Why in news?
The Centre has tabled the MSME Development (Amendment) Bill 2018 in Parliament.
What are the key provisions?
- The Bill amends the Micro, Small and Medium Enterprises Development Act, 2006.
- Under the Act, manufacturing units are defined depending on their investments in plant and machinery as:
- micro enterprises (below Rs.25 lakh)
- small enterprises (Rs.25 lakh to Rs.5 crore)
- medium enterprises (Rs.5 crore to Rs.10 crore)
- The thresholds were lower for services units.
- Under the Bill, all MSMEs will be classified on the basis of their annual turnover.
- This is irrespective of whether they are manufacturing or service-providing enterprises.
- Now, the units will be
- ‘micro’ enterprises if their annual sales turnover is less than Rs.5 crore
- ‘small’ if they fall in the Rs.5-75 crore range
- ‘medium’ if they are in the Rs.75-250 crore band
- The central government may change these annual turnover limits through a notification.
- The maximum turnover may be up to three times the limits specified in the Bill.
What are the benefits?
- Starters - MSMEs are offered a range of incentives and tax benefits, to promote them.
- Under the current definition, the newer units often face disadvantages.
- As, their higher investments, as part of the industrial modernisation efforts, keeps them out of MSME definition.
- Hence, the turnover criterion is a more pragmatic way to incentivise industry.
- It facilitates fairer comparisons between older and newer ventures and helps starters in utilising MSME sops.
- Sectors - Turnover-based sops may be friendlier to technology-intensive sectors.
- These include engineering, auto components or pharmaceuticals.
- Substantial capital investments are needed to ensure even minimal scale in these.
- Here again, turnover, instead of investment criterion, would be more beneficious.
- Procedure - The annual turnover criteria can be directly verified from the GST Network.
- It thus puts an end to physical inspections necessitated by the investment-based regime.
- Efficiency - Turnover criteria will allow a unit to graduate from its MSME status on reaching a fair size.
- It will discourage the proliferation of inefficient units created mainly with an eye to utilise sops.
- The Centre should consider a sunset clause on MSME benefits to encourage small units to climb up the value chain.
Source: PRSIndia, BusinessLine
