New MSME Classification: A Game Changer for Exporters?

The Indian government, after recognising the growing needs of MSMEs, has taken a major step to make it better; it introduced a revised MSME classification in the Union Budget 2025-26. This reclassification comes into the picture to give this sector growth, boost their competitiveness, and help MSMEs get better access to resources.

But what does this new classification include, and how will it impact exporters within the MSME sector? Read on to find out.

What Are MSMEs?

The MSMEs or Micro, Small, and Medium Enterprises refer to companies that are classified on the basis of their investment in equipment and annual turnover. These enterprises operate across manufacturing, services, and trade sectors, MSMEs contributing significantly to the country’s economy by creating employment, supporting entrepreneurship, and promoting innovation. 

During the fiscal year 2023-24, MSME-related products contributed nearly 45.73% of India’s total exports, pointing out their important role in  making India a powerhouse in manufacturing in the global space. 

Originally defined under the MSMED Act of 2006, the classification criteria have been updated over time to better match the needs of businesses.

Previous MSME Classification Based on Investment 

Under the MSMED Act of 2006, the Government categorised MSMEs separately for the Manufacturing and Services sectors, depending on how much they invest in plant, machinery, or equipment.

Manufacturing Sector

Enterprise Type	Investment in Equipment
Micro Enterprises	Up to ₹25 lakh
Small Enterprises	Over ₹25 lakh but less than ₹5 crore
Medium Enterprises	Over ₹5 crore but less than ₹10 crore

Services Sector

Enterprise Type	Investment in Equipment
Micro Enterprises	Up to ₹10 lakh
Small Enterprises	Over ₹10 lakh but less than ₹2 crore
Medium Enterprises	Over ₹2 crore but less than ₹5 crore

Merits of MSME Classification

Obtaining the MSME status gives businesses many benefits, propelling growth, innovation, and market expansion.

• No-Collateral Loans: With Government-backed schemes in place, financial institutions can provide collateral-free loans and ensure better access to funding.

• Government Incentives: Eligible MSMEs can avail of subsidies for technology upgrades, international trade participation, marketing, and patent registration.

• Procurement Advantages: Public sector units (PSUs) and government departments reserve a portion of procurement contracts for MSMEs, increasing business opportunities.

• Favourable Loans & Interest Rates: MSMEs enjoy preferential interest rates and are given priority in various lending programs.

• Better Credit & Funding Access: MSME classification improves credit ratings, helping businesses secure better financial opportunities.

• Tax Relief & Simplified Compliance: MSMEs benefit from tax relief measures and simplified regulatory processes, reducing operational burdens.

• Workforce Training & Development: Government-backed training programs support workforce skill enhancement and productivity improvement.

• Safeguards Against Late Payments: The MSME Development Act of 2006 mandates timely payments from buyers, preventing cash flow disruptions.

Understanding the New MSME Classification

The revised classification has increased the investment and turnover thresholds for MSMEs, allowing businesses more room to scale without losing the benefits of MSME status. 

This reclassification shows a 2.5-fold increase in investment limits and doubled turnover limits for all categories. 

The updated criteria for 2025-26 are as follows:

Enterprise Type	Investment Limit	Turnover Limit
Micro	Up to ₹2.5 crore	Up to ₹10 crore
Small	Up to ₹25 crore	Up to ₹100 crore
Medium	Up to ₹125 crore	Up to ₹500 crore

Implications for MSME Exporters

The 2025-26 Union Budget introduces many significant reforms to strengthen the backbone of the MSME sector by addressing credit access, supporting first-time entrepreneurs, and encouraging growth in labour-intensive industries. 

The new classification is poised to be revolutionary for MSME exporters in several ways:

• Enhanced Growth Opportunities

With higher investment and turnover limits, MSMEs can scale their operations without the fear of losing the benefits associated with their classification. This flexibility encourages businesses to explore larger markets, including international ones, thereby increasing export potential.

• Improved Access to Credit

The government has increased the credit guarantee cover for micro and small enterprises from ₹5 crore to ₹10 crore, enabling additional credit of ₹1.5 lakh crore over five years. For exporter MSMEs, term loans up to ₹20 crore will receive guarantee support, facilitating expansion into overseas markets. 

Moreover,  startups are bound to witness their guarantee cover go up from ₹10 crore to ₹20 crore, along with a 1% reduced loan fee in 27 priority sectors.

• Technological Upgradation

The revised limits allow MSMEs to invest more in technology and infrastructure, enhancing product quality and competitiveness in the global market. This is particularly crucial for exporters aiming to meet international standards.

• Fewer Compliance Headaches

With unified and standardised definitions spanning manufacturing and services, compliance and documentation requirements are simpler to adhere to and manage.

• Inclusion of More Enterprises

The relaxed criteria mean that more enterprises can now qualify as MSMEs, allowing them to access different government schemes and incentives created to promote exports.

• Strengthening Labour-Intensive Sectors

The Union Budget 2025-26 is giving a big push to labour-intensive sectors, focusing on job creation and industry growth:

• Footwear and Leather: A new Focus Product Scheme will support better design, local component manufacturing, and non-leather footwear production. This is expected to create 22 lakh jobs and drive a turnover of ₹4 lakh crore.
• Food Processing: A National Institute of Food Technology, Entrepreneurship, and Management will be set up in Bihar, strengthening the food processing industry in eastern India and opening up more opportunities for MSMEs.
• Toys Industry: A new initiative will help develop manufacturing clusters and improve skills, aiming to make India a major player in the global toy market.

Government Initiatives Supporting MSME Exporters

Beyond the reclassification, the government has introduced several initiatives to bolster MSME exports:

• Export Promotion Mission: A dedicated mission to integrate MSMEs into the global economy by providing easier access to export credit, cross-border factoring support, and addressing non-tariff barriers in international markets. 
• Customised Credit Cards for Micro Enterprises: The introduction of tailored credit cards with a ₹5 lakh limit for micro-enterprises registered on the Udyam portal aims to provide seamless access to working capital, which is essential for fulfilling export orders. In the first year, 10 lakh such cards are set to be issued.
• Supporting Startups & Clean Tech Growth: ₹10,000 Crore Boost for Startups: A new Fund of Funds has been set up to help high-growth startups and innovation-driven MSMEs scale up and compete globally.
• Backing New Entrepreneurs: A dedicated scheme will offer term loans of up to ₹2 crore over five years to first-time women, SC, and ST entrepreneurs. Building on the success of Stand-Up India, this initiative is here to open doors for the next generation of business owners.
• Manufacturing & Clean Tech Push: The National Manufacturing Mission will provide policy support and clear roadmaps for businesses of all sizes, strengthening the Make in India movement. There’s also a big push for clean tech, encouraging local production of solar PV cells, EV batteries, wind turbines, and high-voltage transmission equipment—helping MSMEs lead the way in sustainability and innovation. 

Why Has the MSME Definition Changed?

The MSME classification criteria have been revised to:

• Support Business Growth: Allow enterprises to expand operations without losing MSME benefits.
• Reflect Market Changes: Adapt to inflation, capital requirements, and technological advancements.
• Encourage Formalisation: Bring more businesses under MSME coverage to improve credit access and government support.
• Strengthen Economic Recovery: Initiatives like Atma-nirbhar Bharat Abhiyaan aim to enhance MSME resilience in the face of global economic challenges.

Hurdles on the Road Ahead

While the new classification and support initiatives open up exciting opportunities, MSME exporters still have some challenges to tackle:

• Meeting Global Standards: Expanding internationally isn’t just about scaling up; it also means meeting strict quality and regulatory requirements. This often means extra investment in certifications and process upgrades.

• Expanding to New Markets: Selling in different countries means adapting to new consumer preferences, legal rules, and competition. Breaking into global markets can be tough without proper market research and strategy, 

• More Efficient Logistics: A smooth supply chain is the most important thing for successful exports. MSMEs require reliable logistics to make timely deliveries and maintain product quality, which may require extra investment in infrastructure.

Accelerate Your Business’s Growth with ShiprocketX

As MSMEs evolve to meet the new classification criteria, they will need efficient logistics solutions to scale operations and successfully compete in global markets. This is where ShiprocketX, a leading logistics and shipping platform, plays a big role. 

With its extensive suite of services customised for MSMEs, Shiprocket offers cost-effective, reliable, and efficient shipping solutions to help businesses fulfill the growing demands of the export market.

Shiprocket’s services cater to every business, from micro to medium enterprises, and offer the following benefits to MSME Exporters:

• Global Reach: Access to a wide courier network of 220+ countries and territories for your international shipments.
• Improved Customer Experience: Get real-time shipment tracking with live updates and reliable delivery times.
• Cost Efficiency: Save shipping costs with our competitive international shipping rates.
• Ample Courier Options: Choose the best shipping carrier for your international shipments based on your needs.
• 360-Degree Solutions: Ease and fasten your cross-border shipping with a simplified process from shipping labels to customs clearance.

Wrapping Up

The updated MSME classification and government-backed initiatives are creating new opportunities for MSME exporters. Businesses in this sector are now able to scale their operations and expand globally; due to better access to funding, policy support, and competitive advantages, companies can scale up and strengthen their presence in international markets.

However, success won’t come automatically. MSME exporters will need to tackle challenges head-on, be it about meeting global standards, improving logistics, or understanding new markets. They can surely achieve sustainable, long-term growth on the global stage with the right approach.