An upward revision
The Cabinet Committee on Economic Affairs (CCEA) led by PM Narendra Modi cleared the upward revision of definition of micro, small and medium enterprises (MSMEs).
The new definition and criterion will come into effect from 1 July, 2020,” the official statement said.
’Medium’ enterprise category
More than 6 crore micro, small and medium enterprises (MSMEs) across the country will be classified on the basis of the new criteria approved by the government.
According to the revised criteria, a unit with Rs 50 crore of investment and Rs 250 crore of turnover will fall under the ‘medium‘ enterprise category. The existing criterion of definition of MSMEs is based on the MSMED Act, 2006.
’Micro’ and ‘small’ enterprise category
A manufacturing and services unit with Rs 1 crore of investment and Rs 5 crore of turnover will be classified as ‘micro‘ unit. And a unit involving Rs 10 crore of investment and Rs 50 crore of turnover will be categorised as a ‘small‘ enterprise.
How is it different from previous classification
A new composite formula of classification for manufacturing and services units has been laid out. With the new classification, there will be no difference between the manufacturing and service sectors.
Previously, it was different for manufacturing and services units. It was also very low in terms of financial limits.
There were several representations saying that the announced revision is still not in line with market and price conditions and hence it should be further revised upwardly.
Ministry notified that the new definition will pave way for strengthening and growth of MSMEs. Particularly, the provision of excluding the exports from counting of overall turnover will encourage the MSMEs to export more and more without fearing to lose the benefits of a MSME unit.
“This is expected to exponentially add to exports from the country leading to more growth and economic activity and creation of jobs,” an official statement said.
Significance of MSMEs on Indian economy
MSMEs contribute nearly 30% of GDP and comprise almost half of its exports. These units employ over 11 crore workers.
The Prime Minister has decided to further increase the limit for medium Units. This has been done in order to establish an objective system of classification and to provide ease of doing business.