Revised MSME Classification Scaling MSMEs without losing benefits

Dr. Andreas Peter
The Union Budget 2025-26 has introduced a transformative revision in the classification criteria for Micro, Small, and Medium Enterprises (MSMEs), signalling a significant shift in the Government’s approach toward fostering industrial growth, entrepreneurship, and economic resilience. By substantially increasing both investment and turnover limits across all three MSME categories, the Government aims to provide greater operational flexibility, encourage modernization, and enhance the competitiveness of small and medium businesses in domestic and international markets. This policy shift is expected to redefine the MSME landscape, ensuring that enterprises can scale up without losing access to critical financial and policy incentives.
Under the revised classification, micro enterprises will now have an investment limit of ?2.5 crore, up from ?1 crore, while their turnover ceiling has been increased to ?10 crore from ?5 crore. Small enterprises will benefit from a raised investment threshold of ?25 crore, compared to the previous ?10 crore, with turnover limits increasing to ?100 crore from ?50 crore. The most substantial revision applies to medium enterprises, where the investment limit has been enhanced to ?125 crore from ?50 crore, and the turnover ceiling has been doubled to ?500 crore. These adjustments reflect the evolving needs of India’s industrial sector and align with the Government’s vision of making MSMEs more competitive in an increasingly technology-driven and globalized economy. Industry experts and business leaders have largely welcomed this revision, highlighting its potential to enable enterprises to expand their operations without the fear of losing MSME status. By allowing businesses to grow while continuing to enjoy MSME benefits such as credit facilitation, priority sector lending, and tax concessions, the move is expected to drive increased capital investment, improve technological adoption, and enhance supply chain efficiencies. The Federation of Indian Micro, Small, and Medium Enterprises (FISME) and other national industry bodies have acknowledged that these revised limits will encourage business owners to pursue expansion strategies that were previously constrained by rigid classification norms.
The impact of these changes extends beyond individual enterprises and has broad economic implications. With MSMEs contributing nearly 30% to India’s GDP, 45% to exports, and employing around 11 crore people, any policy intervention affecting this sector has far-reaching consequences. The revised investment and turnover criteria are expected to stimulate new business formations, support higher employment generation, and drive innovation-led growth.
As enterprises expand, there will be an increased demand for skilled labour, creating job opportunities and strengthening India’s human capital base. Additionally, enhanced financial eligibility under Government schemes will ensure better access to credit and working capital, reducing financial stress for businesses and enabling long-term sustainability.The financial implications of these reforms are particularly significant, as more businesses will now qualify for MSME-specific loans, credit guarantee schemes, and subsidized interest rates under priority sector lending programs. The increased eligibility threshold will also facilitate access to Government-backed funding initiatives such as the Emergency Credit Line Guarantee Scheme (ECLGS) and other sector-specific support programs. Improved liquidity will empower businesses to make long-term investment decisions, upgrade machinery, implement automation, and expand production capacities, further strengthening India’s manufacturing and export potential.For businesses, this reclassification presents an opportunity to reassess their growth trajectories and align their strategies with the new criteria. Existing MSMEs must evaluate their classification status to determine their continued eligibility for incentives and subsidies, while rapidly growing enterprises can leverage the increased thresholds to expand operations without immediate regulatory constraints. New entrepreneurs and start-ups will find it easier to make larger initial investments while still maintaining MSME status, thereby improving the feasibility of capital-intensive ventures. This move also benefits businesses exploring global markets, as higher investment limits and turnover thresholds will enable them to meet international quality standards, comply with global trade regulations, and integrate more effectively into international supply chains.Despite the overwhelmingly positive outlook, the success of this policy revision will ultimately depend on its implementation and complementary support measures. While the revised criteria provide a framework for expansion, challenges such as access to affordable credit, regulatory simplifications, and infrastructural support need to be addressed to maximize benefits for MSMEs.
The Government must ensure that financial institutions align their lending frameworks with the updated classification, enabling smoother access to credit for enterprises operating at the upper end of the MSME spectrum. Additionally, policies aimed at digital transformation, skill development, and market linkages must be strengthened to equip businesses with the necessary tools to compete in a dynamic global economy.In the long term, these changes reflect a progressive approach toward industrial modernization, scale economies, and technology adoption. By allowing enterprises to grow without losing policy benefits, the Government is fostering a more sustainable and competitive industrial environment. With over 1 crore registered MSMEs employing approximately 7.5 crore people, these revised criteria are expected to catalyse significant economic growth, enhance productivity, and reinforce India’s position as a global manufacturing and business hub. This policy shift marks a decisive step in India’s industrial evolution, laying the foundation for a more resilient, inclusive, and future-ready MSME sector.
However, critics argue that this strategy can unintentionally help bigger businesses at the expense of smaller ones, especially those in labour-intensive low-margin sectors.
Under the new classification, medium-sized businesses-which are closer to the upper end of the threshold-may control access to Government programs, lending facilities, and other support tools, therefore depriving smaller businesses of advantage. This can aggravate already existing disparities in the MSME sector and impede the expansion of micro and small businesses, which are typically more sensitive to economic shocks and market volatility.
Particularly in rural and semi-urban areas where small-scale firms are so important in local economies, this might have a domino effect on employment and revenue generating. Additionally, many of these enterprises operate with limited financial inclusion and minimal access to formal support mechanisms. Without targeted interventions, the reclassification may reinforce existing disparities, limiting the potential of smaller firms to transition into more competitive market segments.Addressing these concerns necessitates a differentiated policy framework that recognizes the diverse needs of MSMEs. This includes the development of targeted financial instruments, improved credit access mechanisms, and customized support initiatives that enable micro and small enterprises to invest in infrastructure, adopt technology, and enhance product quality. Expanding the reach of Government schemes through sector-specific incentives and localized policy measures would further ensure equitable distribution of benefits across the MSME spectrum.
(The author is a former KAS Officer)