PHD Chamber pushes for new MSME definition on basis of turnover
The proposed definition classifies enterprises under the following: micro unit - less than Rs 5 crore annual turnover, small enterprise - between Rs 5 crore and Rs 75 crore, medium enterprise - between Rs 75 crore and Rs 250 crore.
Industry, trade and entrepreneurship promotion body PHD Chamber of Commerce & Industry (PHDCCI) has urged the government to redefine Micro, Small and Medium enterprises (MSMEs) on the basis of turnover in order to boost growth, say media reports.
The proposed definition classifies a micro enterprise as a unit whose annual turnover is less than Rs 5 crore, a small enterprise as a unit whose annual turnover is between Rs 5 crore and Rs 75 crore, and a medium enterprise as a unit whose annual turnover is between Rs 75 crore and Rs 250 crore.
DK Aggarwal, President, PHD Chamber of Commerce and Industry, was quoted saying:
'The proposed definition will help in directing the benefits of economic growth to the intended beneficiaries."
The existing definition of MSMEs classified enterprises basis their sector and investments made in plant and machinery and was introduced in 2006 through the Micro, Small and Medium Enterprises Development Act.
In February last year, the Union Cabinet had approved amendments to the law to change the criteria for classifying MSMEs from 'investment in plant and machinery' to 'annual turnover'.
The update in the definition of MSMEs may allow a single definition for purposes related to taxation, investment, etc. The new definition is likely to be effected through an amendment to the MSME Act and may lead to further improvement in India's ease of doing business scenario.
However, industry and trade bodies have been voicing concerns about the new definition.
In November 2019, Indian Industries Association (IIA) said it does not favour the new definition after holding talks with its 8000+ strong MSME member community. The IIA said the new definition will not benefit MSMEs, and added:
"The existing criteria of investment in plant and machinery for defining MSMEs in manufacturing and service Sector is still relevant. However, the existing investment limits may be doubled because this limit was decided in 2006 and in the past 13 years, the price index has escalated significantly."
KNN India reported Laghu Udyog Bharati State President, S Surulivel, saying, "If the Government makes changes in the definition, several micro or medium-scale units can be classified as a small-scale units and larger industries will come under the medium category. This will lead to higher competition for micro and small-scale units. Therefore, benefits extended by the Government will benefit the larger and medium-scale units rather than the micro and small-scale ones."
Karnataka Small Scale Industries Association (KASSIA) last year had also voiced its concern about the new definition. Basavraj S Javali, President, KASSIA echoed Surulivel's thoughts when he said, "The new definition will bring a large number of firms within the definition of SME. This is a serious worry because the definition will likely crowd out a large number of small units from the benefits targeted at them as there will be a higher demand for such benefits from a greater number of businesses."
Despite IIA's, LUB's and KASSIA's stance, the new definition is likely to become a reality. Union MSME Minister Nitin Gadkari in October 2019 had said the government will soon make changes to the definition. He had said:
"We will have one meeting and then finalise the changes to the MSME definition. Extensive changes will be made soon."