A parliamentary panel has suggested that micro, small and medium enterprises (MSMEs) should be classified according to their annual turnover and not on the basis of investments in plant and machinery.

“Taking into consideration the views of the majority of stakeholders and the arguments put forth by the MSME ministry, the committee feels that instead of the current classification based on investment in plant and machinery/equipment, the MSMEs could be classified based on their annual turnover,” the parliamentary standing committee on industry said in its report. The report was tabled in the Lok Sabha on Friday.

The ministry has also proposed a similar way to classify MSMEs in the MSMEs Development (Amendment) Bill, 2018.

The report said that with the proposed change in the classification, it is more likely that a large number of enterprises would come under the ministry.

“The committee, therefore, desires that the ministry may make all-out efforts to obtain increased budget allocation for the sector,” it said.

The present classification based on investment in plant and machinery has a number of disadvantages as it prevents MSMEs from becoming competitive in the market. It also inhibits investment to modernise, upscale, improve productivity and technology upgradation because of the rigor of investment threshold, it said.

Taking turnover as a criteria should overcome these shortcomings “as it can be pegged with reliable data available in GST Network”, it added.

According to estimates, MSMEs contribute 6.11 per cent to India’s manufacturing GDP, 24.63 per cent to the GDP from service activities and 33.4 per cent to the manufacturing output.

Loan sanctions

Public sector banks have approved more than 1.12 lakh loan applications of MSMEs totalling Rs 37,412 crore under the ‘59 minutes’ loan scheme launched by the government in November.