Industry chamber PHDCCI on Monday said the definition of micro, small and medium enterprises (MSMEs) on the basis of turnover will help in promoting the ease of doing business as the process of identification and dealings with such entities will become simpler and faster.

In February last year, the Union Cabinet had approved amendments to the law to change the criteria for classifying MSMEs from ‘investment in plant and machinery’ to ‘annual turnover’.

The proposed definition defines a micro enterprise as a unit where the annual turnover does not exceed five crore rupees; a small enterprise as a unit where the annual turnover is more than five crore rupees but does not exceed Rs 75 crore and a medium enterprise as a unit where the annual turnover is more than seventy five crore rupees but does not exceed Rs 250 crore.

The government will soon make changes to the definition of an MSME, Union Minister Nitin Gadkari had said earlier.

Also, Finance Minister Nirmala Sitharaman had in August said the government would consider amending the MSME Act to move towards a single definition.

The update in the definition of MSMEs may allow a single definition for purposes related to taxation, investment, etc. The new definition is likely to be effected through an amendment to the MSME Act and may lead to further improvement in India’s ease of doing business scenario.

PHD Chamber of Commerce and Industry (PHDCCI) President D K Aggarwal said the MSME sector is critical in meeting the national objectives of generating employment, reducing poverty and slowing rural-urban migration.

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Therefore, the proposed definition will help in directing the benefits of economic growth to the intended beneficiaries, he said.

MSMEs are the pillars of economic growth as they contribute around 32 per cent in gross value added, employ around 111 million people (36.2 million in manufacturing, 38.71 million in trade and 36.28 million in other services) with a contribution of more than 48 per cent in total exports of India.

At present, the definition of MSMEs is based on whether these companies produce goods or render services. This definition, based on investment in plant and machinery for manufacturing MSMEs and investment in equipment for service sector MSMEs was introduced in the year 2006 through the Micro, Small and Medium Enterprises Development Act.

Going forward, the new criteria for defining an MSME could promote the ease of doing business as the process of identification and dealings with MSMEs would become simpler and faster. Also, the proposed criteria is in line with the criteria which is internationally applied and understood, said Aggarwal.

“We propose the amendment to be made in the forthcoming session of Parliament, as it will enable more than 90 per cent of registered companies to boost and provide an impetus to the growth of our manufacturing GDP as well as provide employment and slowly make a turn around to see that India once again is back on its growth trajectory of USD 5 trillion economy,” he added. PTI RSN

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