MSMEs to be categorized from July according to new standards

Starting in July, more than six crores micro, small and medium-sized companies throughout the country will be listed on the basis of new government-approved guidelines. Under the revised criteria, a company with an expenditure Rs 50 crore and turnover crore Rs 250 would fall into the category of 'medium' business.

In addition, a manufacturing and service unit with Rs 1 crore of investment and Rs 5 turnover crore will be labelled as 'micro', however a unit with Rs 10 investment crore and Rs 50 turnover crore will be categorized as a 'small' enterprise.

A new composite classification formula for units of manufacture and services has also been approved. There will be no difference now between the manufacturing and service industries. Officials at the ministry said the new concept will open the way for MSMEs to improve and expand. In fact, requiring exports to be exempt from turnover counting would enable MSMEs to export more and more without risk of losing the advantages of an MSME network.

"This is estimated to rise significantly the export sector, leading to increased growth and economic behaviour and employment opportunities," an official stated.

Prime Minister Narendra Modi chaired the Cabinet Committee on Economic Affairs (CCEA) on Monday approved upward revision of the concept of micro, small and medium-sized enterprises ( MSMEs).

"The Union Ministry of Micro, Small and Medium Enterprises has authorized a Gazette Notification to set the stage for an upward revision in the country's interpretation and guidelines of micro, small and medium-sized enterprises. The new definition and set of criteria will enter into force from 1 July 2020," as per the official statement.

The current MSME criteria criterion is focused on the MSMED Act, 2006. For manufacturing and service units, it was different. In terms of financial constraints, it was also quite weak.

Following the package revealed on May 13, 2020, some representatives stated that the announced modification is already not in accordance with market and price factors and could, therefore, be further modified.

"Taking these representations into consideration, the Prime Minister decided to further increase the threshold for medium-sized units in order to be reasonable over time and to develop an objective classification system and to facilitate business," said the officials.

MSMEs contribute 29% to the gross domestic product of India and compensate for about half of its exports. Over 11 Crore workers are employed by these units.