Revised MSME definition not enough, says Manoj Mehta of AIFMP

According to the government, the revision was done in order to be "realistic with time and to establish an objective system of classification and to provide ease of doing business". Ministry officials said that the new definition will pave the way for strengthening and growth of the MSMEs.

However, Manoj Mehta, chairman, export promotion council, AIFMP and past president of BMPA and AIFPM, thinks otherwise. He said, "The revised MSME definition was a long-awaited reform, but it's not enough to address the bloating sector."

In a note shared with PrintWeek, Mehta further elaborated: "MSMEs will now be called micro units if they have investment up to Rs 1 crore and turnover of less than Rs 5 crores. The definition was earlier based on investment criteria of up to Rs 10 lakhs for service sector and Rs 25 lakhs for manufacturing. With this new definition there is no distinction."

According to the revised definition, for an MSME to be defined as a "small" unit, it’s investment limit has been raised from Rs 5 crores to Rs 10 crores with turnover of less than Rs 50 crores. This applies to all MSMEs including service enterprises.

Mehta said the objective behind the move to shift from a definition based on investment in plant and machinery was to incentivise entities to modernise without worrying about losing their MSME status while also easing prices of verification. However, he questioned the feasibility of moving to a definition based solely on turnover, because such a move would benefit traders more than manufacturers.

"It was observed that the value addition done by a trader was not only lesser than that done by a manufacturer but also the margin enjoyed by former were greater since manufacturers would typically have costs such as loans incurred in setting up machinery," said Mehta. "The fear is that adopting a definition solely based on turnover could erode the manufacturing industry."

Although Mehta commended the government's move to formalise and encourage the MSMEs, he said more measures may be required to provide a level playing field for the medium and small businesses.