MSME manufacturers oppose bill that redefines their classification based on turnover

30 November 2019
Udit Kulshrestha / Bloomberg / Getty Images
Udit Kulshrestha / Bloomberg / Getty Images

Anju Bajaj first became an entrepreneur in 1990. She took of a loan of Rs 10 lakh under the Mahila Udyam Nidhi scheme, a government scheme for women entrepreneurs, and invested in land, a building and plant and machinery. She set up her business, PnA Industries, in Bahadurgarh, an industrial area neighbouring Delhi, manufacturing electrical conduits, pipes, fittings and junction boxes. Her initial customers were government agencies such as defence establishments and the Indian Railways, and she slowly expanded to the private sector as her business flourished. PnA industries is classified as a micro enterprise, defined as such based on the amount of money Bajaj has invested in plant and machinery.

Like several other manufacturers, Bajaj is now worried about the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2019, which redefines the criteria for what qualify as micro, small and medium enterprises. Instead of the earlier criterion, based on the amount invested in plant and machinery, the bill proposes to classify MSME’s based on their annual turnover. The bill is listed for introduction, consideration and passage in the current session of Parliament that will end on 13 December. If this bill is passed into law, Bajaj feared she may be unable to continue in the manufacturing business.

The Micro, Small, and Medium Enterprises Act, 2006, currently defines the criteria under which businesses can be classified as MSMEs. The act applies to businesses manufacturing goods or providing services. It defines MSMEs engaged in manufacturing on the basis of their investment in plant and machinery, which are the fixed assets—such as machines and tools—that a firm uses to manufacture goods. According to the act, a micro enterprise is one where the investment does not exceed Rs 25 lakh, a small enterprise is one where the investment is between Rs 25 lakh and Rs 5 crore and a medium enterprise has an investment of between Rs 5 crore to Rs 10 crore.

In the case of a business providing a service, it can qualify as a micro enterprise if it has investment of up to Rs 10 lakh in equipment, as a small enterprise with investment of between Rs 10 lakh and Rs 2 crore and as a medium enterprise with investment ranging from Rs 2 crore to Rs 5 crore.

MSMEs receive a number of benefits such as compulsory government procurement and priority lending from banks. According to the government’s procurement policy, 25 percent of procurement by the central government—which includes ministries, departments and public sector undertakings—must be from micro and small units, with some exceptions for the defence sector. In 2016–17, the contribution by MSMEs in India’s GDP stood at 29 percent.

Tushar Dhara is a reporting fellow with The Caravan. He has previously worked with Bloomberg News, Indian Express and Firstpost and as a mazdoor with the Mazdoor Kisan Shakti Sangathan in Rajasthan.

Keywords: manufacturing business investment trade
COMMENT