July , 2018
Need for amending the definition of MSME
15:43 pm

B.E. Bureau

The MSMED (Amendment) Bill 2018 has been introduced in the monsoon session of the Parliament. The Bill proposes to replace annual turnover of the MSME unit as the basis of definition than the existing one based on investment in plant and machinery (excluding land and building) distinctly for ‘manufacturing’ and ‘service’ MSMEs. The proposed turnover limits of the Micro, Small and Medium Enterprises are: Rs. 5 crore, Rs. 75 crore and Rs. 250 crore respectively. Further, it proposes to abolish the distinction in existing definition between manufacturing and services. What was the need for amending the definition?

Several reasons: First, with continued erosion of value of Rupee the investment threshold which was set in 2006 became impractical and required steep increase. Secondly, many MSME dominated modern sectors such as Pharmaceuticals, Auto-component, Food processing etc demanded a many-fold increase in the investment limit needed to be compliant of the new mandatory and industrial standards. With the definition based on investment they would no longer be in MSMEs.

Thirdly, investment based definition create uneven playing field between old and new MSME as to produce a product today would require several times more investment than the one set-up ten or twenty years ago to produce the same product with similar quantity. Also, it was alleged that many large enterprises under-reported the investment, got CA certificates and partook in the Public Procurement ear-marked for MSEs. The Turn-over based criterion resolves many of the ills of earlier regime. It is transparent, as authorities could always cross check the turnover through platforms such as MCA 21, GSTN etc. Overall, the new definition is a vast improvement over the earlier definition and should help MSMEs to face new challenges in a better frame.

— As told to BE's Kishore Kumar Biswas

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