In a recent move, the Union Cabinet has changedd the classification of M.S.M.E. from ‘investment in plant and machinery/equipment’ to ‘annual turnover’.

As per the new classification, enterprises with annual turnover less than or equal to Rs 5 crore fall under the ‘micro’ category, those between Rs 5 crore to Rs 75 crore as small enterprises, and those with turnover between Rs 75 crore and Rs 250 crore will be classified as medium enterprises. Further, there is no distinction between manufacturing and service units.

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One major advantage is that the new definition will ease the credit needs of the M.S.M.E. sector. Banks and financial institutions will be able to understand the credit needs of M.S.M.E. sector better. Turnover is a better classification since Working Capital requirements are a function of operations rather than capital investment.

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