MSMEs to now be defined according to turnover

A bill specifying the turnover of a business entity which would classify it as a micro, small or medium enterprise, was introduced by the government in the Lok Sabha on Monday.

The new bill will clamp down in those claiming various government benefits available to the small and micro industries by manipulating their investments.

MSMEs used to be classified from investment, with a lower limit in case of the service industry, for enjoying various government concessions. A Bill introduced in the Lok Sabha on Monday, however, removes the investment criteria and instead brings in the annual turnover criteria and removes difference between manufacturing and service industries.

It will mean an enterprise with the turnover as high as Rs 250 crore will be entitled for benefits as the medium enterprises while the small industries will be those with the turnover of Rs 75 crore and the micro enterprise whose turnover is Rs 5 crore.

Biju Janata Dal (BJD) group leader Bhruthari Mehtab objected to the switchover to the new criteria that defeats the very purpose of providing relief to the micro, small and medium enterprises, but Speaker Sumitra Mahajan refused objections at the introduction stage and allowed introduction of the Bill by Union Minister Giriraj Singh.

When the Act was enacted in 2006 to promote the tiny and small enterprises, the investment criteria was Rs 5 lakh in case of the micro enterprises, Rs 5 crore for the small enterprises and Rs 10 crore for medium enterprises. The micro enterprise limit in case of the manufacturing enterprises was later raised to Rs 25 lakh while maintaining Rs 10 lakh, Rs 2 crore and Rs 5 crore respectively for the three types of service enterprises.

The statement of objects and reasons appended by the minister claims unscrupulous persons used to manipulate to get benefits associated with the micro and small category since criteria of investment in plant and machinery or equipment "entails physical verification having associated transaction costs.

It says the government opted to switchover to the annual turnover as the criteria for classification since that can be easily verified from the information available with the GST network to determine the category of the enterprises. It claims the new criteria will put in place a non-discretionary, transparent and objective classification system.