Small and Medium Enterprises (SME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. SMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. SMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country.

SMEs also play a significant role in Nation’s development through its high contribution in domestic production, significant export earnings, low investment requirements, operational flexibility, location wise mobility, low intensive imports, capacities to develop appropriate indigenous technology, import substitution, contribution towards defence production, technology–oriented industries, competitiveness in domestic and export markets thereby generating new entrepreneurs by providing knowledge, training and skill development .

Government of India was notified by its MSMED Act in 2006 to address policy issues affecting SMEs as well as the coverage and investment ceiling of the sector. The Act seeks to facilitate the development of these enterprises as also enhancing their competitiveness. It provides the first-ever legal framework for recognition of the concept of "enterprise" which comprises both manufacturing and service entities. It defines medium enterprises for the first time and seeks to integrate the three tiers of these enterprises, namely, micro, small and medium. The Act also provides for a statutory consultative mechanism at the national level with balanced representation of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range of advisory functions.

Definition of MSMEs in India
(As Per Micro, Small & Medium Enterprises Development (MSMED) Act, 2006)

Manufacturing Enterprises - Investment in Plant & Machinery
Description INR USD($)
Micro Enterprises upto Rs. 25 Lakh upto $ 62,500
Small Enterprises above Rs. 25 Lakh & upto Rs. 5 Crore above $ 62,500 & upto $ 1.25 million
Medium Enterprises above Rs. 5 Crore & upto Rs. 10 Crore above $ 1.25 million & upto $ 2.5 million
Service Enterprises – Investment in Equipments
Description INR USD($)
Micro Enterprises upto Rs. 10 Lakh upto $ 25,000
Small Enterprises above Rs. 10 Lakh & upto Rs. 2 Crore above $ 25,000 & upto $ 0.5 million
Medium Enterprises above Rs. 2 Crore & upto Rs. 5 Crore above $ 0.5 million & upto $ 1.5 million