Days after announcing a new set of criteria to define micro, small and medium enterprises (MSMEs) on which various official benefits will be extended, the government is considering a proposal to widen the definition again — a crucial move that will potentially benefit several thousands of firms. Days after announcing a new set of criteria to define micro, small and medium enterprises (MSMEs) on which various official benefits will be extended, the government is considering a proposal to widen the definition again — a crucial move that will potentially benefit several thousands of firms.
MSME and transport minister Nitin Gadkari told FE his ministry is floating a proposal to raise the annual turnover limit for a medium enterprise to Rs 250 crore from Rs 100 crore. Similarly, the investment limit to qualify as a medium enterprise could be raised to Rs 50 crore from Rs 20 crore announced earlier this month. This proposal is subject to clearance by the finance ministry, he added. The Rs 250-crore turnover limit may also exclude export realization of an entity. “The move is aimed at giving benefits to many such businesses. It is going to transform the MSME sector. It will also enable them to make more investments,” Gadkari told FE in an interview. There were about 6.34 crore MSMEs in India, of which 6.3 crore are micro-units, while 3.31 lakh were small businesses and 5,000 medium enterprises, according to the NSS survey during 2015-16.
The MSME status brings businesses certain assorted benefits — including the mandatory 25% official procurement and loans under the priority sector lending scheme — apart from periodic government and regulatory relief. For instance, subject to the conditions, they will be eligible for the recent package, including additional, collateral-free working capital loan (up to 20%) with a cap of Rs 3 lakh crore (with official guarantee), subordinated debt of Rs 20,000 crore and Rs 50,000-crore fund of funds to bolster the equity base of MSMEs that have growth potential and need some handholding. Just the collateral-free loan move is expected to help 45 lakh units, the government has said. Also, promoters of MSMEs who are not willful defaulters can bid for their stressed assets under the insolvency law, while those of large companies can’t.
There will also be a special insolvency framework for MSMEs. Central public-sector enterprises procured products worth as much as Rs 33,264 crore from 42,458 small and medium businesses in FY19. This was 30% of their procurement in FY19, according to the MSME ministry data. Announcing the details of the Rs 21-lakh-crore relief package, finance minister Nirmala Sitharaman had announced that the definition of MSMEs would be tweaked on the basis of both investment and turnover, and not just investment, as had been the practice.
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