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New rules and standards for small industries

New Standards for small business

small industries

The government has made some significant changes in the definition of Micro, Small and Medium Enterprises (MSME). When the new definition is implemented, about 99 per cent of the registered companies and about 70 per cent of the listed companies will come under MSME. In this way, all these companies will get the benefits and facilities announced by the government for the MSME sector. 

After the change, the scope of the MSME sector will be much larger. Companies under the old definition have been contributing about 25 per cent of the country's gross domestic product (GDP). These units have contributed nearly 45 per cent to the country's total exports. The number of people employed in the MSME sector is around 12 crore. But after the change in definition, the share and figures of the MSME sector will increase even more. The magnitude of the impact of the changes cannot be over-estimated. What are these changes like? At the concept level, separate criteria for both service and manufacturing units have been scrapped. This is a big change. An even bigger conceptual change is that both turnover and level of investment in plants and machinery will now be the benchmark for manufacturing and service units.

Earlier, investment in plant and machinery was the only measure to decide whether an entity came under MSME coverage. The thinking behind this was that the amount of investment required in a service unit would be less than the investment required in the manufacturing unit. In this way, different criteria were set for both manufacturing and service units.

The investment limits for micro-units in the manufacturing and service sectors were fixed at Rs 25 lakh and Rs 10 lakh, respectively. The investment limit for small enterprises was kept at Rs 5 crore for manufacturing unit and Rs 2 crore for the service unit. The investment limit for medium-sized enterprises was Rs 10 crore for manufacturing unit and Rs 5 crore for the service unit. Finance Minister Nirmala Sitharaman announced on 13 May the new criteria for MSME assessment in which the investment limit for micro-units has been increased to 300 per cent, for small and medium units to 200 per cent, and a new condition of turnover has been added. . Thus, the new definition is as follows: Investment of Rs 1 crore and turnover of Rs 5 crore for micro-units, investment of Rs 10 crore and turnover of Rs 50 crore for small enterprises and manufacturing in both manufacturing and service sectors. For medium enterprises operating in both the services and services, a condition of investment of Rs 20 crore and a turnover of Rs 100 crore has been laid. Last June 1, the condition for medium enterprises was relaxed, investing Rs 50 crore and turnover of Rs 250 crore. However, despite such a huge increase in the limit, the size of India's MSMEs will not be close to the MSME units contributing to the prosperity of Germany or South Korea. The turnover limit of micro, small and medium units in Germany or EU is between Rs 17 crore and Rs 427 crore. While there are separate slabs for such units in South Korea, the investment limits of all of them are much higher even after the changes made in India. Their investment range is between Rs 300 crore to Rs 1,130 crore.

In such a situation, the dream of the Indian MSME sector being able to match the small and medium units of Germany or South Korea does not seem to be fulfilled right now. The size difference has decreased but still, it is much more. But the changes in investment and turnover limits should help India's MSME sector to tap new opportunities and take advantage of the facilities offered by the government. The government has announced several concessions for the MSME sector in the order of the relief package announced to deal with the Kovid epidemic.

The government has given a kind of security cover to MSMEs in the process of government procurement. It has now been decided that there will be no need to issue global tenders for government procurement contracts of less than Rs 200 crore. In other words, India's MSMEs will not face competition from global companies for government contracts worth less than Rs 200 crore. But with such a ban, the government will not get the benefit of global competition in ensuring better quality at a lower price. But it would seem that raising the investment and turnover limits for medium units to Rs 50 crore and Rs 250 crore respectively is not a complete boon for the MSME sector in India.

The relatively small entities involved in medium enterprises will now face competition from large companies that have been granted MSME status under the new definition. Therefore, there is a need to make immediate policy reforms at the domestic level to make relatively small companies competitive and strong. This will also improve their ease of doing business. The arrival of big fish in a pond cannot be considered good news for small fish. The decades-old fishery justice doctrine in India's MSME sector will soon begin to swallow relatively small-medium units. In such a situation, micro and small units may appear to demand more relief from the government if they feel threatened by their larger units.

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