Evolution of MSME Classifications in India: Institutional Transformation, Policy Dynamics and Economic Implications

Abstract

India’s Micro, Small and Medium Enterprises (MSME) sector plays a crucial role in employment generation, industrial production, exports and regional development. The Government of India has been making continuous changes in the classification of MSMEs over time in response to the evolving industrial landscape, evolving inflation pressures, globalisation, as well as technological transformation and competitiveness issues. Yet, little research has been done to analyse the institutional changes in the classification of MSMEs and their wider implications for their development. Significant changes that occurred in the classification of MSME from Small-Scale Industries (SSI) to the present investment and turnover classification under the new MSME umbrella are critically discussed. The study delves into the relationships between policy change and the restructuring of enterprise formalisation, competitiveness, financial access and industrial growth dynamics, based on Institutional Theory and Institutional Isomorphism and the Resource-Based View. The paper is based on secondary literature, government reports and institutional policy documents, thus taking a conceptual and policy-review approach. The results indicate that changing the classification of MSME is not just an administrative matter, but an institutional move to respond to globalisation, market integration, technological modernisation and economic restructuring. While the new classifications have facilitated greater scalability, fostered formalisation and expanded business opportunities for enterprises, challenges of implementation, access disparity, and policy awareness remain. The study makes its contribution in the field of MSME literature by providing an integrated institutional view on the evolution of enterprise classification systems in India and presents a conceptual framework for the linkage between MSME classification reforms and aspects of economic development outcomes. The paper also offers policy suggestions to boost sustainability, competitiveness and inclusive industrial development of MSMEs.