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GOVT FAST-TRACKS NEW DEFINITION OF MSMES

Why in news?

The government is fast-tracking the move to amend the definition of micro, small and medium enterprises (MSMEs) to allow these entities to grow in size.

This plan to redefine MSMEs has been on the works for months and is likely a part of the stimulus package that will be announced in the near future.

Background on the proposal to change the definition of MSMEs

  • There are around 6.3 crore MSME units in the country, with over 99% categorised as small units.
  • The current definition is linked to investment in plant and machinery.
  • The government has been pushing for turnover-based classification.
  • The Citicisms against the move to define MSMEs based on Turnover is that, it will not be in the interest of manufacturers but will benefit assemblers.
  • This move was announced as part of a series of stimulus packages announced by her in the wake of slowdown.
  • The Government wants to make this move because MSMEs may get hobbled by the definition that was put in place in 2006, when they try to scale up to take on competition from larger and foreign players.

New Definition of MSMEs

Definition of MSMEs to Change. New Definition of MSMEs
  • Any unit with a turnover of up to Rs 5 crore was to be classified as a micro enterprise.
  • Those with up to Rs 75 crore annual revenue will be in the small unit category.
  • Entities with turnover of up to Rs 250 crore will be classified as medium-sized enterprises.
  • Until the 2006 law was enacted, there was only one category of manufacturing that was classified as small scale enterprise, eligible for several benefits, including on payment of excise.

Current Definition of Micro, Small and Medium Enterprises:

Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:

  • A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh;
  • A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore;
  • A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs. 5 crore but does not exceed Rs.10 crore.

What are MSMEs?

  • MSME stands for Micro, Small, and Medium Enterprises.
  • The Micro- Small and Medium Enterprises (MSMEs) are small sized entities, defined in terms of their size of investment.

In accordance with the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, the enterprises are classified into two divisions.

1. Manufacturing Enterprises

The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.

2Service Enterprises

The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

-Source: Times of India

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September 2022
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