🧷 Authentic Classroom Explanation by IAS Monk

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📌 Question

Statement-I: According to the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, medium enterprises are those with investments in plant and machinery between ₹15 crore and ₹25 crore.

Statement-II: All bank loans to the Micro, Small and Medium Enterprises qualify under the Priority Sector.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

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✅ Correct Answer: (d) Neither 1 nor 2

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🧠 Explanation

Statement-I is incorrect.
The MSME definition was revised with effect from 1 July 2020 through a Gazette notification.
As per the revised criteria:

• Medium Enterprise:
  • Investment in plant and machinery or equipment ≤ ₹50 crore, and
  • Turnover ≤ ₹250 crore

Hence, the older investment slab of ₹15–25 crore is no longer valid.

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Statement-II is incorrect.
As per the RBI Master Direction on Priority Sector Lending (PSL), September 4, 2020,
only those MSME loans which conform to the prescribed conditions qualify under priority sector lending.

Therefore, not all bank loans to MSMEs automatically fall under PSL.

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🔍 Curiosity Raiser

Why did India shift from only investment-based MSME classification to a combined investment–turnover criterion?

➡️ To prevent artificial splitting of firms, improve scalability, and align MSME policy with formalisation and growth objectives.

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🧘 IAS Monk Whisper

Definitions shape incentives.
When definitions evolve, policies mature.