The Micro, Small and Medium Enterprises(MSME) sector in the country is gaining recognition and is promoted as a growth engine. MSME sector contributes significantly to the growth and development of the economy, and the Government lays importance on this sector. MSMEs have been offered recognition and relaxation in the country. MSMEs contribute significantly towards the growth of GDP in the country, and the Government aims to improve their status in the coming years. It is essential to know the distinctions in MSMEs if you intend to start one or wish to grow your business.
MSMEs have generated employment in the country and have helped improve the GDP of the economy. There are several factors that have led to the growth and development of MSMEs in India, and one of them is the support of the Government. The Government of India has taken distinct steps and offers several incentives to MSMEs for their growth. It has not only helped generate employment but has helped the economy as a whole.
MSMEs are instruments that make inclusive growth, and it touches upon the lives of the marginalized. With the Government making it easy for MSMEs to grow and expand, it has helped many families across the country. The sector has helped empower people to break the cycle of poverty, and it helps people focus on skills and agency.
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Who can be classified as MSME?
The Government of India has defined MSME in Micro, Small and Medium Enterprises Development Act, 2006. The definition has different criteria for manufacturing as well as service units. It defines manufacturing units as those enterprises that are engaged in the manufacture or production and processing or preservation of goods. It outlines a micro-enterprise as an enterprise where investment in plant and machinery is restricted to Rs. 25 lac. Further, a small enterprise is defined as an enterprise where the investment in plant and machinery is more than Rs. 25 lac, but it does not exceed Rs. 5 crore and a medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but not more than Rs. 10 crores.
Units that provide services and whose investment in equipment does not exceed Rs. 10 lac is known as a micro-enterprise; where the investment in equipment is between Rs. 10 lac and Rs. 2 crores is known as a small enterprise and where the investment in equipment is between Rs. 2 crores and Rs. 5 crore is a medium enterprise.
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The proposed definition
In October 2019, the Union Minister Nitin Gadkari stated that there will be a revised definition of micro, small and medium enterprises in the country. The investment will not characterize MSMEs and the change in definition will refine business scenarios in the country. The classification of MSMEs will be based on annual turnover instead of investment in plant and machinery. This will ensure that there is no distinction between the manufacturing and service industries.
The Medium Enterprises Development Bill provides a change in the distinctions of MSMEs in terms of the classification of MSMEs from the existing ones. It is currently based on the investment in plant and machinery or equipment to an annual turnover of the enterprise. According to the new definition, businesses that have revenue up to Rs. 5 crores will be considered to be micro, the ones with revenue between Rs. 5 crores and Rs. 75 crores will be regarded as small and those with revenue above Rs. 75 crore and up to Rs. 250 crores will be considered a medium-sized enterprise.
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Not many are happy with the proposed change in the definition. Individuals believe that globally, there are only two things that define an MSME- turnover and employment. Even if the Government is moving towards that direction, MSME owners want the definition to be refined with a reduction in the revenue slab. The Government is yet to decide on the same. As of now, MSMEs are defined based on the amount of investment made in plants and machinery. MSMEs across the country need to follow the same definition unless there is an approval of the proposed definition devised by the Union Minister.
Also Read: Business Loans For MSMEs — Overview, Features & Benefits, Eligibility, Interest Rates & More
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