SMEs, also known as micro, small, and medium-sized enterprises, are vital to any economy because they assist to create jobs, boost exports, and advance economic development. SMEs and MSMEs are similar concepts; however, by contrasting Indian MSMEs with global SMEs, we have attempted to point out the difference between SMEs and MSMEs based on their meanings, objectives, contributions, and financing sources.
Micro, Small, and Medium Businesses (MSMEs)
The MSMED Act of 2006, which established Micro Small Medium Enterprises, was passed by the Indian government in 2006. Previously, MSMEs are grouped into the below-mentioned categories, as established in the MSMED Act of 2006:
- A manufacturing company: The companies in this category manufacture goods in any industry, and their investment levels determine their classification.
- A business that provides services: These enterprises provide services to others (in terms of investment in equipment). Within this, Investment levels are the base for categorising businesses.
The difference between SME and MSME has been abolished under the updated MSME classification as of July 1, 2020. The turnover limit is included in the updated categorisation. In addition, the difference between SME and MSME is based on money invested by enterprises in any fixed asset, as follows:
Manufacturing and Service sector
Investment should not exceed 1 crore, and the turnover should not exceed 5 crores.
The investment should not exceed 10 crores, and the turnover should not exceed 50 crores.
The investment should not exceed 50 crores, and the turnover should not exceed 250 crores.
Small and Medium Businesses (SMEs)
Small and medium businesses, also known as SMEs. Every country has its own definition of a small business. MSMEs are called SMEs in India under the MSMED Act, 2006. We might say that SME is a fundamental notion, while MSME is its Indian definition. These SMEs are small and medium enterprises in European countries according to the number of employees. As a result, if a company has fewer than 50 employees, it is classified as a small business. The term “medium business” refers to a company with fewer than 250 employees. Thus, in India, the classification is based on the level of investment, but in Europe, it is based on the workforce size.
A) Small and medium-sized enterprises (SMEs) are there in every country with the goal of:-
- Creating new job opportunities.
- Encouragement of entrepreneurial endeavours.
- Improving the living conditions of the impoverished.
- Increasing the SME sector’s contribution to the country’s GDP.
B) The Ministry of Micro, Small, and Medium Enterprises has set the following goals for the MSME sector:-
- Encourage entrepreneurship in small and medium-sized businesses.
- Increase the MSME sector’s contribution to India’s exports.
- Administrative processes are improving.
- Providing work possibilities for the most vulnerable members of society.
In other nations, SMEs have a significant presence:-
- Africa: Small and medium-sized enterprises (SMEs) account for half of the continent’s GDP, with SMEs accounting for about 90% of all businesses.
- Japan: Value-added, it contributes more than half of GDP. SME employment accounts for 70% of overall employment in the country.
- Pakistan: In 2018, SMEs accounted for 30% of Pakistan’s GDP. Exports accounted for 25% of total employment, while national employment accounted for 78%.
- China: Small and medium-sized enterprises (SMEs) account for over 90% of all firms in the country. Their GDP contribution is 60%, and they are responsible for 80% of all national employment.
- United States of America: In the United States, about 27 million SMEs account for 66.6% of all jobs. Their contribution to the country’s GDP is somewhere around 50%.
- Europe: Small and medium-sized businesses (SMEs) account for 70% of job creation in European countries.
- Australia: SMEs account for almost 98% of all firms in Australia, and they provide 33.5% of the country’s GDP.
In India, MSMEs have a significant share
MSMEs are the backbone of the Indian economy, accounting for 45% of manufacturing output and 40% of total exports, and MSMEs contributed significantly to the creation of jobs in the country. The number of employment produced by micro-enterprises surged by 51.6% in one year, from 3.87 lakhs in 2017 to 5.875 lakhs in 2018. In addition, according to the head of the Ministry of MSMEs, this sector accounts for 30% of the country’s GDP.
In India, 63.4 million small and medium businesses (SMEs) employ approximately 460 million people and account for nearly 30% of the country’s GDP. According to the CII, the sector employs about 120 million Indians and accounts for 33.4% of India’s industrial output. Including this on exports, the contribution of SMEs is around 45% of total exports.
Even though SMEs account for a significant portion of India’s GDP, conventional inefficient business practices and a low rate of technology adoption have prevented smaller businesses from realising their full potential.
According to Google’s research, 68% of the 51 million SMEs are not linked to the internet. India’s SMEs have yet to realise their full potential and go to the next phase of business development. The finance ministry had established a goal of making India a $5 trillion economy, and SMEs are critical to meeting that goal but the only stumbling block is technology adoption, and these digital businesses are stepping up to the plate, making solutions available to help SMEs succeed.
The difference between SME and MSME is based on SME in China with MSME in India
SMEs in China
MSMEs in India
SME definition in China is based on the number of employees, yearly turnover, and total assets of the company.
When distributing business units into micro, small, and medium firms, the employee aspect is ignored.
In 2019, the Chinese government altered tax rules and decreased the needed level of reserves that these SMEs must maintain to boost their growth.
The LLP Act, of 2008 was introduced by the Indian government to allow MSMEs to raise funds through the capital market. As a result, MSME platforms were listed on both the BSE and the NSE in 2012.
The National Financing Guarantee Fund was established in 2018 to assist SMEs by investing in them or providing them with credit loans.
To assist entrepreneurs with their financial needs, the Indian government has developed numerous programs such as MUDRA Loans, Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTSME), and Prime Minister’s Employment Generation Programme (PMGEP).
According to recent estimates, China’s SMEs are approximately 38 million.
The overall number of MSMEs in India is approximately 63 million and more.
Institutions that lend money
The International Finance Cooperation established the Global SME Finance Facility to assist SMEs in developing countries in achieving their financial needs and this aids SMEs by providing capital, risk mitigation, and advisory services.
Various commercial banks, NBFCs, RRBs, SIDBIs, NSIC, NEDFi, and SFBs in India are eligible to give credit to MSMEs. Borrowing is available to both new and established SMEs. MUDRA loan, CGTMSE loan, and PMEGP loan are among the loan options available to MSMEs, as previously noted and the loan amount under these programs varies from a minimum of INR 50 crores to a maximum of INR 200 lakhs or 2 crores.
MSME refers to the SME sector in India. As previously stated, Each country has classed and classified SMEs according to its regulations. As a result, the difference between SMEs and MSMEs differs on the basis of SME laws of various nations also this blog attempts to compare the contribution of MSMEs in India to that of SMEs in other nations.