Contribution of MSMEs to GDP in India FY 2018-2022

Micro, small, and medium enterprises' Gross value added (GVA) across India accounted for over 29 percent of India's gross domestic product (GDP) in the financial year 2022. This was an increased contribution as compared to the previous year. Additionally, MSMEs account for a significant part of the country's exports. 

Classification of MSMEs in India

  As per the upward revision announced in 2020, the definition of micromanufacturing and services units was increased to 10 million Indian rupees of investment and 50 million rupees of turnover; the small unit was increased to 100 million investment and 500 million of turnover. The limit of the medium unit was increased to 500 million of investment and 2.5 billion of turnover. The objective of this change was to ensure that MSMEs can exhaust the state benefits without the fear of outgrowing themselves. However, critics argue that the gap defining medium enterprises is too wide and may create unfair competition.

Informal micro enterprises

Microenterprises account for the majority share of the MSME sector in India and a significant number of these enterprises are informal. Cost of compliance, complex labor laws, and lack of awareness about the benefits of formalization could be some of the reasons for keeping the micro-enterprises unregistered. Since businesses in the informal economy do not contribute to the tax base and tend to remain small with limited access to formal finance, it impairs a country’s ability to truly gauge the socio-economic metrics.