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MSME capital rules may be revised often

The government plans to revise the capital investment criteria to qualify as micro, small and medium enterprises (MSMEs) on a regular basis to make them more realistic and aligned with changing inflation levels, two officials aware of the proposal said. The revision could happen every three or five years, depending on the view emerging after consultations with stakeholders on the draft MSME policy, the officials said on condition of anonymity.

The Union MSME ministry is planning to include the proposal in the upcoming MSME policy and will send it for cabinet approval once the policy is final. Currently, there is no provision in the Micro Small and Medium Enterprises Development Act, 2006, for revising the investment-based definition of MSMEs at regular intervals. Once the MSMED Act is amended, the Centre will be empowered to change the qualification norms at frequent intervals through notifications.

“This would be a good development as the size and scale of the MSME segment are also growing with the growth in business and opportunities," said an expert from a consulting firm, asking not to be named. “Regular revision of investment-based definition would help MSMEs to grow. The government revised the definition in the pandemic year 2020 after a gap of 14 years since the enactment of the MSMED Act, 2006. This was a long gap for such action. Regular revisions giving weightage to prevailing inflation will make the process realistic," he said.

MSMEs are the second-biggest employers, employing over 110 million people across industries. They were adversely affected by the pandemic outbreak in 2020, and the sector’s recovery is vital to bring about an early recovery of the Indian economy.

In the Atmanirbhar Bharat package announced in June 2020, the government increased the definition of micro-manufacturing and services units to ?1 crore of investment and ?5 crore of revenue. The limit for small units was increased to ?10 crore of investment and ?50 crore of revenue, and the limit for a medium unit was increased to ?50 crore of investment and ?250 crore of revenue. At the time, the government called it another step to improve the ease of doing business, attract investments and create more jobs in the MSME sector.

The Union government is also looking at drafting a model law on the MSME sector for circulation among states in an attempt to bring uniformity in laws pertaining to the sector, as states have varying laws and ordinances to regulate small businesses.

The people cited above said that apart from institutionalizing regular revision of capital investment norms for the MSME segment, the government is also looking to set up a separate group of officials to look into the structures of different industries and suggest appropriate investment bands for each sub-sector. This was also suggested by the Prabhat Kumar panel, which submitted its recommendations to the Centre in 2017.

MSMEs command a 28% share of India’s GDP and 40% of its exports. The sector is fairly diversified, including activities in the agro-based industries and accommodating surplus labour from structural transformation and service centres in the rural hinterland. They also partner and collaborate with domestic and external enterprises to develop manufacturing and multipronged supply chains. MSMEs are widening their domain across sectors, producing a diverse range of products and services to meet the demands of domestic as well as global markets.