In India, Micro Small and Medium Enterprises have their hold and a separate MSME Credit Report base. Everything from its functionality and legal points is placed under the MSME Act 2006. It depends on capital investment as made in the area of machinery and plant. However, this act will always exclude investments as made in building and land. Learning the new definition of MSME in India is really important for those business owners, who are putting their footmarks for the first time and want to grow their businesses well later.
More about the previous MSME definition:
According to the 2006 description made, all the manufacturing units with an investment, right below the mark of 25 lakh rupees or 2.5 mn rupees were termed as Micro. Then those businesses, which are running between the 25 lakh rupees and 5 crore rupees mark will be called as Small. The ones, which are considered Medium, will have a business investment of Rs. 5 crores to Rs. 10 crores.
As per the similar note, the corresponding forms of investment threshold were noted to be around 10 lakh rupees or Rs. 1mm for the Micro businesses. For the ones falling under the small category, it will be 10 lakh rupees to 2 crore rupees. And for the Medium ones, the range will be from 2 crores to 5 crore rupees.
Changes taking place with passing time:
The credit reporting agencies are working closely with the micro, small and medium firms for years now and have seen the changes taking place in the MSME sector. From one time to another, this sector has been raising one demand for amendment or revisions in the field of MSME definition. As per one recent news survey, the Cabinet has approved one draft, which proposes the significant change in the MSME definition. Learning the major highlights of this proposal will ensure that you learn details about the revised MSME count for sure.
- This new definition does away with the present investment criterion as followed. In its place, the new platform wants to define MSME on the basis of the turnover of the annual sale first. To top it all, there will not be any kind of distinction made between the service unit and the manufacturing base.
- As per the proposal made, the micro will be up to 5 crore rupees, small will be up to 75 crore rupees, and medium can hike up to as much as 250 crore rupees.
Current proposal and it’s needs:
Government has agreed to be a part of this new proposal made. To make this proposal active, it will need another amendment in the MSME Act and then get it passed right through the parliament. Now the main question is why this amendment needs to be made. Let’s just know the reasons on why this change was actually mandatory.
- First of all, let’s just say that the definition was frozen right in 2006. After more than a decade, and with the continued erosion of rupee’s current value, the thresholds have turned out to be impractical to a great extent. Trying to adjust with the changing inflation might have asked for this change and an enhancement to the limit by around 2 to 3 times, minimum.
- It is a known fact that this investment based new modified definition helps in creating that uneven field for some of the other enterprises vis a vis some of the newer names in this lot. Trying to work on one unit for producing any item in this modern world might need some investment time, to say the least when compared to the one set-up 10 or 20 years ago. The main concern was to produce a similar item with the same quality. What might have been a micro-unit due to the historical movement figure can become what is called medium or large today if set on time. So, that makes it a massive shield for the newbies in this area, and they want to change it for good.
- On the other hand, you must know that most of the sectors where these micro smaller and medium companies have substantial shares, they have been demanding for the many-fold increase within their present investment limit. It helps in its Credit Information Report improvement in the long run. It must match with the compliant of the new major mandatory and even industrial standards. Those areas are auto-components, pharmaceuticals, food processing and some more. Here, the de-minimis investment is likely to exceed by at least five crores even if the MSME firm has a lower turnover.
- In order to help prove that a unit might fall into a chosen category, MSMEs must run around the world of CAs for certifying the value of machinery and plant. It is always alleged that most of the larger enterprises also thought of under-reporting the investment made, procure their most exceptional CA certificate and took part in the public procurement ear-marked for the current MSEs out there.
So, the change in the definition will surely provide the ultimate MSME Solutions that these firms have been eyeing for, since ages. This change in the age-old definition of MSME proved to be turnover as a basis.
Also Read: Here’s Why MSME Sector Is Lagging Behind
Suitable for the change:
This turnover criterion resolves a lot of ills made by the earlier regime. It is now proven to be transparent as authorizes can cross-check the turnover through GSTN. It can level up the field for old and new enterprises as the comparison won’t be between current and historical investments anymore.
The bad of it:
There is one flip side of this change In MSME definition in India too. Some sectors have lower investment but higher turnover. Most of them were under the Small category because of investment criteria. They used to enjoy benefits under Public Procurement Policy. Now, they will not be able to enjoy the same services.
Overall, this change in MSME definition was indeed a much-awaited one and helped businesses to a great extent. Let’s hope for best results coming out from this changed proposition.