In an attempt to improve the ease of doing business, the government will soon change the definition of MSMEs. Union Minister Nitin Gadkari while speaking on the sidelines of the Luxury Symposium 2019, said that the government will soon change the definition of MSMEs.
Finance Minister Nirmala Sitharaman, in August had said that the government would consider to switch to a “single definition” of MSMEs.
In February last year, the Union Cabinet had approved amendments to MSMED Act. The amendments were made to change the classifying criteria of MSMEs from ‘investment in plant and machinery’ to ‘annual turnover’.
This change will provide an explicit and single definition to MSMEs. The government will soon bring the changes. Union minister was quoted saying that “We will have one meeting and then finalise it”.
MSMEs are the heart of Indian Economy
MSMEs contribute about 28% of country’s GDP. Contribution includes 45% to manufacturing output and more than 40% to exports. MSMEs employ about 111 million people in India. They have a vast network of about 63.38 million enterprises hence, they contributes significantly in the growth of Indian economy.
Current Method of classification
MSMEs are currently divided into three categories based upon the money invested. For money invested in Manufacturing Enterprise the classifications are as follows:
| MSME Classification | Investment in INR |
| Micro Enterprise Manufacturing | Up to 25 Lac |
| Small Enterprise Manufacturing | 25 Lac – 5 Crores |
| Medium Enterprise Manufacturing | 5 crores – 10 crores |
| Micro Enterprise Service | Up to 10 Lac |
| Small Enterprise Service | 10 Lac – 2 Crores |
| Medium Enterprise Service | 2 Crores – 5 Crores |
Why government wants to change the definition?
The current method of classification of MSMEs based on investments in plant/machinery/equipment does not reflect the current increase in price index of plant and machinery/equipment.
The change of definition will improve the ease of doing business in the country. Further it will ease taxation and allure investment for MSMEs. In addition, they may create more jobs thereby helping the government to achieve the target of 5 crore jobs in 5 year.