Government booster dose for MSMEs could be turning point for entrepreneurs

The Cabinet has approved a change in the criteria for classification of micro, small, and medium enterprises (MSMEs) from ‘investment in plant and machinery’ to ‘annual turnover’.

The Cabinet, in a meeting chaired by Prime Minister Narendra Modi, has decided to change the criteria for the classification of micro, small, and medium enterprises.

The new classification will focus on the annual turnover of an enterprise and states that units with turnover less than or equal to Rs 5 crore annually will be classified as micro-enterprises. Units with turnover between Rs 5 crore and Rs 75 crore will fall under the ‘small enterprises’ category, and those that have a turnover between Rs 75 crore and Rs 250 crore will be referred to as medium enterprises.

Section 7 of the Micro, Small & Medium Enterprises Development (MSMED) Act 2006 classifies MSMEs on the basis of their investment in plant and machinery for manufacturing units, and investment in equipment for service enterprises.

YourStory spoke to a few MSME founders for their views on the new move, and this is what they had to say:

"This government has taken the right steps to promote small industry and with reforms like GST and support to SMEs, the country's GDP is only going to increase because of the growth in SME wealth," says K K Shetty, founder of Citadel Intelligent Systems, a manufacturing company with revenue of Rs 6 crore.

Others believe the announcement is good, but the fine print will need to be watched.

Wassup Laundry's founder Balachander R says, "It's a great move because it has raised the bar for the MSME sector. I only hope small companies now get the benefits such as availability of working capital finance, export support, legal rights to execute contracts, and access to markets. This is the step in the right direction."

"This week, the government released plans to create an SME index and a startup index. With the new classification, there is going to be good growth, and hopefully, the government will define a path to the incentives and sops that the industry deserves," says Jayaram Raju, co-founder of Lobb, a logistics tech company that works with over 10,000 truckers and 200 brands.

With this new move, the government aims to encourage ease of doing business for micro-enterprises, make the norms of classification growth-oriented for small enterprises, and align classification norms to the new tax regime revolving around GST for medium enterprises.

The Section 7 of the MSMED Act, will be amended accordingly to define units producing goods and rendering services.