Business

Covid effect: MSME definition to be widened further, here’s what Centre planning

MSME and Transport Minister Nitin Gadkari told FE that their ministry is proposing to raise the annual turnover limit for a medium enterprise from Rs 100 crore to Rs 250 crore. Days after announcing several new criteria for defining micro, small and medium enterprises (MSMEs) to which various official benefits would be extended, the government is considering a proposal to widen the definition – a Important step that will potentially benefit many thousands of people. Companies.

MSME and Transport Minister Nitin Gadkari told FE that their ministry is proposing to raise the annual turnover limit for a medium enterprise from Rs 100 crore to Rs 250 crore. Similarly, the investment limit to qualify as a medium enterprise can be increased from Rs 20 crore to Rs 50 crore announced earlier this month. He said the proposal was subject to approval by the Finance Ministry. A turnover limit of Rs 250 crore can also exclude export recovery of an entity.

“The move aims to benefit many such businesses. This is going to change the MSME sector. Gadkari told the FA in an interview that it would enable him to invest more.

There were around 6.34 crore MSMEs in India, of which 6.3 million are micro-units, while there were 3.31 lakh small businesses and 5,000 medium enterprises, according to the NSS survey during 2015-16.

The MSME position brings some mixed benefits to businesses – including mandatory 25% official purchases and loans under the Priority Sector Lending Scheme – in addition to periodic government and regulatory relief. For example, subject to conditions, they will be eligible for the recent package, which includes additional, collateral-free working capital loans (up to 20%), amounting to Rs 3 lakh crore (with official guarantee), subordinated debt of Rs. The Rs 20,000-crore and Rs 50,000-crore fund is meant to increase the equity base of MSMEs that have growth potential and require some handholding. The government has said that it is expected to help 45 lakh units only with the help of collateral-free loans.

In addition, the promoters of MSMEs who are not willful defaulters can bid for their stressed assets under the insolvency law, while those of the larger companies cannot. There will also be a special bankruptcy framework for MSMEs.

Central public sector enterprises purchased products worth Rs 33,264 crore from 42,458 small and medium businesses in FY19. This accounted for 30% of their purchases in FY19, according to data from the MSME ministry.
Announcing the details of the Rs 21 lakh crore relief package, Finance Minister Nirmala Sitharaman had announced that the definition of MSME would be given on the basis of both investment and turnover, and not just investment, as was the practice.

According to the definition declared by them, a micro unit is one where the investment does not exceed Rs 1 crore and the annual turnover limit is Rs 5 crore, while a small enterprise is one where the investment is between Rs 5 crore and Rs 10 crore and 50 crore turnover limit. A medium enterprise is one that has an investment of Rs 10 crore to Rs 20 crore and a turnover limit of Rs 100 crore. Even this definition led to a substantial jump in investment limits from earlier definitions.

Enhanced investment limits would enable MSMEs to scale up without worrying about the loss of government benefits if they grew in size, in sync with the idea envisaged in the Economic Survey for FY 1919 that Argued against encouraging “dwarfs”. The center also proposed to eliminate any distinction between manufacturing and services MSMEs.

According to the earlier definition, a micro unit is one where the investment does not exceed Rs 25 lakh, while a small enterprise is one where the investment is between Rs 25 lakh to Rs 5 crore and in a medium between Rs 5 Investment takes place. Crores and 10 crores. In the case of services, a micro enterprise should invest up to Rs 10 lakh in equipment. A small enterprise will have to invest between Rs 10 lakh to Rs 2 crore, while those investing Rs 2 crore to Rs 5 crore will qualify as a medium service enterprise.

In its FY19 annual report, the MSME Ministry stated that these businesses created 11.10 crore jobs in FY 2016. They also made up 29% of GDP.

A policy discrepancy that helped create “dwarfs”, the Economic Survey for FY19 suggested that the government set a sunset clause of less than 10 years for all size-based incentives.

While dwarfs (companies with fewer than 100 workers, despite being over 10 years old) make up more than half of all organized firms in manufacturing, their contribution to employment is just 14% and productivity is only 8%. Conversely, large firms, with more than 100 employees, accounted for 90% of productivity, accounting for three-quarters of such employment and accounting for about 15%.

Back to top button