Budget 2020: Currently, the definition of Micro, Small and Medium Enterprises (MSMEs) is based on whether MSMEs produce goods or render services.
Union Budget 2020-21: Ahead of the Budget, the PHD Chamber of Commerce and Industry (PHDCCI) has urged the government to amend the definition for classification of MSMEs. A change in this definition on the basis of turnover may put the country back on the growth trajectory of $5 trillion economy. The Chamber said this will be in the interest of the growth and development of MSME sector and the country as a whole. D K Aggarwal, President PHD Chamber, said the MSME sector is critical in meeting the national objectives of generating employment, reducing poverty and slowing rural-urban migration. Therefore, the proposed definition will help in directing the benefits of economic growth to the intended beneficiaries.
Currently, the definition of Micro, Small and Medium Enterprises (MSMEs) is based on whether MSMEs produce goods or render services. This definition, based on investment in Plant and Machinery for manufacturing MSMEs and investment in Equipment for service sector MSMEs was introduced in 2006 through the Micro, Small and Medium Enterprises Development Act
The proposed definition by PHD Chamber defines a micro-enterprise as a unit where the annual turnover does not exceed Rs 5 crore, a small enterprise as a unit where the annual turnover is over Rs 5 crore but not more than Rs 75 crore and a medium enterprise as a unit where the annual turnover over Rs 75 crore but not over Rs 250 crore.
Aggarwal said that MSMEs are the pillars of economic growth as they contribute around 32 per cent in gross value added; employs around 111 million people (36.2 million in manufacturing, 38.71 million in trade and 36.28 million in other services) with a contribution of more than 48% in total exports of India. The PHD Chamber feels that the new criteria for defining an MSME could promote the ease of doing business as the process of identification and dealings with MSMEs would become simpler and faster. Also, the proposed criteria is in line with the criteria which is internationally applied and understood.
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“We propose the amendment to be made in the forthcoming session of Parliament, as it will provide a boost to over 90 per cent of registered companies and provide an impetus to the growth of our manufacturing GDP as well as provide employment and slowly make a turn around to see that India once again is back on its growth trajectory of $5 trillion economy,” said Aggarwal.