GeM onboarding |
Outlay: Rs 13,000 crore (FY 2023-24 to FY 2027-28). As of August 2025, over 30 lakh artisans registered and 23 lakh trained.
5. SFURTI (Scheme of Fund for Regeneration of Traditional Industries)
Supports clusters of traditional industries (khadi, village industries, handicrafts) to enhance competitiveness.
| Cluster Type | Artisans | Government Assistance |
|---|---|---|
| Regular Cluster | Up to 500 | Up to Rs 2.5 crore |
| Major Cluster | More than 500 | Up to Rs 5 crore |
Progress: 513 clusters approved, benefiting over 3.03 lakh artisans, with committed government assistance of Rs 1,332.95 crore.
6. ASPIRE (A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship)
Promotes innovation and rural entrepreneurship through Livelihood Business Incubators (LBIs) and Technology Business Incubators (TBIs) in partnership with institutions.
Evolution of Industrial Policy in India
Industrial Policy Resolution 1948
India's first industrial policy after independence, laying the foundation for a mixed economy with both public and private sector roles.
| Feature | Detail |
|---|---|
| Industry classification | Four categories — Strategic (public sector), Basic/Key (public-cum-private), Important (controlled private), Others (private and cooperative) |
| State monopoly | Arms, ammunition, atomic energy reserved exclusively for the state |
| Role of foreign capital | Accepted with conditions on majority Indian ownership |
Industrial Policy Resolution 1956
Often called the "Economic Constitution of India" or the "Bible of State Capitalism", this was based on the Mahalanobis model of the Second Five-Year Plan (1956-61), which emphasized heavy industrialization.
| Feature | Detail |
|---|---|
| Schedule A | 17 industries exclusively for the state (heavy industry, mining, defence) |
| Schedule B | 12 industries where state would progressively participate alongside private sector |
| Schedule C | All remaining industries left to the private sector |
| Goals | Expand public sector, build cooperative sector, prevent private monopolies |
New Industrial Policy 1991
Announced on 24 July 1991 by the Narasimha Rao government, this dismantled the License Raj and launched the Liberalisation, Privatisation, and Globalisation (LPG) reforms.
| Reform | Detail |
|---|---|
| Industrial licensing | Abolished for all except 18 industries (later reduced further) |
| Public sector reservation | Reduced from 17 to 8 industries (arms, atomic energy, coal, mineral oils, mining of certain ores, etc.) |
| FDI liberalisation | Automatic approval for up to 51% foreign equity in select sectors (previously capped at 40% under FERA) |
| MRTP Act | Threshold-based restrictions on large firms removed |
| Disinvestment | Public sector equity disinvestment initiated |
National Manufacturing Policy 2011
Announced to boost the manufacturing sector's share of GDP.
| Feature | Detail |
|---|---|
| Target | Raise manufacturing share to 25% of GDP |
| Jobs | Create 100 million additional manufacturing jobs |
| Growth rate | Achieve 12-14% annual manufacturing growth |
| NIMZs | National Investment and Manufacturing Zones — large integrated industrial townships with world-class infrastructure |
| Approach | Sector-neutral, location-neutral; incentivized green technology |
Make in India
Launched on 25 September 2014 by Prime Minister Narendra Modi, Make in India aims to transform India into a global manufacturing hub.
Objectives
- Increase manufacturing sector growth to 12-14% per annum
- Create 100 million additional manufacturing jobs
- Raise manufacturing's share of GDP to 25%
Sectors
Initially covered 25 sectors; expanded to 27 sectors under Make in India 2.0.
Key Achievements
| Indicator | Detail |
|---|---|
| FDI inflows | Rose from USD 45.14 billion (FY15) to a record USD 84.83 billion (FY22) |
| Mobile manufacturing | India became the world's second-largest mobile phone manufacturer; smartphones made in India rose from ~20% (2015) to 95% (2019) |
| Electronics market | Reached USD 155 billion by FY23 |
| Defence self-reliance | INS Vikrant (first indigenous aircraft carrier), Vande Bharat trains |
| Employment | Manufacturing employment rose from 57 million (2017-18) to 62.4 million (2019-20) |
Production-Linked Incentive (PLI) Schemes
Announced in 2020-21 across 14 key sectors with a total outlay of Rs 1.97 lakh crore (~USD 26 billion) to boost domestic manufacturing, build scale, and enhance export competitiveness.
14 PLI Sectors
| S.No. | Sector |
|---|---|
| 1 | Mobile Manufacturing and Specified Electronic Components |
| 2 | Critical Key Starting Materials / Drug Intermediaries and APIs |
| 3 | Manufacturing of Medical Devices |
| 4 | Automobiles and Auto Components |
| 5 | Pharmaceutical Drugs |
| 6 | Specialty Steel |
| 7 | Telecom and Networking Products |
| 8 | Electronic / Technology Products |
| 9 | White Goods (ACs and LEDs) |
| 10 | Food Products |
| 11 | Textile Products (MMF segment and Technical Textiles) |
| 12 | High Efficiency Solar PV Modules |
| 13 | Advanced Chemistry Cell (ACC) Battery |
| 14 | Drones and Drone Components |
PLI Results (as of December 2025)
| Metric | Figure |
|---|---|
| Applications approved | 836 across 14 sectors |
| Cumulative investment | Over Rs 2.16 lakh crore |
| Cumulative sales/production | Over Rs 20.41 lakh crore |
| Exports | Over Rs 8.3 lakh crore |
| Employment generated | Over 14.39 lakh |
| Incentives disbursed | Rs 28,748 crore |
Mobile manufacturing — Production value increased by ~146%, from Rs 2,13,773 crore (FY21) to Rs 5,25,000 crore (FY25). Mobile exports grew over eightfold.
Pharmaceuticals — Cumulative sales of Rs 2.66 lakh crore, including exports of Rs 1.70 lakh crore in the first three years.
Startup India
Launched on 16 January 2016 by the DPIIT (Department for Promotion of Industry and Internal Trade), Ministry of Commerce and Industry.
Key Components
| Component | Detail |
|---|---|
| DPIIT recognition | 2,07,135 startups recognised as of 31 December 2025 — crossed the 2 lakh milestone during December 2025, creating over 21.9 lakh direct jobs |
| Growth trajectory | From fewer than 500 startups (2016) to over 2.07 lakh recognised startups (December 2025) |
| Fund of Funds for Startups (FFS) 1.0 | Rs 10,000 crore corpus committed to 145 SEBI-registered AIFs; invested over Rs 25,500 crore in 1,370+ startups |
| FFS 2.0 | Rs 10,000 crore additional corpus approved by Cabinet to mobilize further venture capital |
| Tax benefits | 3-year income tax exemption for eligible startups (Section 80-IAC); angel tax exemption |
| Self-certification | For 9 labour and 3 environmental laws |
| IPR support | Fast-tracked patent examination; 80% fee rebate for startups |
Startup India Impact
India is now the third-largest startup ecosystem globally (after the US and China). FY 2025 marked the highest-ever annual startup registrations, with India crossing 2.07 lakh DPIIT-recognised startups by December 2025.
Ease of Doing Business
India's World Bank Ranking Journey
| Year (DBR) | Rank | Change |
|---|---|---|
| 2014 | 142 | Baseline |
| 2017 | 130 | +12 |
| 2019 | 77 | +53 |
| 2020 (last DBR) | 63 | +14 |
India improved by 79 ranks over five years (142nd to 63rd) in the World Bank's Doing Business Report. The DBR was discontinued after 2020 due to data integrity concerns. The successor — B-Ready Assessment — was launched in 2024, and India is scheduled to participate in the third B-Ready report due for release in 2026.
Key Reform Initiatives
| Initiative | Detail |
|---|---|
| Business Reforms Action Plan (BRAP) | Launched 2014 by DPIIT; 7 editions completed (2015-2024); ranks states on reform implementation |
| National Single Window System (NSWS) | 32 Central Ministries and 33 States/UTs integrated; access to 300+ Central and 3,000+ State G2B approvals |
| Jan Vishwas Act, 2023 | Decriminalized 183 provisions across 42 Acts administered by 19 Ministries |
| Jan Vishwas Bill, 2025 | Further decriminalization covering 16 Central Acts across 10 Ministries (introduced in Lok Sabha, August 2025) |
| Insolvency and Bankruptcy Code (IBC), 2016 | Time-bound resolution of stressed assets; strengthened creditor rights |
UPSC Relevance
Key Areas for Prelims
- MSME classification criteria (investment and turnover thresholds — both 2020 and 2025 revisions)
- PLI scheme sectors and outlay
- MUDRA loan categories (Shishu, Kishore, Tarun, Tarun Plus) and limits
- Make in India launch year, Startup India launch year
- Industrial Policy Resolutions — 1948, 1956, 1991 key features
- CGTMSE guarantee coverage percentages
- PM Vishwakarma — number of trades covered (18)
Key Areas for Mains (GS-3)
- Role of MSMEs in employment generation, exports, and inclusive growth
- Evaluate the effectiveness of PLI schemes in achieving manufacturing self-reliance
- Industrial policy evolution — from state-led industrialization to liberalization to incentive-based manufacturing
- Challenges facing MSMEs — credit access, technology adoption, formalization, compliance burden
- Startup ecosystem — policy framework, funding gaps, regulatory challenges
- Make in India vs China Plus One — India's opportunity in global supply chain diversification
Interlinkages
- MSME + Financial Inclusion — MUDRA, CGTMSE, and priority sector lending norms
- Industrial Policy + Federalism — Centre-State coordination on BRAP, NSWS, land and labour reforms
- PLI + Trade Policy — Import substitution vs export competitiveness; WTO compliance of production subsidies
- Startup India + Innovation — National Innovation Foundation, Atal Innovation Mission, patent ecosystem
- MSME + Environment — ZED (Zero Defect Zero Effect) certification, green manufacturing compliance
Vocabulary
MSME
- Pronunciation: /ˌɛm.ɛs.ɛm.ˈiː/
- Definition: An abbreviation for Micro, Small and Medium Enterprises — a classification of business establishments based on investment in plant and machinery and annual turnover, as defined under the MSMED Act, 2006.
- Origin: English acronym from the initial letters of Micro, Small and Medium Enterprises; formalised in Indian law through the MSMED Act, 2006.
Entrepreneur
- Pronunciation: /ˌɒn.tɹə.pɹəˈnɜː/ (BrE) · /ˌɑːn.tɹə.pɹəˈnɝː/ (AmE)
- Definition: A person who sets up and manages a business venture, assuming its financial risks in pursuit of profit.
- Origin: French entrepreneur ("one who undertakes"), from entreprendre ("to undertake"), ultimately from Latin prehendere ("to seize, to take").
Incubator
- Pronunciation: /ˈɪŋ.kjʊ.beɪ.tər/
- Definition: An organisation or facility that supports early-stage startups and enterprises by providing mentorship, workspace, funding access, and business development services.
- Origin: From Latin incubāre ("to lie upon, to hatch"), from in- ("in, upon") + cubāre ("to lie down"); first used in English in the 1850s for hatching apparatus, later extended to business support institutions.
Key Terms
Make in India
- Pronunciation: /meɪk ɪn ˈɪn.di.ə/
- Definition: A flagship Government of India initiative launched on 25 September 2014 by PM Narendra Modi to transform India into a global manufacturing hub by encouraging domestic and foreign companies to manufacture products in India, with the goal of raising manufacturing's share of GDP to 25% and creating 100 million additional manufacturing jobs. As of 2025-26, manufacturing accounts for approximately 14% of GDP (GVA), still well short of the 25% target, though the sector recorded strong growth of 7.7% in Q1 and 9.1% in Q2 FY 2025-26.
- Context: Launched on 25 September 2014, initially covering 25 sectors (expanded to 27 under Make in India 2.0). Key achievements on the 10th anniversary (2024): 85% reduction in mobile imports, 99% of mobile phones now produced domestically (up from ~20% in 2015), mobile phone exports grew eightfold. FDI inflows into manufacturing reached Rs. 14.3 lakh crore (USD 165.1 billion) — a 69% increase over the past decade; manufacturing FDI in FY 2024-25 rose 18% YoY to USD 19.04 billion. India's Ease of Doing Business rank improved from 142nd (2014) to 63rd (2020, last DBR — discontinued due to data integrity concerns; successor B-Ready assessment launched 2024). Complemented by PLI schemes (2020-21, Rs. 1.97 lakh crore across 14 sectors), Startup India (2+ lakh recognised startups by 2025), National Single Window System (NSWS — 32 Central Ministries, 33 States/UTs integrated), Jan Vishwas Act 2023 (decriminalised 183 provisions). The global "China Plus One" diversification strategy offers India a significant opportunity to capture relocating supply chains. India became a net exporter of mobile phones and net exporter of bulk drugs under PLI support.
- UPSC Relevance: GS3 Economy — Prelims: launched 25 September 2014, initially 25 sectors (expanded to 27), goal of 25% manufacturing GDP share, current manufacturing share ~14%, FDI inflows to manufacturing up 69% in a decade, India's EODB rank improved from 142nd to 63rd, 99% domestic mobile production; Mains: has Make in India achieved its manufacturing targets (14% vs 25% target — why the gap persists: land, labour, logistics challenges), complementary policies needed (labour code implementation, land acquisition reform, logistics cost reduction from 12-14% to 8% of GDP), China Plus One — India's opportunity in global supply chain diversification (electronics, pharma, auto), is India's manufacturing growth assembly-driven or genuine value-addition, comparison of industrial policy approaches (India's incentive-based PLI model vs East Asian state-directed industrialisation).
PLI Scheme
- Pronunciation: /ˌpiː.ɛl.ˈaɪ skiːm/
- Definition: The Production-Linked Incentive Scheme is a Government of India policy announced in 2020-21 that provides financial incentives of 4-6% on incremental sales to manufacturers who meet specified investment and production thresholds across 14 key sectors, with a total outlay of Rs. 1.97 lakh crore (~USD 26 billion) over a 5-year incentive period. As of December 2025, the scheme has attracted cumulative investments of over Rs. 2.16 lakh crore, generated cumulative sales/production exceeding Rs. 20.41 lakh crore, exports crossing Rs. 8.3 lakh crore, and created over 14.39 lakh direct and indirect jobs.
- Context: The PLI scheme was introduced to boost domestic manufacturing, reduce import dependence, and enhance India's participation in global supply chains. The 14 sectors covered are: mobile phones and electronics, pharma APIs, medical devices, automobiles and auto components, pharma drugs, specialty steel, telecom and networking, electronic/technology products, white goods (ACs and LEDs), food products, textiles (MMF and technical textiles), high-efficiency solar PV modules, advanced chemistry cells (ACC batteries), and drones. 836 applications have been approved across all sectors, with Rs. 28,748 crore disbursed as incentives. Key sectoral highlights: electronics manufacturing production surged from Rs. 2.13 lakh crore (FY21) to Rs. 5.25 lakh crore (FY25), a 146% increase; mobile phone exports grew eightfold from Rs. 22,870 crore (FY21) to Rs. 2 lakh crore (FY25); India transitioned from a net importer to a net exporter of bulk drugs (Rs. 2,280 crore surplus in FY25 vs Rs. 1,930 crore deficit in FY22); solar PV module PLI attracted Rs. 48,120 crore in committed investments with 38,500 direct jobs. FDI in electronics manufacturing exceeded USD 4 billion since FY21, with ~70% contributed by PLI beneficiaries. The Budget 2025-26 increased the electronics PLI allocation from Rs. 5,777 crore to Rs. 9,000 crore and doubled auto components allocation.
- UPSC Relevance: GS3 Economy — Prelims: 14 sectors, total outlay Rs. 1.97 lakh crore, incentive of 4-6% on incremental sales for 5 years, 836 approved applications, cumulative investment Rs. 2.16 lakh crore, 14.39 lakh jobs, key sectors (electronics, pharma, auto, solar, textiles, ACC batteries, drones); Mains: evaluate PLI effectiveness — genuine import substitution or mere assembly operations (critique: mobile "manufacturing" is largely assembly with 15-20% domestic value addition), comparison with East Asian industrial policy models (South Korea's chaebol support, China's subsidised manufacturing), WTO compliance of production subsidies under the SCM Agreement (risk of challenge), should PLI be extended beyond 14 sectors or deepened within existing sectors, PLI's employment impact — capital-intensive manufacturing creates fewer jobs per rupee invested than labour-intensive sectors, mobile exports success as a case study.
