In a landmark move to bolster the Micro, Small, and Medium Enterprises (MSME) sector, the Government of India has implemented significant reforms effective April 1, 2025. These include a revised classification system for MSMEs and the introduction of the Mutual Credit Guarantee Scheme (MCGS), both aimed at fostering growth, enhancing credit access, and promoting economic resilience.

Revised MSME Classification: Expanding the Horizon

Recognizing the evolving economic landscape and the need to accommodate growing enterprises, the Ministry of Micro, Small, and Medium Enterprises has updated the investment and turnover thresholds for MSME classification. This adjustment allows more businesses to benefit from MSME-specific schemes and incentives.

New Classification Criteria:

• Micro Enterprises:
  • Investment in Plant and Machinery or Equipment: Up to ₹2.5 crore

  • Annual Turnover: Up to ₹10 crore

• Small Enterprises:
  • Investment in Plant and Machinery or Equipment: Up to ₹25 crore

  • Annual Turnover: Up to ₹100 crore

• Medium Enterprises:
  • Investment in Plant and Machinery or Equipment: Up to ₹125 crore

  • Annual Turnover: Up to ₹500 crore

These revised thresholds, effective from April 1, 2025, supersede the earlier limits set in 2020, aiming to provide a more inclusive framework for enterprise categorization based on investment and turnover. 

Mutual Credit Guarantee Scheme (MCGS): Empowering MSME Financing

To address the credit challenges faced by MSMEs, especially in the manufacturing sector, the government has launched the Mutual Credit Guarantee Scheme. This initiative aims to facilitate collateral-free loans, thereby encouraging investment in plant and machinery.

Key Features of MCGS:

• Guarantee Coverage: 60% of the credit facility, up to ₹100 crore, sanctioned to eligible MSMEs.

• Eligibility: MSMEs with a valid Udyam Registration Number seeking loans for purchasing equipment or machinery.

• Loan Conditions:
  • Minimum of 75% of the project cost should be allocated to equipment/machinery.

  • Loans up to ₹50 crore: Repayment period of up to 8 years with a moratorium of up to 2 years on principal installments.

  • Loans above ₹50 crore: Extended repayment schedules and moratorium periods may be considered.

• Fees:
  • Upfront contribution: 5% of the loan amount at the time of guarantee application.

  • Annual Guarantee Fee: Nil in the sanction year; 1.5% per annum for the next three years; thereafter, 1% per annum.

The scheme is applicable for loans sanctioned under MCGS-MSME during the period of four years from the date of issue of operational guidelines or until a cumulative guarantee of ₹7 lakh crore is issued, whichever is earlier. 

Implications for the MSME Sector

These reforms are poised to have a transformative impact on the MSME landscape:

• Enhanced Access to Finance: The MCGS addresses the perennial issue of collateral requirements, enabling MSMEs to secure substantial loans for capital investments.

• Encouragement for Growth: The revised classification allows enterprises to scale operations without the immediate risk of losing MSME status, thus promoting expansion and competitiveness.

• Boost to Manufacturing: By facilitating the acquisition of modern machinery and equipment, the initiatives aim to enhance productivity and position India as a global manufacturing hub.

Conclusion

The government’s proactive approach in revising MSME classifications and introducing the Mutual Credit Guarantee Scheme underscores its commitment to empowering small and medium enterprises. These measures are expected to catalyze growth, foster innovation, and contribute significantly to India’s economic development.