Across the world different context and definitions are there for small businesses. However, in India a standard definition for small and medium enterprises (SMEs) is given in 2006. The Micro, Small and Medium Enterprises (MSMED) Act, 2006 was imposed by the Ministry of Micro, Small and Medium Enterprises, Government of India in 2006. A change in economic scenario changes the definition of SME. The definition of SME for manufacturing sector is different from that of service sector.
Definition of SME in Manufacturing Sector:
Manufacturing sector includes the firms and businesses which involve production, processing, or preservation of goods. The definition for SME in manufacturing sector according to the MSMED Act 2006 is described below. The cost of land, building and the items specified by the Ministry of Small Scale Industries are excluded in this description.
When the investment in plant and machinery of the firm does not exceed Rs. 25 lakh, then it is called a micro enterprise. A small enterprise is that having investment in plant and machinery ranging between Rs. 25 lakh and Rs. 5 crore. If the investment in plant and machinery is between Rs. 5 crore and Rs. 10 crore, then it is said to be a medium enterprise.
Definition of SME in Service Sector:
When the investment in equipment is not above Rs. 10 lakh, then it is called a micro enterprise. A small enterprise is that one which has the investment in requirement between Rs. 10 lakh and Rs. 2 crore. When the investment in equipment is in the range between Rs. 2 crore and Rs. 5 crore, then it is called a medium enterprise.