Nirmala Sitharaman gives MSMEs enormous headroom to grow bigger with revised definition

Financial Express |
Pranay Bhatia , Partner and Leader
Tax and Regulatory Services
|

13 May 2020

Ease of Doing Business for MSMEs: With the revised definition, combining manufacturing and service MSMEs to enjoy the same benefits, investment less than Rs 1 crore and turnover under Rs 5 crore will be defined as micro-units.

Finance Minister Nirmala Sitharaman on Wednesday revised the MSME definition from investment in plant and machinery or equipment based to a mix of investment and turnover. Manufacturing enterprises investing less than Rs 25 lakh, less than Rs 5 crore, and less than Rs 10 crore in plant and machinery or equipment were till now defined as micro, small and medium enterprises respectively. For services businesses, the investment threshold limit stood at less than Rs 10 lakh, less than Rs 2 crore and less than Rs 5 crore as micro, small and medium enterprises respectively. Now, with the revised definition, combining manufacturing and service MSMEs to enjoy same benefits, investment less than Rs 1 crore and turnover under Rs 5 crore will be defined as micro-units while small businesses will be categorized based on investment less than Rs 10 crore and turnover under Rs 50 crore. Medium enterprises will be defined on the basis of investment under Rs 20 crore and turnover less than Rs 100 crore.

“They (government) should have increased the turnover limit for medium enterprises to at least Rs 250 crore. When we talk about global markets, competitiveness or partnering with global businesses, then Rs 100 crore turnover is too less to win the world market. Similarly for small businesses the turnover limit should have been Rs 75-100 crore while for micro-enterprises, the government should have kept it between Rs 5-10 crore,” Chandrakant Salunkhe, Founder and President, SME Chamber of India.

Nirmala Sitharaman was addressing a press conference to share details for the Rs 20 lakh crore economic package announced by Prime Minister Narendra Modi on Tuesday evening. “Some of the startups which have taken off could also fulfil the proposed definition of MSME and thereby benefit from the liquidity provision by the Central Government,” Pranay Bhatia, Partner and Leader, Tax & Regulatory Services, BDO India told Financial Express Online.

The minister said that the definition is being revised for their benefit as there was a fear that if MSMEs outgrow size, they’ll lose benefits they get. Hence, with increased investment limit, more enterprises can still be defined as MSMEs and will be able to get existing benefits. “The inclusion of turnover will give a realistic measure for banks and financial institutions to assess that entity and lead to cheaper and less cumbersome access to credit,” Atul Pandey, Partner, Khaitan & Co told Financial Express Online. The need for reclassification exercise was “to widen the ambit for more and more players and encourage domestic small scale industry and gear it towards becoming a global behemoth,” he added.

“This is a good start though. The government might look at revising the limit ahead based on how this pans out even as we can expect a lot of changes in the global supply chain in the post Covid scenario. You cannot rule out that. India has a good chance of being competitive,” Kavita Chacko, Senior Economist, CARE Ratings told Financial Express Online.

Source: https://www.financialexpress.com/industry/sme/msme-eodb-finance-minister-nirmala-sitharaman-revised-msme-definition-from-investment-based-to-a-mix-of-investment-and-turnover-based/1957918/