Union Cabinet has approved the revised new definition of the MSME. The MSMEs have been redefined on the basis of investment limit and turnover size. Earlier only investment in plant and machinery was considered for defining MSMEs. How this change in definition criteria going to help MSMEs grow in India?
Most likely the new definition is an organization issue that would help the Cabinet give the necessary consideration and efforts to the respective SMEs.
India's micro, small and medium enterprises (MSMEs) sector has been at the centre of attention for a long time now. There are more than 63 million MSMEs, which employ around 110 people and form a key pillar of the Indian economy. However, 99% of the companies remain micro in their life cycle. This sector is plagued with low productivity, lack of efficiency and limited means, which lead to poor competitiveness in the global sphere.
The actual problem faced by MSMEs in India is that they lacked in quality, consistency, efficiency, standardisation, pricing and gaining access to new technology; which will not change with the change in definition i believe.
Milan B. Vemić Thanks so much Milan for your detailed & valuable contribution to the discussion. Yes it is worth noting that there are many criteria (as highlighted by Milan B. Vemić) besides Capital investment in plant & machinery (as it was the only criterion to decide whether an enterprise is MSME or not earlier); now one more criterion i.e. turnover size to define MSME in India. It seems inclusion of turnover in the definition will help the government selectively plan assistance program for the needy MSMEs.
The new definition would certainly be help in inclusion of those small businesses which were earlier not being referred as MSMEs as we all know the contribution of MSMEs in GDP accounts for nearly 30 percent. MSMEs also provide employment nearly to 100 million people. MSMEs share in exports is nearly 50 percent. There are nearly 2.5 crore registered MSMEs in india. So this revised definition for MSMEs would not only enhance the contribution of MSMEs in GDP but also provide employment to youth of this country which would help in realising India's goal of achieving $5 trillion economy. The union budget of 2021 has doubled the share of funds for MSMEs which highlights the need and attention of government on importance of MSMEs. The inclusion of retailer's and wholesalers under the umbrella of MSMEs would contribute in the share of MSMEs in GDP. As MSME sector was already suffering due to liquidity crunch and fund deficit and to worsen the conditions this Covid-19 clipped the wings of MSME sector. To support the MSME sector from the repercussions of Covid-19 the government announced several relief measures. So in order to cater this relief measures to most of the MSMEs the definition of MSMEs have been changed.
Revised Classification applicable w.e.f 1st July 2020Composite Criteria: Investment in Plant & Machinery/equipment and Annual TurnoverClassificationMicroSmallMediumManufacturing Enterprises and Enterprises rendering ServicesInvestment in Plant and Machinery or Equipment: Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 croreInvestment in Plant and Machinery or Equipment: Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 croreInvestment in Plant and Machinery or Equipment: Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore
Revised Classification applicable w.e.f 1st July 2020Composite Criteria: Investment in Plant & Machinery/equipment and Annual TurnoverClassificationMicroSmallMediumManufacturing Enterprises and Enterprises rendering ServicesInvestment in Plant and Machinery or Equipment: Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 croreInvestment in Plant and Machinery or Equipment: Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 croreInvestment in Plant and Machinery or Equipment: Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore
Revised Classification applicable w.e.f 1st July 2020Composite Criteria: Investment in Plant & Machinery/equipment and Annual TurnoverClassificationMicroSmallMediumManufacturing Enterprises and Enterprises rendering ServicesInvestment in Plant and Machinery or Equipment: Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 croreInvestment in Plant and Machinery or Equipment: Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 croreInvestment in Plant and Machinery or Equipment: Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore
Dr Bhadrappa Haralayya Everyone of us is aware of the definition criteria but How this change in definition criteria going to help MSMEs grow in India? It would be great If you throw some light on the same.
Emmanuel V Murray Can you please substantiate your point, how merely changing the definition criteria will not make any difference on the state of MSMEs in India?
I come from a country - Malta in the middle of the Mediterranean Sea - which is very small and whose economy is very much dependent on the fortunes of a (for our size and population) large number of SMEs.
Inevitably these SMEs are given great importance by policymakers, and indeed they constitute a large percentage of:
- Our totally gainfully occupied (some 80% of it), and
- Our GDP (some 65% of it).
These are indicators which of course reflect themselves into what generally national economic and financial policies and decisions are pursued. The system works, but that does not mean that the models followed by small countries such as Malta in the pursuit of overall national economic progress, can be automatically and everywhere followed for the interests of SMEs in big countries, such as, say, India. One main reason for this inevitably diverse approach is that in big countries policies towards SMEs cannot be absolutely homogeneous right across that country. A big country like India, with several states, and several diverse regions, will necessarily have to draft fiscal, assistance, developmental policies which will perforce vary from one part of the country to another. This is where local authorities, local councils, local trade representative bodies will have to be listened to carefully and due attentive consideration given to their representations.
Conversely, different regional assistance will also of course have to vary according to the various levels of regional progress and/or inherently permanently present problems or periodical events (droughts, storms, natural catastrophes, etc, etc). Local political issues will also have to be considered by central governments.
Within the totality of the above contexts it should become obvious that thinking of having one single definition of what is an SME for right across a big country is a very delicate approach to be adopted. For example, not all SMEs across a country may be needing the same type of assistance. Not all of them across the whole of a big country may be going through the same type of good, or bad, times. Not all of them may in fact be needing the same types and quantums of help. The differences will in fact vary bvery strongly from one part of a big country to another, and from one economic type of activity (agriculture, industry, tourism, etc, etc) to another.
To conclude, I am never happy with a one-type-fits-all policy approach in a big country for all its SMEs. I would much rather have a bottom-up approach where it would be the regional organised SME representative bodies would push up for consideration and help their own particular situations and needs.
Dr. John Consiglio
Faculty of Economics, Management, and Accountancy,
The University of Malta
J.A. Consiglio Thanks so much for your detailed answer to the question of defining SMEs and its ramification on the development of SMEs. I am happy to learn from your discussion that SMEs in Malta is playing leading role and contributing almost 65% of GDP.
I am also inclined to your suggestion that we should follow bottom-up approach where SME representative bodies at regional level would push up for consideration and help of SMEs in that particular region.
Along with the investment, annual turnover is also an important factors which determine the size of the business. In SMEs and MSMEs definition turnover is an important components which attracts business organisation to improve the annual turnover and operate effectively and efficiently as well.
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