The government has paved the way for micro, small & medium enterprises to attract foreign investment within the current sectoral limits. The Centre issued a fresh Press Note 6 on Friday to the effect, much in step with Prime Minister Manmohan Singh?s promise to double credit flow to such enterprises over the next five years, A Press Note 18 issued in 1997 had capped all foreign investment in small-scale industries at 24%. In its first innings, the ruling UPA had cleared the Micro, Small & Medium Enterprises Act of 2006, which expanded the definition of small enterprises, by identifying them on the basis of their capital expenditure (up to Rs 5 crore). But the law was silent on the FDI, so the 24% limit remained by implication.
This meant that a micro unit?the capex of which cannot exceed Rs 25 lakh?could get a meagre $13,000 in FDI, and a small-scale unit with a maximum capex of Rs 5 crore could gather just about $0.4 million in FDI. Such token investments received little interest from foreign investors, and this left India?s MSEs starved of capital and knowhow.
?The present policy on FDI in MSEs permits FDI subject only to the sectoral equity caps, entry routes and other relevant regulations,? the Press Note 6 issued by Department of Industrial Policy and Promotion (DIPP) clarified.
?The MSEs will be able to attract more investments from large corporates and foreign investors as the clubbing of FDI rules and the definition is made redundant by the clarification,? said a senior official in the ministry of micro, small and medium enterprises.
This is the second big-ticket reform for India?s small scale sector under the UPA?in 2007, it had notified changes to the Industrial (Development) Regulation Act of 1951 to allow big domestic or foreign industrial houses to own small enterprises. ?At present, no big industrial house, whether domestic or foreign, can have more than 24% (stake in a small-scale industry.) That is being removed. The idea is that our SSIs must have access to technology and capital,? then industry minister Kamal Nath had said after tabling the notification in Parliament.
Though 21 items like bread, pickles and aluminium utensils are reserved for MSEs, non-MSE units can also produced them as long as they export at least 50% of additional production within three years.
Press Note 6 has clarified that foreign investment of more than 24% in such non-MSE units would require prior approval of the Foreign Investment Promotion Board.
According to the MSME Act, in the manufacturing sector, micro units are those where investment in plant & machinery does not exceed Rs 25 lakh, while small enterprises are defined as those investing between Rs 25 lakh and Rs 5 crore. In the services sector, investment in equipment up to Rs 10 lakh will qualify for a micro enterprise and Rs 10 lakh-Rs 2 crore for a small unit.