Difference Between Micro, Small, and Medium Enterprises

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Published Date:  26-12-2023   Author:   ujjwal-goel
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A wide range of businesses are available in India today, each catering to the country significantly. However, this group also includes certain businesses that get special benefits from the government. This category of business organisations is known as MSMEs. It comprises three types of enterprises: micro, small, and medium.

Despite relying on the category of an MSME, enterprises can have significant distinctions. If you wonder what are the differences between micro, small, and medium enterprises, stay tuned till the end. It will cover in detail the features and benefits of each enterprise.

Table of Contents

What are Micro, Small, and Medium Enterprises?

MSMEs are a broad set of firms defined by the size of their operations and investment amount. These businesses play an essential role in economic development by creating jobs and supporting inclusive growth.

MSMEs are classified differently in each nation but often include characteristics like investment in plant and machinery, turnover, and staff numbers. Micro-enterprises are the smallest, followed by small and medium-sized businesses. Furthermore, these businesses operate in a variety of industries, including manufacturing and commerce.

Governments frequently establish measures to assist MSMEs in recognising their relevance in improving economic resilience and decreasing poverty by allowing citizens to engage in productive economic activities.

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Classification of MSME

There are three types of enterprises that come under MSMEs. All three of them are classified as follows:

1. Nature-Based classification

A. Micro Enterprises

Micro enterprises are the smallest businesses. They have a low investment limit and operate with minimal resources. Some of its examples include small neighbourhood shops and tiny manufacturing units.

B. Small Enterprises

Small enterprises are slightly larger than micro-enterprises. They have higher investment limits. Small enterprises play a crucial role in various sectors and contribute significantly to local economies.

C. Medium Enterprises

Medium-sized businesses are the largest category that falls under MSMEs. They operate with higher investments. Mediunm-enterprises contribute substantially to economic growth and innovation.

2. Investment-Based Classification

A. Micro Enterprises

The total investments in an enterprise to fall under MSMEs as micro-enterprises is up to ₹1 crore.

B. Small Enterprises

The total investments for a business to be seen as a small enterprise under MSME should be between ₹1 crore and ₹10 crore.

C. Medium Enterprises

Investments in a medium enterprise under MSME must be between ₹10 crore and ₹50 crore.

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3. Turnover-Based Classification

A. Micro Enterprises

Micro-enterprises must only have a turnover of up to ₹5 crore.

B. Small Enterprises

Turnover of small enterprises must be between ₹5 crore and ₹50 crore.

C. Medium Enterprises

A medium-sized MSME enterprise must have a turnover between ₹50 crore and ₹250 crore.

What are Micro Enterprises?

Micro enterprises are the smallest category within the MSMEs in India. Their modest scale and limited investment define them. In the Indian context, these businesses are usually operated by the owner or a close-knit team of fewer than 10 employees.

Micro enterprises form the lifeblood of the Indian economy, constituting over 90% of all registered businesses and employing approximately 50% of the workforce. Their widespread presence comprises diverse sectors, ranging from local multi-utility stores to handicraft workshops.

Moreover, microenterprises significantly contribute to around 29% of the Indian GDP. Thus, they emerge as a driving force in India’s economic growth as statistical entities and vibrant contributors to local economies.

Features of Micro Enterprises

1. Low Entry Barriers

Micro enterprises stand out for their accessibility, requiring minimal capital and resources. This characteristic allows a diverse range of individuals to enter and participate in business activities.

2. Simple Structure

Micro-enterprises boast a straightforward organisational structure with their limited scale and close-knit teams. This simplicity facilitates ease of management and operation, allowing owners and small teams to easily access their business.

3. Flexibility and Adaptability

Micro enterprises are remarkably able to adapt swiftly to customer preferences and changing market demands. Their small size enables quick decision-making. This makes it easier to pivot strategies and offerings as needed.

4. Strong Local Connections

Deeply rooted in communities, micro-enterprises cultivate strong local connections. This contributes to a sense of social capital and positions these businesses as integral components of the local economy. Further, supporting and being supported by the community.

5. Diversity of Sectors

Micro enterprises showcase versatility by operating across a wide range of industries. Their presence spans diverse sectors, from traditional trades to emerging technology ventures. This reflects their adaptability to varying market landscapes.

Benefits of Micro Enterprises

1. Job Creation

One of the most significant contributions of micro-enterprises is the generation of employment opportunities. These businesses are crucial in providing jobs and livelihoods to a substantial portion of the workforce, especially in areas with limited formal employment options.

2. Poverty Alleviation

Micro enterprises alleviate poverty by providing income and livelihood opportunities, particularly in marginalised communities. They contribute to improving the living standards for individuals and families through their economic activities.

3. Entrepreneurial Spirit

Micro enterprises embody the entrepreneurial spirit, encouraging innovation and promoting a culture of self-reliance. Their small scale often allows owners to experiment with new ideas and approaches. This drives creativity and business innovation.

4. Economic Development

Micro-enterprises drive local economic growth by channelling resources and generating business activity. Their contributions extend beyond mere survival, actively participating in the development and sustainability of the communities they serve.

5. Sustainability

Micro enterprises often prioritise sustainable practices by utilising local resources and knowledge. This promotes environmental consciousness and contributes to their operations’ long-term viability.

What are Small Enterprises?

Small businesses in India account for a sizable portion of the MSME market. These companies have a little greater scale and personnel than micro-businesses. They normally employ between 10 and 50 people and have a more defined organisational structure.

Small businesses act as a vital link between micro and medium-sized businesses. They are critical for providing a varied range of products and services while remaining focused on the local market. Manufacturing and construction enterprises, as well as tourism agencies, contribute to 50% of total exports together. 

Features of Micro Enterprises:

1. Increased Complexity

Small businesses have a more formal structure than micro-businesses, with well-defined positions and duties. This greater complexity is indicative of a more organised approach to corporate operations.

2. Greater Access to Resources

Small businesses improve their operational efficiency by using technology and investing in equipment. This improved resource access helps them compete and grow in the corporate sector.

3. Wider Market Reach

Small businesses extend beyond their local areas, reaching regional or even national markets. This expanded market reach enables them to serve a larger consumer base and diversify their company activities.

4. Enhanced Product and Service Offerings

Small businesses provide a broader selection of products and services than micro businesses. The focus on quality and consistency improves business competitiveness and client happiness.

5. Potential for Scalability

Small businesses have the potential for scalability since they have the ability to develop and expand. This distinguishes them as dynamic entities capable of evolving into medium-sized firms over time.

Benefits of Small Enterprises

1. Job Creation

Small businesses play an important role in job creation by providing steady and skilled employment opportunities. This helps to develop the workforce and promotes economic growth by providing folks with meaningful employment.

2. Innovation

These businesses promote a culture of risk-taking and innovation, which leads to the development of new and unique goods and services. Their versatility and agility enable experimentation and an entrepreneurial attitude, which drives breakthroughs in various industries.

3. Market Efficiency

Small businesses contribute to market efficiency by confronting larger firms. They provide healthy competition via personalised service and particular market knowledge. This dynamic environment promotes market innovation, efficiency, and ongoing progress.

4. Regional Development

Small businesses serve as economic growth engines in their areas. Their operations stimulate economic activity, which improves infrastructure and living conditions in the areas where they operate. This regional growth has a rippling influence on the community’s overall well-being.

5. Skill Development

Small businesses improve their workforce’s employability by offering skill development and training opportunities. Employees frequently learn varied skills and experiences. This makes them more versatile and adaptive to changing job market demands.

What are Medium Enterprises?

Medium Enterprises operate with substantial investments and turnovers compared to their smaller peers. It is defined by its highest range of investment and turnover in the MSME category. Medium enterprises exhibit a more complex structure and enjoy a wider market reach.

Despite constituting just 0.5% of all registered businesses in India, medium enterprises still have a significant economic influence. They are crucial for driving economic growth by being partly responsible for the employment of 11 crore individuals by MSMEs. These enterprises are often pioneers in innovation and technology adoption, as they lead to advancements in manufacturing and pharmaceuticals.

Features of Medium Enterprises

1. Formalised Organisation

Medium-sized businesses have a well-defined organisational hierarchy with specialised divisions and management teams. This formalised framework aids in effective decision-making and smooth operations.

2. Robust Infrastructure

These businesses use the latest technology and equipment to improve operational efficiency and provide strict quality control methods. Their dedication to cutting-edge infrastructure distinguishes them in terms of production.

3. Wider Market Reach

Medium enterprises build high brand exposure and distribution networks by catering to national and worldwide markets. Due to their expanded market reach, they may majorly contribute to the economy.

4. Diversification

Medium-sized businesses are always looking for new goods, services, and technology. This dedication to diversity and innovation supports economic development and increases market competitiveness.

5. Potential for Scalability

Medium Enterprises play an essential role in supporting economic growth and job creation since they have the potential to grow into huge enterprises. Their scalability contributes to the corporate landscape’s dynamic character.

Benefits of Medium Enterprises

1. Creating Jobs

Medium-sized businesses provide high-skilled and well-paying job possibilities. This helps to develop talent and promotes upward mobility in the workplace.

2. Transfer of Technology

Medium enterprises drive technological developments and knowledge transmission. This boosts overall economic output and encourages industrial innovation.

3. Regional Improvement

Medium-sized businesses attract investments and infrastructural improvements. This improves living conditions and social amenities in the areas where they operate.

4. Exports

Medium Enterprises contribute to India’s export market, increasing foreign exchange revenues and promoting global competitiveness. This significantly improves the country’s economic status.

5. Corporate Social Responsibility

Medium Enterprises actively promotes sustainable development and community well-being through social welfare and environmental projects. This exhibits a commitment to corporate social responsibility.

Conclusion

Micro, Small, and Medium Enterprises (MSMEs) in India comprise a diversified and dynamic ecosystem that is critical to the country’s economic environment. Micro Enterprises, with minimal entry hurdles and a local focus, are the backbone of communities. At the same time, Small enterprises bridge the gap by offering a broader range of products and services. Medium Enterprises are significant contributors to India’s GDP with their significant investments and broader market reach. This bridges gaps between small enterprises and major corporations. These three enterprises work together to create a dynamic and inclusive business environment that demonstrates resilience and adaptability in India’s entrepreneurial spirit.

Also Read:

GST and the MSME Sector

How Has GST Helped MSMEs Grow Their Businesses?

E-Invoicing Revolution: How MSMEs Benefit And Thrive In Today’s Market

Frequently Asked Questions 

Q1. Who is not Eligible for MSME?

MSME registration is not open to individuals. However, proprietorships, partnership firms, companies, trusts, or an annual turnover below ₹250 crore and societies with investments below ₹50 crore qualify for MSME registration.

Q2. Who is Eligible for an MSME Subsidy?

Eligibility for MSME subsidy is open to individuals aged 18 and above. They must also have at least an eighth-grade education for projects in the manufacturing sector exceeding ₹10 lakh and business or service sector projects exceeding ₹5 lakh.

Q3. What are the new Limits for MSME in 2023?

The Finance Minister has increased the turnover limit for presumptive taxation of micro units from ₹2 crore in the previous fiscal year to ₹3 crore. Additionally, the turnover limit for specific professionals has been revised from ₹50 lakh last year to ₹75 lakh in the current financial year.

Q4. Is MSME Registration Free?

The registration process for MSMEs through the Udyam Registration Portal is completely online, and there is no fee associated with MSME registrations. It is a free-of-cost process.

Q5. How do I get my MSME Certificate?

Here is a step-by-step guide for MSME registration:

  1. Go to the Udyam registration portal.
  2. On the homepage, select the option ‘For new entrepreneurs who are not registered yet as MSME or those with EM-II.’
  3. Enter your ‘Aadhaar Number’ and the ‘Name of Entrepreneur.’
  4. Click the ‘Validate & Generate OTP’ button to proceed with the registration process.

Q6. What is a ₹15 lakh Subsidy for MSMEs?

Micro and Small Enterprises (MSEs) can avail themselves of a capital subsidy of up to ₹15 Lakh. This subsidy is aimed at facilitating access to modern technology for MSEs.

Q7. What is the Distinction Between an MSME and the Udyam Registration?

The distinction between MSME and Udyam lies in the platforms used for registration. Udyam registration is the current system for obtaining MSME status, and the Udyam registration certificate identifies businesses falling under the MSME category. On the other hand, Udyog Aadhar was the previous platform used for MSME status recognition before the introduction of Udyam registration.

Q8. Is a Bank Account Mandatory for MSME Registration?

Udyog Aadhaar Memorandum is the registration form MSMEs use to certify their existence. It requires essential information, including the owner’s Aadhar details and bank account information. This form is a crucial document for MSMEs seeking recognition and benefits under the MSME category.

Q9. How Long is the MSME Certificate Valid?

To facilitate a smooth transition for MSMEs to the new site and ensure the continued receipt of government benefits, the validity of the MSME license, extended from December 31, 2021, to March 31, 2022, has been extended until June 30, 2022. This applies to the current MSME registration, whether it’s in the form of Udyog Aadhaar Number (UAN) or E.M.

Q10. Who Should File the MSME Form?

Companies that have procured services or goods from an MSME supplier and have pending payments beyond 45 days are required to disclose this information to the Registrar of Companies (ROC) by filing the MSME-1 return. The MSME-1 return is a half-yearly filing obligation for specified companies, providing details about their outstanding payments to MSMEs.

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Ujjwal Goel

Ujjwal Goel is a B2B Technical and Finance Writer. With 5 years of experience, he has established himself as a skilled and knowledgeable blogger and content creator. Hailing from a BBA background, he is passionate about the Technical and Finance field and strives to create engaging, informative, and thought-provoking content for his readers. His writing style is conversational and informative, and he is committed to delivering high-quality work that meets the needs of his clients and readers. When he is not writing, he enjoys binge-watching Netflix or traveling

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