The Union authorities’s resolution to revise the classification standards for micro, small, and medium enterprises (MSMEs), efficient April 1, has created unease amongst some consultant our bodies, who argue the revision may have an “antagonistic affect” on micro and small companies.
Introduced by Finance Minister Nirmala Sitharaman in her Price range speech in February, the revision elevated the funding cap for every of the three segments by 2.5 instances and the turnover cap by two instances. In different phrases, some companies that had been beforehand medium-sized at the moment are small enterprises, whereas some small companies at the moment are micro enterprises.
In a letter to the Ministry of MSME on March 12, Laghu Udyog Bharati — a Rashtriya Swayamsevak Sangh (RSS)-affiliated physique for micro and small enterprises — flagged that with the revision, erstwhile medium companies will “nook” advantages meant for smaller companies, The Indian Specific has learnt.
In India, micro and small enterprises profit from a 25 per cent public procurement quota and MSMEs total are eligible for precedence sector lending, with a sub-target for micro companies.
“Laghu Udyog Bharati foresee the antagonistic affect of above enhancements on micro and small-scale items who represent about 99.99 per cent of MSMEs whereas handful of medium degree items as they’re lower than 0.01 per cent are anticipated to nook such advantages,” the letter to SCL Das, MSME Secretary, stated. “Therefore, revision of classification of MSMEs at this stage is not going to serve any helpful objective and it’s requested to revive the prevailing standards in the intervening time,” it added.
What’s the revised standards for MSME classification
Previous to April 1, micro enterprises had been outlined as these with investments as much as Rs 1 crore and annual turnover as much as Rs 5 crore. The edge for small enterprises was Rs 10 crore in funding and Rs 50 crore in turnover, whereas for medium enterprises, it was Rs 50 crore in funding and Rs 250 crore in turnover.
In her Price range speech, Sitharaman stated the funding and turnover limits will likely be enhanced to offer MSMEs “the arrogance to develop and generate employment for our youth”.
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“To assist them obtain larger efficiencies of scale, technological upgradation and higher entry to capital, the funding and turnover limits for classification of all MSMEs will likely be enhanced to 2.5 and a couple of instances, respectively,” she had stated.
The latest standards revision previous to the most recent change was made in 2020.
Pandemic impact
In its letter, Laghu Udyog Bharati argued that as a result of Covid-19 pandemic in 2020 and 2021, MSMEs had been adversely impacted and that their restoration can be arduous to evaluate as of now.
“Due to this fact, it will be too early to boost the extent of Funding to 2.5 instances and to double the turnover degree for numerous classes of MSMEs and no tangible advantages could be achieved by merely revising their classification,” the letter stated.
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“Presumably, it will not be attainable for the Govt. to correctly assess the affect of revision of classification of MSMEs undertaken throughout the 12 months 2020. Likely, no profit might be attributed to MSMEs on account of change in classification standards made earlier,” it additionally stated, flagging the absence of recent knowledge on MSMEs for the reason that Nationwide Pattern Survey in 2015-16.
Nevertheless, Anil Bhardwaj, secretary basic of Federation of Indian Micro and Small & Medium Enterprises (FISME), welcomed the enhancement on the grounds that periodic revision of funding and turnover limits is essential, particularly when inflation and geopolitical occasions are elevating uncooked materials prices and, in flip, the turnover of a agency.
The ‘lacking center’ and credit score woes of micro, small enterprises
One more reason cited for the revision is to advertise vertical integration of companies versus horizontal development, which takes a toll on productiveness.
“In India, medium-sized enterprises are only a few. There’s a ‘lacking center’ as a result of companies favor to remain small. One purpose is that the second they get out of the small class, they lose sure advantages. So, as a substitute of vertical development, many increase horizontally — organising a number of Rs 50 crore companies as a substitute of a single Rs 200 crore vertically built-in firm. This raises prices due to extra regulatory necessities, extra space getting used, extra safety guards — assets that don’t add to productiveness,” Bhardwaj stated.
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A 3rd purpose for the revision, in keeping with Bhardwaj, was to considerably increase the funding restrict, which can enable international traders exploring joint ventures in India to speculate bigger quantities whereas nonetheless qualifying as MSMEs to profit from precedence sector lending.
In its letter, Laghu Udyog Bharati highlighted that regardless of MSMEs being eligible for precedence sector lending, of which round 8 per cent is put aside for micro enterprises, most credit score flows in direction of medium enterprises.
“It’s our expertise that banking channels, be it public sector or a non-public Financial institution usually keep away from micro and small items for his or her restricted credit score necessities whereas favor[ring] to cope with greater items in granting loans and different credit score amenities and so forth. as they’ll obtain their goal by financing a restricted variety of shoppers. This reality has been dropped at the data of Ministry of Finance in addition to RBI on various events however with out a lot consequence,” the letter stated.
Laghu Udyog Bharati additionally requested to create a separate division for micro and small enterprises, arguing that “there’s an pressing want to guard such weak part of the society as they’ll’t compete with medium enterprises in any method”.
