The Ministry of Micro, Small, and Medium Enterprises (MSME) amended the classification criteria for Micro, Small, and Medium Enterprises on March 21, 2025, by releasing a notification.

The aforementioned amendment will be effective from April 1, 2025. Through this amendment, more companies will be eligible as MSMEs, and current MSMEs will be able to expand without forfeiting their existing status.

Let's take a look at the amendment below.

New Classification Criteria

The enterprises will be classified on a composite basis, i.e., if they cross either the investment or turnover threshold, they will shift to the subsequent category.

Impact of the Revised Criteria

The revised classification is expected to considerably raise the number of qualifying enterprises, and hence there would be a huge influx of registrations on the Udyam portal. Enterprises that will be reclassified downwards (i.e., from Medium to Small or Small to Micro) would continue to have the present status until March 31, 2025. The new classification will only be effective from April 1, 2025, so that transition is hassle-free.

Let's know why this kind of revision was suggested?

In her Budget Speech for 2025, the Hon'ble Finance Minister shed light on the critical position occupied by MSMEs in India's economic scenario. Having more than 1 crore MSMEs, employing 7.5 crore people and contributing 36% to manufacturing, these businesses are crucial in making India a world manufacturing hub. In order to facilitate their growth and enhance their access to technology, capital, and economies of scale, the investment and turnover levels for MSME classification will be increased by 2.5 and 2 times, respectively. This will give a boost to MSMEs to grow and generate more employment opportunities.

Conclusion 

The rescaling of MSME threshold, although apparently simple, has far-reaching implications. It will lead to more businesses being eligible for MSME advantages and impact how companies deal with these businesses, as well as how credit is distributed by financial institutions. It is crucial for companies and financial institutions to scrutinize their internal policies in light of these adjustments and remain compliant with the new MSME regime.

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