ALL YOU NEED TO KNOW ABOUT THE NEW MSME DEFINITION
With the ongoing global pandemic, it is only an eventuality that the series of lockdowns would have had a severe economic impact on the industrial and service sectors. The difficulty in mobility, the loss of business, and the ensuing financial depreciation and panic are normal, however can be significantly overcome. In light of the current situation, the government came up with a plausible remedy to alleviate MSMEs in this situation.
An MSME in full form stands for Micro, Small, and Medium Enterprises. MSMEs form a flourishing sector of the Indian economy. Constituted by nearly 63.4 million units across the geographical sweep of the nation, The contribution of MSMEs is about 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities, inclusive of 33.4% of India's manufacturing output, which makes the MSME sector a large and important chunk of the economic framework of the country. The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), defines and classifies MSMEs into two divisions or classes-
- Manufacturing Enterprises- those businesses that are involved in production or processing of goods and services in any sector or industry.
- Service enterprises- those businesses providing or rendering services, or involved in activities pertaining largely to the tertiary sector.
The Ministry of MSME, which has its headquarters located in New Delhi, is the main body of the government responsible for formulation of guidelines, establishment of procedures, and overseeing the running and upholding of laws and rules pertaining to MSMEs. It is in charge of the governance and accruing of benefits to the MSMEs.
The Old Definition
The definition of an MSME as per the MSMED Act, was previously assigned as per the investment or the capital involved in setting up and running of a particular enterprise. The manufacturing enterprises were defined based on the investment in the plant and machinery required; while the service enterprises are defined in terms of investment in equipment. The amount of investment was used to further classify the enterprises, as follows:
Manufacturing Sector Enterprises-
Micro Enterprises- investment up to Rs. 25 lakhs
Small Enterprises- investment greater than Rs. 25 lakhs but not exceeding Rs. 5 crores
Medium Enterprises- investment greater than Rs. 5 crores but not exceeding Rs. 10 crores
Service Sector Enterprises-
Micro Enterprises- investment up Rs. 10 lakhs
Small Enterprises- investment greater than Rs. 10 lakhs but not exceeding Rs. 2 crores
Medium Enterprises- investment greater than Rs. 2 crores but not exceeding Rs. 5 crores
MSME registration, certificate generation, project, loans to them, benefits, and other schemes were based on the criteria of investment, as an MSME was defined by that parameter.
The New Definition
As of the official revision by the Union Cabinet and the Prime Minister on 1st June, 2020, investments cease to be the main criteria for defining MSMEs. MSMEs will now be characterised by their annual turnover, by an official revision by the centre that took place on 13th May, pursuant to Union Minister Nitin Gadkari’s words on the new definition aimed at bringing about a unified description for details in relation to taxation, investment, and other particulars. An amendment to the Act was intended to implement the change that would improve the course of conducting business in India. The amendment had been approved by the Cabinet, who decided to change the criteria of classification to “annual turnover”.
The Revised MSME classification included the following composite criteria, excluding the distinction between the manufacturing and service sectors, including investment as well as turnover for both manufacturing enterprises as well as service enterprises, as announced by Finance Minister Nirmala Sitharaman:
Micro Enterprises- an investment of less than Rs. 1 crore, and a turnover of less than Rs. 5 crores
Small Enterprises- an investment of less than Rs. 10 crores and a turnover of less than Rs. 50 crores
Medium Enterprises- an investment of less than Rs. 20 crores and turnover of less than Rs. 100 crores
How this can be beneficial for your business
The Honourable Finance Minister stressed on why such a change was crucial. She recognised the fear of losing benefits, caused by the low threshold limit of the older definition of MSMEs, which impeded expansion. She emphasised on how it would aid the MSMEs in growth, add to their benefits, and explained and highlighted the reasons for the new definition. The change was made following the Atma-nirbhar Abhiyaan Economic Package scheme to tide over the economic setback suffered resulting due to the global Coronavirus pandemic.
MSMEs, which have always been a technical boost to the economy, are now being further facilitated by the novelty in the definition. It can be a boon for MSMEs in growing their business and edging towards infinite prosperity.