MSME investment bar raised
The Centre on Wednesday raised the investment threshold across all the three categories of MSMEs, introduced a turnover criterion and removed the distinction between manufacturing and services units.
Finance minister Nirmala Sitharaman, who on Wednesday provided details of Prime Minister Narendra Modi’s stimulus package, also announced that there would be no global tenders for government procurement contracts worth up to Rs 200 crore.
The measures are expected to enable the MSMEs to scale up their operations and encourage the Make in India programme.
Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small & Medium Enterprises, said “this has been long pending and the government had brought a Bill in the last session which did not get through. This would certainly help, but this was not the step the industry had been looking for at this juncture when it is in ICU.”
MSMEs had often been loath to expand as they wanted to avail themselves of the government benefits that come with remaining small in size. The higher investment threshold should now give them the incentive to expand, analysts said.
As per the revised MSME classification, enterprises in both manufacturing and service sector will be defined as “Micro” if they have an investment up to Rs 1 crore and turnover up to Rs 5 crore.
Earlier, manufacturing enterprises was considered as “micro” if they had an investment up to Rs 25 lakh.
A service enterprises was considered as “micro” if it invested up to Rs 10 lakh.
Under the new designation, the manufacturing-services distinction is gone.
Similar changes have been made in the category of “small” and “medium” enterprises. (See chart)
“The most important announcement with long-term implications is the quantum jump in definition of MSME, which had not been changed since the MSME Development Act of 2006 and was long awaited,” said Chandrajit Banerjee, director general, CII.
“Along with the decision to not have global tenders for government procurement up to Rs 200 crore, the redefinition will assist MSMEs to grow and emerge as a vibrant and dynamic sector, contributing to self-reliance and employment in a big way,” Banerjee said.
Biswajit Dhar, trade economist of the Jawaharlal Nehru University, said the government procurement from the MSME sector would not attract any kind of action from other countries as the Indian government is “not a signatory to the WTO agreement on public procurement”.
Meghna Suryakumar, founder and CEO, Crediwatch, said “the government's e-procurement sites have typically been flooded by large foreign players who bring unfair advantage in terms of pricing and size”.
“MSMEs working as ancillary units in areas such as automobiles lose the bidding on smaller deals. The move should improve the competitiveness of Indian MSMEs on government contracts. It should also see an increase in registration by MSMEs and mid-market businesses on such platforms,” she said.
Disallowing global tenders will give an impetus to the domestic MSMEs sector in line with the objective of Make in India campaign, analysts said.