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Focus: GS-III Indian Economy

Why in news?

Implementation of the revised definition and criteria of MSMEs in the country will come into effect from 1st July, 2020.

Background to the Revision of Definition

  • The existing criterion of definition of MSMEs is based on the MSMED Act, 2006.
  • It was different for manufacturing and services units.
  • It was also very low in terms of financial limits.
  • Since then, the economy has undergone significant changes.
  • After 14 years since the MSME Development Act came into existence in 2006, a revision in MSME definition was announced in the Atmnirbhar Bharat package on 13th May, 2020.

Revised Definition (Latest, as of 3rd June 2020)

  • As per the revised definition, any firm with investment up to Rs 1 crore and turnover under Rs 5 crore will be classified as “micro”.
  • A company with investment up to Rs 10 crore and turnover up to Rs 50 crore will be classified as “small”.
  • A firm with investment up to Rs 50 crore and turnover under Rs 250 crore will be classified as “medium”.

Why was the change necessary?

  • 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.
  • 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.

Benefit of the Revised definition

  • Ministry officials said that the new definition will pave way for strengthening and growth of the MSMEs.
  • Particularly, the provision of excluding the exports from counting of turnover will encourage the MSMEs to export more and more without fearing to lose the benefits of a MSME unit.
  • This is expected to exponentially add to exports from the country leading to more growth and economic activity and creation of jobs.
July 2024