While enumerating the details of the economic package, part of the Aatmanirbhar Bharat Abhiyaan, Finance Minister Nirmala Sitharaman on Wednesday (May 13) announced revisions in the definition of MSME. According to the earlier definition, the MSME Act, 2006 said that MSMEs engaged in manufacturing based on their investment in plant and machinery. So, a micro-unit was one investment of up to Rs 25 lakh, a small enterprise with investment between Rs 25 lakh and Rs 5 crore and a medium one with investment between Rs 5 crore and Rs 10 crore. In case of services, the investment limit was: micro (up to Rs 10 lakh), small (Rs 10 lakh to Rs 2 crore), and medium (Rs 2 crore to Rs 5 crore).
What has changed? After the revision, the investment limit has been revised upwards and an additional criterion of turnover has been introduced. Sitharaman also declared that there will be no difference between manufacturing and service enterprises.
FM said that “earlier, the criteria for manufacturing units and service units were different. Now those distinctions between Manufacturing and Service MSMEs are being removed. They will all be defined similarly.” So now, a micro firm is one with investment up to Rs 1 crore and turnover less than Rs 5 crore, a small firm has investment up to Rs 10 crore and turnover up to Rs 50 crore and medium-firm will be one with an investment of up to Rs 20 crore and turnover under Rs 100 crore.
Does the new definition help MSMEs This change matters for enterprises because there are benefits linked to it. These benefits range from loans under the priority sector lending scheme, a 25 percent share in procurement by government and government-owned companies, promoters being allowed to bid for stressed assets under insolvency law as well as relief from the government and regulators from time to time. There are around 6.3 crore MSME units in the country, with over 99 percent categorized as small units. The old definition that had a lower threshold prevented the companies to grow, thus, translating into losing out on benefits. The new higher limits in investment and turnover may help companies grow.
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