New definition of MSMEs likely to include combination of turnover and investment

Representative image

Minister of Road Transport and  Highways and Ministry of MSME Nitin Gadkari recently announced the government was changing the definition of MSMEs and an order to this effect would be made public soon.

The Union Cabinet had in 2018 approved changes in the basis of classifying micro, small and medium enterprises from 'investment in plant & machinery/equipment' to 'annual turnover'. However, the bill could not pass both the houses after cabinet approval.

Under the new definition, a micro enterprise was defined as a unit where the annual turnover does not exceed Rs 5 crore. A small enterprise would have turnover of more than Rs 5 crore but not exceeding Rs 75 crore. A medium enterprise was defined as a unit where the annual turnover is more than Rs 75 crore but not exceeding Rs 250 crore.

While the previous order has now lapsed, the government is likely to bring in the order through an ordinance. The definition for MSMEs may be changed to a combination of turnover and increase in the investment in plant and machinery.

"The previous proposed definition would allow traders to benefit, without any investment in plant and machinery. However, the government has now reached a middle ground," said Anil Bhardwaj, Secretary General, Federation of Indian Micro, Small and Medium Enterprises (FISME).

However, since registration of MSMEs is not compulsory, there may be scores of MSMEs which have not registered.

"Currently, there are more than 60 lac registered MSMEs. However, the government estimates that there may be more than 6 crore MSMEs in India," says Mukesh Mohan Gupta, President, Chamber of Indian Micro, Small and Medium Enterprises (CIMSME).

With the new order, the government is expected to link the MSMEs with the filing of GST to avail benefits under schemes like the interest subvention scheme.

"The interest subvention scheme is only applicable to GST registered units and firms with Udyod Aadhaar number. GST registration is a more stringent process and has relatively more authenticated  information. Therefore, with the definition requiring turnover, firms would need to register on GST thereby making them eligible for the scheme," says Raman Sobti, Partner and National Leader, KPMG Enterprise,KPMG India.

According to Gupta from CIMSME, currently there is no check on the investment in plant and machinery claimed by an enterprise and is based on self authentication.

Widening the definition of MSMEs is also likely to help more enterprises to avail the benefits of government's schemes such as the interest subvention scheme and the Fund of Funds scheme.